Both businesses have cdmo components in them relevant to the segments they operate in…
See the business presentations of both companies.
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I believe the Information Memorandum of Jubilant Ingrevia hasn’t been shared before. So, following is the link to that.
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It is fascinating to watch how Laxmi Organic is going up after a good listing yesterday and Jubilant Ingrevia is in continuous lower circuits despite the stark valuation gap between the two. It is not just retailers going gaga over Laxmi Organic - two prominent fund houses bought Laxmi Organic in bulk yesterday and looks like few more are lined up today going by the traded volumes. This is after over-subscription of QIB portion by 175 times. May be we are missing something in terms of valuation of Jubilant Ingrevia?
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Laxmi was smart in conveying its intention of foraying into fluro-based chemistry and using the IPO proceeds mainly towards this capex and to reduce debt.
The street probably believes there might be a heavy burden of debt to fund the massive capex by Ingrevia, and given the past history of Lifesciences Division, the concerns are not unfounded.
However, given the confidence shown by the management and the resolve shown to considerably improve its Lifesciences division performance during the recent Ingrevia analyst call, I think it might not be a bad bet to increase one’s holding in gradual stages as and when the management starts delivering.
Not so important, but worth noting that RJ usually always refrains from buying shares during an IPO listing, but seems to have made an exception this time by increasing his stake immediately post listing, even before the management has proved its mettle.
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Some insider buying happening from president and vice president of the company.
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Thanks for starting this very useful thread. I am adding some of my notes which were not covered in the original post.
Manufacturing capacity: 61 plants across 5-sites in 3 states (UP, Maharashtra, Gujarat) with a very diversified customer base (top-10 accounting for 20% sales). Company gets better pricing from smaller customers.
Opportunities
Forey into Diketene chemistry: Indian market size is $150mn (2019); 40% was imported; Laxmi Organics is sole Indian manufacturer with 55% market share; Plans to launch 6 derivates; One of the few global companies capable of handling large volume of ketene; Huge demand coming up for diketene and one of the leading producers has exited
CDMO: Invest in GMP and non-GMP multi-product facilities for pharma and crop protection (will they get higher margins by investing into GMP facilities?)
Agro-active: Moving up value chain from ingredients to producing agro-actives (for pesticides)
Leadership
- Expertise in 35 chemistry platforms (ammoxidation, vapor phase reactions, Grignard, ketene handling, photochlorination, chichibabin, etc.)
- Pyridine chemistry: Global leader in 11 pyridine derivates; Used to produce beta-picoline which is used to produce Vitamin B3; Uses 45% of volumes captively; More than 50% goes into producing agrochemicals; Lowest cost producer in pyridine beta and value added products; Takes 3-5 years in product approval and facility audit
- Vitamins (branded + commoditized): B3 (Niacin, niacinamide) global market share of 19%; B4 (Choline Chloride) domestic market share of 50%; Commoditized product facing competition from Chinese players who have excess capacity; Backward integrated into key raw material (beta picoline & differentiated technology; air oxidation for manufacture of niacinamide; main brand: ANICHOL); Looking to create brands for animal feeds; Most demand is from animal (80%) and human (16%) nutrition
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Acetyls (low margin, high volume, very high ROCE):
o Acetic anhydride: 71% domestic, 15% international market share; among top-2 globally; current capacity: 145’000 TPA; increase capacity by 35% in 3-years; Used in paracetamol, vitamins, aspirin;
o Ethyl acetate: 33% domestic, 4% international market share; Used as extracting agent in pharma; as industrial solvent in paints, adhesive, and also in flexible packaging; It’s a green solvent
o Bio acetaldehyde: 35% domestic market share; world’s largest manufacturer
o Specialty ethanol: 8% domestic market share; backward integrated using molasses; Leading supplier to oil marketing companies
o Propionic anhydride: Among top-2 global manufacturers
o Key raw material is acetic acid and is largely imported (China has 42% of global capacity); Prices fluctuates a lot
Environmental practices
- Most facilities are zero liquid discharge facilities
- Zero Liquid Discharge Plants, Multi Effect Evaporators, Reverse Osmosis, Water Polishing Plants
- Liquid & Gaseous Waste Incineration facility with online Vent Gas Monitoring
Interesting things to watch out for
Pyridine and beta picoline are produced together. Because of regulatory ban on paraquat, pyridine demand is going down taking prices down with it. As a result, supply of pyridine will also decrease, but demand for beta picoline is going up because there is no impact on vitamin B3 demand. As a result, company expects beta picoline prices to increase. For Jubilant, pyridine demand is mostly captive and not only for paraquat. This should overall be beneficial for jubilant.
Past group track record
- Tried to charge royalty for using brand name “Jubilant”. It was later withdrawn.
- Jubilant life was not able to reduce debt since 2010, ending into issues of too much foreign currency borrowings, hedging problems, etc.
