Since hitting its 52-week high in October last year, shares of chemical stock Jubilant Ingrevia have lost over 45 percent. The stock has fallen from ₹877.95, hit on October 10, 2021, to currently trade around ₹472, shedding as much as 46 percent in this period.
In the last 1 year, the stock has lost 34 percent, while in 2022 YTD, it has declined 18 percent. In 8 months of 2022, the stock has lost given negative returns in 5 of them. The scrip fell 11 percent in August after a 9 percent rise in July.
Despite the weak performance, brokerage house Prabhudas Lilladher sees the stock surging over 80 percent in the next 1 year. It has initiated coverage on the stock with a 'buy' call and a target price of ₹860, indicating a potential upside of 82 percent.
Jubilant Ingrevia Limited provides life science products and solutions in India and internationally. It operates in three segments: Specialty Chemicals, Nutrition & Health Solutions, and Life Science Chemicals.
Prabhudas Lilladher believes that a strong underlying global demand environment in agrochemicals and pharmaceuticals along with China+1 tailwinds and improved prospects of CDMO (contract development and manufacturing company) will drive the firm's high-value business EBITDA CAGR of 22 percent over FY22-FY25E with an increase in FY25E EBITDA contribution to 67 percent from 53 percent in FY22.
Prabhudas Lilladher further noted that increased focus on structural growth areas and commensurate investments augur well for the firm as balance sheets remain healthy despite large capex outflows over FY22-25E. It likes Jubilant's stronghold in respective businesses and growth efforts and believes that the firm is a re-rating candidate.
The brokerage noted that Jubilant's global market leadership in various products across acetyls and pyridine derivatives enables it to move up the value chain in CDMO, diketene derivatives, agro actives and advanced intermediates, pharma, cosmetic-grade vitamins, vitamin premises, etc.
It expects revenue and EBITDA CAGR of 26 percent and 27 percent, respectively in the specialty chemicals segment and 11 percent each in the nutrition solutions segment aided by capex outlay of ₹1500 crore over FY22-25E.
The brokerage values Jubilant's specialty chemicals business at16x 1-year forward EV/EBITDA given the presence of building blocks revenue within the segment, and await execution of a large capex outlay of ₹1300 crore over FY22-25E, which will enable it to move up the value chain (right execution can drive re-rating).
"While Jubilant's market leadership in various pyridine derivatives provides comfort, a strong underlying global demand environment in agrochemicals and pharmaceuticals in addition to China+1 tailwinds and improved prospects of CDMO is likely to drive 26 percent revenue CAGR (FY22-25E). Improving product mix (rising agro-actives and CDMO contribution) will aid margin improvement, driving 27 percent EBITDA CAGR (FY22-25E)," said PL.
Meanwhile, the brokerage values Jubilant's Nutrition & Health Solutions business at 12x 1-year forward EV/EBITDA and expects revenue/ EBITDA CAGR of 11 percent each over FY22-FY25E, aided by capex outlay of ₹200 crore by FY25E for expansion of Vitamin B3 capacity by 20 percent and launch of various value-added grades of Vitamin B3 (focus on pharma and cosmetic-grade vitamins in regulated markets).
In the June quarter, the net profit of Jubilant Ingrevia declined 52.82 percent to ₹79.38 crore as against ₹168.26 crore during the year-ago period. Its sales, however, rose 1.84 percent to ₹1159.39 crore in the quarter under review as compared to ₹1138.48 crore during the previous quarter ended June 2021.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
