Jubilant Ingrevia - Life Science Ingredients (LSI)

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Here are my notes from their presentation which is again very detailed.

Before we get too excited, its important to consider that the commodity life science chemicals segment accounts for 50% of sales and FY21 saw sharp margin uptick from this division due to higher demand for Ibuprofen/paracetamol leading to jump in acetic anhydride demand.

• CFO: 680 cr. (vs 316 cr. in FY20), Capex: 122 cr. (vs 221 cr. in FY20), FY22 capex estimated to be 300-350 cr.; Net working capital days: 55 (vs 73 days in FY20)
• Gross debt: 548 cr. (vs 1295 cr. in FY20), net debt to EBITDA ~ 0.7x, net d/e ~ 0.22
• ROCE ~ 20.2% (vs 12% in FY20), ROE ~ 16.4%; Asset turns ~ 2x (vs 1.8x in FY20)
• First phase of Diketene derivates in on
• Specialty Chemicals (32% of sales; EBITDA margin of 23.9% vs 21.4% in FY20)
o Demand continued from Agro chemical and Pharma Customers + new CDMO projects
o Paraquat ban in Brazil and Thailand resulted in lower demand of Pyridine, which resulted in lower prices during the quarter
o 45% of pyridine and picoline volumes are consumed in-house for value-added products and for Vitamin B3
o Six new products commercialized in FY21, Chromium and Zinc Picolinates for Health Supplements for US market
• Nutrition & Health Solutions (18% of sales; EBITDA margin of 20.7% vs 17.7% in FY20)
o Better product mix + pricing growth in Niacinamide
o For Vitamin B3 (Niacinamide & Niacin), 100% in-house sourcing of Beta Picoline
o Demand in Animal Nutrition segment got impacted due to COVID-19, especially in Poultry segment
o During the quarter, Animal Nutrition and Health business have achieved higher volumes of Choline and Speciality premixes
• Life Science Chemical (50% of sales; EBITDA margin of 13.6% vs 6.5% in FY20)
o Acetic acid price increases have been passed out to end consumers
o Higher capacity utilization across plants (90%+) driven by high demand in domestic as well as Global market (especially for acetic anhydride and ethyl acetate)
o Higher acetic anhydride demand due to enhanced demand for drugs like Ibuprofen, Paracetamol, Aspirin due to COVID-19 along with higher demand for Agrochemical products due to shift in manufacturing of end products to India
o Commercialized a new product, Propionic Anhydride, which is majorly consumed by Agrochemical industry
o 25% of overall volumes are consumed in-house by Specialty Chemicals segment

Disclosure: Invested (position size here)

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Q4FY21 Earnings Call

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This is the last time I’ll write about environmental regulations in this thread.

There have been structural changes that weaken the National Green Tribunal’s powers and have rendered state PCBs useless. A step forward for growth, a step back as sustainable citizens.

Here’s a new law enacted in March 2021:

Recent changes in the environment clearance process for India’s most polluting industries will allow them to expand their capacity and change their raw materials without seeking the central environment ministry’s approval.

As long as a company has prior environmental clearance, they can renew their clearance with significantly fewer hurdles.

In 2014, the Centre introduced the concept of third-party inspections and self-certification for consent renewal and compliance monitoring. In 2016, the Centre altered the industry categorisation and moved 84 industry types to less severe categories. Subsequently, in 2017, the Centre recommended that green category industries be exempted from inspections altogether and orange category ones be allowed to have audits by ‘third-parties’.

These third party inspections have been accused of falsifying their reports, covering up the extent of pollution, and green category industries self-certify compliance.

It’s sad watching different wings of the government cripple each other, but it looks like the odds are stacked against the NGT. Government inspections lack funding/technical knowledge, the empty boardroom at the MPCB, legal structures and the ability to influence third party inspections favour the Jubilant group. It’s likely that the Nira issue won’t even make it to the news, and they’ll get their clearance if they throw enough money at it. The government’s vocal targets of carbon neutrality / pollution control are just hollow words. Industries win, investors win, the villagers that depend on these resources, and ultimately our children lose.

Thanks @Tar for searching through the annual reports with me, and everyone else for your opinions on the regulatory risks. @sameernics, this answers your earlier question in full. Will only talk about the management, industry and outlook from now on.

Sources:

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Q4FY21 results-Press release.
Business Outlook

  • Demand scenario in all our business segments continue to be strong
     Given the strong demand and new customer acquisition, we believe COVID-19 is not likely to have a material impact on our overall performance, provided the pandemic situation does not materially deteriorate going forward
     Demand for our Speciality Chemicals and Nutrition and Health Solutions Segment continues to be stable. Our new project i.e. first phase of Diketene derivatives is on track
     In our Life Science Chemicals business, Acetic Anhydride market situation continue to be favorable on account of higher demand and lower availability due to restricted production out-put in certain part of the world
     As communicated during investor call in March’21, all our growth plans including new capex investments are on track and our FY’22 capex investment is estimated to be in range of Rs 300-350 Cr
     During last year company has reduced the net debt by Rs.594 Cr. Company continues to focus on debt reduction.