- Has tried leverage buyouts in the past some of which have not played out leading to write-offs (in the pharma business line)
They are not really into enzymes, they produce Vitamin B3 and B4 which is used mostly in animal feeds (and is also commoditized because of excess Chinese capacity).
It seems that their nutrition segment is a mix of brand (higher margins) and commodity, not sure if blended margins are higher than company level margins. Management has mentioned that their highest margin business is that of fine chemicals which comes under specialty chemical business line.
Its not very clear how much of this business comes from innovators (high margin) vs contract manufacturing operations for generics (much lower margin). Also, their pipeline is not very rich (7 in pharma, 4 in agro). For context, PI Industries has a pipeline of 40-45 products in agro CSM on a similar revenue base.
Disclosure: Invested (position size here)
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Thanks for adding the remaining details about the company. Adding a few personal thoughts which may add color to the current scenario.
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The valuations are back to the listing day now and the gap with Laxmi has increased further after Laxmi listing at premium and with the current price of both & the expected EPS earnings.
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I do not expect Laxmi to go down in valuations anytime soon, as it seems in line with other peers in specialty chem sector and if they walk the talk of Fluro chemistry capex & improve the bottom-line going forward.
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Ingrevia has lower market cap than Laxmi with more than double the top line & more than triple EBIDTA compared with Laxmi, so it should revert to atleast mean valuation in future. In how much time, it remains to be seen.
| Ingrevia | Laxmi Org | ||
|---|---|---|---|
| 9M Fy21 EBIDTA is 418 Cr & EPS is INR 13.81 | 6M Fy21 EBIDTA is 85.4 Cr & EPS is INR 2 | ||
| Estimated FY21 EV/EBIDTA based on 9MFY21 EBIDTA | Estimated FY21 PE based on 9M FY21 | Estimated FY21 EV/EBIDTA based on H1 EBIDTA | Estimated FY21 PE based on H1 FY21 |
| 7 | 14 | 29 | 47 |
- Ingrevia demerger brought back memories of the Solara Demerger from Sequent & Strides in June 2018. After listing, Solara, in 43 trading days was at 9 continuous Lower circuits & after few days 16 Upper circuits.
It was nerve wrecking to muster courage and keep adding after those continuous LCs and just enough information about the demerged assets, management background and past financials. In hindsight it paid out worth every penny. Solara is one of my top multibagger holding today, not necessarily just because API sector played out in last year but I was gunning for decent Margin of safety in buying at those lower prices, confidence in the business and promotors with longer term time frame.
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With this demerger, All erstwhile JLS investors would have got Ingrevia shares free of cost and many of them who do not want to hold it anymore are looking to exit which creates imbalance in supply & demand of shares. Also, some degree of information asymmetry in Ingrevia exists as the official past financials are not disclosed yet and they are still to declare any official results post demerger. Potential new investors would want these to be able to invest meaningfully. These factors may keep the valuations subdued, but not for long I believe/hope.
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There was just one compilation of Past financials in the Monarch report which I am sharing for ready reference.
Disc:- Invested through demerger and have been adding every day since listing.
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Thanks for initiating this thread. Lot of useful information there.
Can you please explain this particular part?
All erstwhile JLS investors would have got Ingrevia shares free of cost
How come it’s free of cost?
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Not necessarily, Since they have a huge list of products, many of them would not require to be produced from GMP facilities and since the cost is lower in non GMP facilities, it makes strategic sense to have both and use as required.
Since, Controls, documentation and release criteria’s are different for GMP & non GMP, and having both types of facilities, which essentially utilize the same starting components, sterile consumables and equipment, A GMP technician can be used in both GMP and non-GMP processes leading to better resources utilization and synergies in operations as needed for different products.
Nutrition & health solution segment
Although the Nutrition & health solution segment is small now, I believe this would be able to grow decently as the products they are focusing on looks promising. The branded products will provide higher margins and Plant based proteins are becoming significantly big and fast. I hope they are able to get a pie.
Although, the vitamins are commoditized and fetch lower margins, growth in premixes will lead to better margins.
Also, they seem to be confident in becoming the lowest cost producer
On Debt:-
I agree completely with this reply, given the current situation of low interest rates are here to stay for sometime and the business expansion will fetch much better returns than the cost of funds.
My bad, if I led you to believe that it was free.
Technically it has to be assumed to be 54.46% of the original JLS acquisition price for taxation purposes. But if you look at the price of Pharmova on 5th Feb of 915 Rs & the subsequent reduction till the listing of Ingrevia and considering you choose to hold both. You are getting an excellent Midcap specialty chemicals business without losing much value on the original Pharmova (which is also undervalued) shares making it effectively with negligible cost.
