PL Stock Report: Jubilant Ingrevia (JUBLINGR IN) - Q2FY24 Result Update – Weathering challenging times - HOLD

Jubilant Ingrevia (JUBLINGR IN) - Swarnendu Bhushan - Co-Head of Research, Prabhudas Lilladher Pvt Ltd.

Rating: HOLD | CMP: Rs412 | TP: Rs433

Q2FY24 Result Update – Weathering challenging times

Quick Pointers:

♦ Specialty Chemical (SPCM) & NHS margins at 16%/9% (vs 15%/8.5% QoQ) however CI business continues to drag.

We reduce our FY24/25E EPS estimates by +15% and cut our SOTP based TP to Rs433 (earlier Rs462 to factor (a) headwinds on global agro chemicals (generics) along with resultant margin pressure across segments and (b) spreads normalization in Chemical Intermediates (CI). Jubilant Ingrevia (JUBLINGR) consolidated revenue declined 22% YoY/ 5% QoQ to Rs 10.2 bn (PLe Rs10.7bn) largely led by CI revenue decline on lower raw material prices (key RM Acetic acid prices down 40% YoY). EBITDA declined 23% YoY/ +1% QoQ to Rs 1.2 bn (PLe 1.1bn) and EBITDA margin came at 11.5% (vs 11.7% YoY/ 10.9% QoQ). PAT declined 31% YoY/ 1% QoQ to Rs 574 mn (PLe Rs 500 mn), impacted by lower operating profit YoY and higher interest expense.

We believe, FY24E to be muted due to some demand concerns, yet we are positive on long term growth prospects given healthy volume recovery in NHS segment coupled with improved prices and strong traction in CDMO to aid absorption of new capacities. The stock trades at 24x P/E at EPS of Rs 17.6. Reiterate ‘Hold’ rating.

♦ Consolidated Revenue stood at Rs10.2 bn (-21.8% YoY/ -5% QoQ (PLe ~Rs10.7bn) due to reduction in the revenue of Chemical intermediates led by lower pass-through of input cost of acetic acid and lower demand for Agro end-use products.

♦ EBITDA stood at Rs1.2bn (-23% YoY/ +1% QoQ) (PLe Rs 1.1bn) and EBITDA margins at 11.5% (vs 11.7% in Q2FY23 and 10.9% in Q1FY24; PLe ~10.3%).

♦ PAT at Rs574mn (-31% YoY/ -0.2% QoQ; PLe Rs500mn) was impacted by lower operating profits YoY.

♦ Specialty chemicals witnessed EBITDA growth QoQ owing to better product mix and higher sales mix including CDMO customers. While, Nutrition & Health solutions business witnessed stable demand and improved Naicinamide demand for Q2FY24. Chemical intermediates business remained weakest due to muted demand across industries such as pharmaceuticals and agrochemicals.

♦ Net debt increased to Rs 7bn & net debt to EBITDA at 1.3x due to steady capex expenditure & high working capital. Higher working capital in Q2FY24 is on account of decline in payables for earlier purchases, while fresh purchases were rationalized.

♦ Key managerial change: Mr. Gosaliya Tarunkumar resigned as Sr VP – Chemicals Intermediates of the company wef 27th October 2023 and Mr Himanshu Dhapolav has been promoted as SBU Head – Acetyls wef 27th October 2023.

♦ Concall takeaways: (1) Vitamin demand normalized after witnessing pent-up demand in Q1FY24 (2) Capex for cGMP facility for expansion of Food grade Vitamin B4 is in final stages of planning (3) Positive traction seen from CDMO, due to recently commissioned GMP and non-GMP plants (4) New cGMP compliant facility for cosmetic grade Niacinamide 3000mtpa capacity to commission by June’24 (5) New product – Bio-acetic acid is gaining acceptance as sustainable food preservative. (6) Acetic acid price in the range of $400/MT-$500/M. (7) Effective tax rate for the quarter stood at 28.1%. (8) Capex of Rs 20bn over FY23-FY25E, remains intact, of this Rs5.5-6bn to be spent this year. (9) Increase in employee costs is due to capacity building and new employee addition. (10) has become world’s largest producer of Beta picoline and pyridine with global competitor shutting down (11) Overall volumes remain flat, as these were impacted in chemical intermediates and specialty business. (12) new capacities commercialized last year are working at 50% utilizations. (13) 60-65% of acetyl business is based on long term contracts and sticky. (14) for nutrition business, margins to stabilise within 2 quarters. (15) agrochemical is 25% of portfolio of which 40% is contributed by specialty part.

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