Microsoft Word - Ingrevia Q4’FY21 Press Release 07.06.2021 (jubilantingrevia.com)

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Had a one question did company incorporated crop protection subsidiary for its Stage 3 Insecticide Molecule commercialization ? @sujay85

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@Flashreus11,

  • Agro subsidiary is mainly for the manufacturing of agro actives as they already have value added agro intermediates and the aim is to capture the complete value chain in the field of pesticides / plant protection chemicals.
  • Multi-purpose plant at Bharuch SEZ will be used for Agro actives and CDMO business. Though specific product or molecule is not mentioned, they are in general witnessing better traction in CDMO business both in pharma and agro chemical segments.
  • Subsidiary route is taken mainly due to the tax advantages. INR 150 to 200 Cr. investment in this subsidiary for the next 2-3 years.

Source: Q4FY21 Earnings call.

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Latest Investor Presentation:

Interestingly enough, they have a slide for Environmental Compliance. I think they heard @Chins :slightly_smiling_face:

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Updated detailed report from Monarch on Ingrevia with key changes/Points to note:

  • Demand side disruption in Acetyls is likely to continue over short term

  • Q3FY22 to see commercialization of Diketene products

  • Ingrevia’s transition to Specialty remains underappreciated with >70% of EBITDA contribution from
    non-commoditised segments

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  • INR 650crs of INR 900crs in new capex is earmarked towards non-commoditised business. Of Which Diketene to be live in Q3FY22 while CDMO is gaining traction amongst agrochemical clients

  • Ramp up of Diketene and CDMO business is faster than anticipated. New capex initiatives into superior segments such as Diketene, CDMO, Pre-mixes to improve its overall margins profile.

  • Six new products have been commercialized in FY21 incl. Chromium and Zinc Picolinates for
    Health Supplements for US market

  • It’s believed that Kodak has exited Diketene market in India and many other geographies which should help Ingrevia to capture higher market share with reduced pricing impact

  • Availability of Beta pacolines, where Ingrevia has one of the largest global capacity, has been
    a key bottleneck for many global suppliers.

  • There has been a lot of consolidation in global Life Science players with Lonza selling their LSC business to Bain, Vertellus Group also selling their LSC business in a private market transaction. Blue sky policy compelled smaller players to shut shops with higher compliance cost in an already thin margin business.

  • As per me, If the pricing environment of Q4 sustains for Life sciences segment for a few qrtrs in FY22 the Base case scenario as per them for Mar-22 seen at 770 on 15X EV/EBIDTA seems possible, However, due to the recent run up in past 2-3 months since listing It may take considerable time.

Disc:- Invested.

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As per insider trading disclosures, Jubilant Ingrevia employees welfare trust has bought 3.12 lakh shares @ Rs. 584 from the open market purchase on 10th June.

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As per insider trading disclosures today, now promoter group has purchased 3.85 lakh shares from the open market on 22-23 June. Is something cooking ?

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…and from today till Q1 results announcement transaction restricted for Promoters and insiders. Reinforces my conviction of future performance. Short term and long term…

Disc: Holding & Biased.

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Hi,
Can yu plz provide the reference where u found insiders acquisition in June. I tried to search both in Bse n Nse websites but couldn’t find any link as mentioned by u.

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check exchange Disclosures

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Q1 results on 20 June…

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June 2021 Share Holding: FIIs reduced their stake by 5% which they got mostly from Jubilant Life Sciences. That would explain the constatnt selling pressure in the stock despite the promoters buying in two tranches. Retail sharesholding is increased by 5%. Hopefully a good Q1 Results will attract a new set of institutional investors.

https://www.bseindia.com/corporates/shpPublicShareholder.aspx?scripcd=543271&qtrid=110.00&QtrName=June%202021

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Seems this entire reduction in FPI’s Ownership of 5% & has translated in increase of Retail holding for almost same value. There is hardly any institutional holding increase in Q1, I think it will need few quarter’s results to establish business performance consistency & generate institutional interest in future.

Even with 60-65% EBIDTA share from high margin products this falls extremely short on the valuations which most Spec chem companies are commanding. Laxmi has been scaling newer highs and spec chem IPOs like clean science tech are getting oversubscribed multiple times at astronomical valuations and most likely will get listed at even higher valuations providing exits to existing shareholders with IPO Pop (more like blast!)

Going by Q4 Fy21 eps of ~6 Rs, even with expected 6.5 Rs EPS in Q1 FY22 & similar in full FY22 conservatively, the current PE comes to 21-22 for Fy22 which seems quite pale in comparison with other players. With decent realization in Acetyl prices in Q1 hopefully the Q1 results will be decent, Let see what’s in store.

Disc :- Invested

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Much better than expected result…

10.6 Rs EPS makes it much more cheaper at current rate.

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Outstanding results I must say. Also company has reduced debt further in this quarter.

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Seems like East bridge sold off 2.4% of their total 8% holding. Huge spurt in volume yesterday & today.

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Yes, it was an interesting sale transaction which took place prior to quarterly numbers. Seems they thought the results would be below estimates due to 2nd wave??

On the other hand, today nearly 31.96 lakh shares got delivered in NSE. Not sure who bought these shares?

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