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Rajesh Srivastava: If you look at our last three years, we have not added major capacities except for
that one anhydride plant which we told you was added last year. We have been
heavily focusing on balancing our balance sheet and that is why you see our cash
generation has been good. We have actually come down in our debt to EBITDA
ratio at a comfortable level. Having said that, there have been a couple of market
situations in our major products like Pyridine which you might know that Pyridine is
used in one of the herbicides called Paraquat. Paraquat started getting banned in
various countries two years ago and that actually lead to the demand reduction.
During the time of pyridine demand reduction, we have gone into various value
added products and now we are producing Pyridine as well as Beta together and
they have a strong position in global market to take this business and Niacinamide
to the next level. While other people, who do not produce Beta to that extent
because of this demand reduction will find difficult times, so you will see the time
for Jubilant coming up and going forward both in specialty chemicals and
nutraceuticals.
This according to my understanding gives a clear message that many accounting tricks have been done to make the picture very rosy and the income side isn’t going to be recurrent type.
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From the commentary you have quoted I do not see “a clear message of many accounting tricks”. Care to elaborate/support your allegation with real data/ numbers?
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another quote:
Prakash Bisht: Rajesh let me take that, I think one important point is that the cash flow for FY21 is
for H1 because this has been derived from the publish results so that Rs. 350
Crores that you see is for H1 it is not for nine months that is point number one. Two
is, that now the cash flow that we are generating is capable of meeting this Capex
requirement but as Rajesh said we strive for being debt free but not at the cost of
our growth. We explained you about our balance sheet, it is a very strong balance
sheet, and this debt is not an issue for us so therefore you must see overall growth
and the strength. We have a robust balance sheet so we are not worried 0.9X is
our EBITDA to debt so we are in a comfortable position to grow and invest.
Another quote -
Prakash Bisht: And if I may chip in here Aditya, you would notice in first 9 months despite Acetic
Acid prices remaining suppressed and our revenue not growing, our profitability
has improved significantly.
Rajesh Srivastava: Right because our focus is totally on margins in that situation.
Aditya Khemka: Has there been one of cost saving in FY21, nine months which may not recur
during FY22 because of the lockdown that happened in FY21?
Mr. Khemka was trying to point out some expense cutting measures to maintain the margins which might not be recurring.
Repeated Stress on showcasing a robust balance sheet by the top management should be taken with a pinch of salt according to me.
I do not by any means want to say that the management is not honest.
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I am not sure what accounting tricks can be done in a demerger, it’s a 0-sum game as the assets & earnings will have to be either with Pharmova or Ingrevia. There seems no motive of making the picture rosy as it’s not being done to raise fresh capital for the company. This should be also taken in context of the management’s past record of good corporate governance.
Before demerger JLS was undervalued and having two separate focused business of Specialty chem & Pharma makes it much more undervalued. If you see both the sectors on a whole, they have performed well in the past many quarters which is showing in many companies & not just Ingrevia’s numbers. Both these sectors are poised to do well due to many macro factors going ahead and its up to us to research & decide which companies can do well and invest accordingly.
Since we do not have the official balance sheets yet, we have to take the management’s word for the balance sheet.
Also, If we look at the balance sheets for available for Dec '20 for Pharmova, they have reduced debt in this FY. They provided details in the Pharmova Q3 presentation and major part of the debt is now under Pharmova. It seems they are trying to put emphasis on having a good balance sheet after demerger as there are questions related to the existing debt & the capex plans.
If there are doubts, It would be wiser to follow your gut and wait till these are released and then invest, if satisfied else give it a pass.
Disc: Invested
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Hi, thanks for the update. Can you pls elaborate the concerns that lifescience division had in the past? Thanks.
You can refer to the threads for Jubilant Lifescience/Pharmova on the forum.
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Jubilant Ingrevia Analyst Call Video Link
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Analyst Meet Update by PL.
Top 10 clients only 20% of revenue.
New Capex of 900cr to come on stream during Q3FY22e.
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Valuation is a relative term, As per my research & conviction of this business this will remain undervalued till it reaches certain value (mentioned on the first post) and I can be totally wrong about that but I am willing to risk my capital based on my conviction and research.
You should also do the research and determine if this is valued low or high. Please do not depend on anyone else’s advice for investments.
If you go through this thread, you can get most of the info. about this company and take decision yourself. If you do not understand even after reading through this thread, you should not risk your capital.
With The recent run up in stock prices of Ingrevia & Laxmi Org, the valuation gap continues to be large.
| Ingrevia | Laxmi Org | ||
|---|---|---|---|
| 9M Fy21 EBIDTA is 418 Cr & EPS is INR 13.81 | 6M Fy21 EBIDTA is 85.4 Cr & EPS is INR 2 | ||
| Estimated FY21 EV/EBIDTA based on 9MFY21 EBIDTA | Estimated FY21 PE based on 9M FY21 | Estimated FY21 EV/EBIDTA based on H1 EBIDTA | Estimated FY21 PE based on H1 FY21 |
| 10 | 18 | 31 | 51 |
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