Thread by @ValueEducator

#JubilantIngrevia Will Commodity Business Turn into Specialty ?

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Business segments

The company has 3 business verticals which are as follows:
1. Specialty Chemicals
Pyridine & Picoline
Fine Chemicals
Crop Protection Chemicals
CDMO

2. Nutrition & Health Solutions
Animal & Human Nutrition and Health Solution

3. Chemical Intermediates
Acetyls
Ethanol

Revenue split :
As you can see from the image, The major revenues have come from the Chemical intermediates business which were 54% in 2018 and 56% in 2022 with the highest being 60% in FY19.

The major raw material for the Chemical intermediates business is Acetic acid which is imported by the company. Hence, the profitability of the
company is dependent on the fluctuations in the prices of acetic acid

Value Chain :
The company has complete backward and forward integration.

45% of overall volumes of Chemical Intermediates are in-house consumed by Speciality Chemicals
segment.

52% of the Pyridine & Picolines volumes is used in-house for value added products in Speciality Chemicals and the remaining is used for the production of Vitamin B3 for the Nutrition and Health Solutions.

Beta-picoline which is the key raw material used for manufacturing of Vitamin-B3 is completely sourced in-
house

Management Execution
The management has executed very well according to
it’s guidance

For e.g. ,the company had mentioned in it’s concalls
that it’s Diketene Phase-I capacity of 6000 tons which it had started in Q4 FY21 and
was planning to commission it by Q3 FY22,

the company was successful in commissioning this plant by Q4FY22

The company had mentioned in it’s Q1FY 22 concall that it has planned to establish
a food grade acetic acid plant of 25,000 tons capacity which it expects to
commission by Q1 FY23,

and the company was successful in commissioning this plant by Q1 FY23 as mentioned in it’s Q1 FY23 concall

Acetic acid Historical Prices
As seen in the chart for the Acetic acid price trends, there was a steep rise in Acetic acid prices from 25.52 Rs/kg in 2020 to Rs 67.83 in 2021.

During the same time, the company saw a rise in its EBITDA margin on a quarterly basis from 18.83% in Q4
FY21 to 25.07% in Q1FY22.Thus, the company is able to pass on the increase in raw material prices to its customers and has benefitted in margins due to the rise in

product prices of Acetic anhydride and Ethyl Acetate which are made from Acetic acid.

However, The acetic acid prices started correcting in 2022,declining from 78.88 Rs/kg to Rs 53.87/kg. As a result there was a decrease in

EBITDA margins from 25.07% in Q1 FY22 to 12.95% in Q1 FY23 as the company now had to sell its
products at the reduced prices. The company also faced a loss in inventory due to
the impact of lower acetic prices as mentioned in their Q4 FY22 concall

If we compare the EBITDA margin of the business segments across the quarters, The Chemical Intermediates or Life Science Business has been the most volatile in it’s margins where the margins were the highest in Q1 FY22 at 27% due to

a steep rise in acetic acid prices and the lowest at 4.6% in Q4 FY22 when the acetic
acid prices started declining. On the other hand,the EBITDA margins of the Specialty
Chemicals and Nutrition business haven’t seen such volatility as compared to the

Chemical Intermediate business. They have more or less remained stable during these quarters.

CAPEX
Total CAPEX planned for the years 2022-2025 = Rs 2050 cr

Once the entire capex is done and operational, the company expects an incremental revenue of Rs 4500 cr after ramp-up with the Specialty Chemicals and Nutrition and Health Solutions business

contributing to 65% vs 46% in FY22 thus resulting in an overall improvement in profitability margins

The company has committed Rs 900 cr out of this total investment till date.

The remaining Rs1150 cr will be used over the years FY23 to FY25 as shown in the
table:

Future Outlook
The company got a CDMO contract worth Rs 270 cr in April 2022 for the Specialty Chemical business which is of 3 years with an international pharmaceutical innovator who is among the top 10 leading pharmaceutical companies globally.

According to the contract,the company will supply 2 key GMP intermediates for one of the
‘patented drugs’.

The commercial supply of these products is expected to start from FY23

It is estimated that up to 20 percent of the pharmaceuticals in the market or in clinical development contain a fluorine atom and 50 per cent of agrochemicals molecules developed recently also
contain fluorine.

According to a Frost and Sullivan report, one in every three new active pharmaceutical ingredients will be based on fluorine chemistry. Taking this into
consideration,the company plans to enter the fluorination chemistry. (Continued...)

They have more than 30 years of experience in pyridine chemistry and plan to enter fluorination with
fluorinated pyridines.

These fluorinated pyridines will be a part of the Specialty Chemicals business of the company

Thus,we can see that the company wants to shift their focus from commodity products to specialty products as majority of their capex are for specialty products
and the CDMO contract and fluorinated pyridines are also on the specialty side.

The company plans to get maximum revenues from specialty products to increase their
EBITDA margin above 20% which is right now at 17%

Final Thoughts
The company right now is getting the majority of it’s revenues from the Chemical Intermediates segment which has been above 50% historically in the years 2018 to 2022.

The company has planned the major capex which has been discussed in the previous point which plans to increase the revenue share from Specialty Chemicals
and Nutrition and Health solutions to 65% vs 46% in FY22,thus the company is

planning to get major revenues from specialty products vs commodity products due to which we may expect some rerating of stock in long term

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