Specialty chemicals major Jubilant Ingrevia (JIL) has the potential to reach ₹1008 per share from its current range of ₹440 per share in the next 12 months, brokerage and stock research firm Edelweiss said in a note dated June 21, 2022.
Rohan Gupta and Bharat Gupta of Edelweiss, in the research note, said, “We believe JIL is on the cusp of a transformation with specialty chemicals catalysing overall growth while commodity-led business would keep churning strong cash. At an attractive 15x FY24E EPS, downside is protected in our view; retain ‘BUY’ with a target price of ₹1,006.”
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15x FY24E EPS simply means the company is expected to churn 15 times its financial year 2024 expected earning per share.
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Backing their rationale, the duo said, “We believe JIL is in a transitory phase, moving from commodity to speciality. Its solid relationships with global pharma and agrochemical leaders and a strong sector tailwind would facilitate growth in agrochemical intermediates/CDMO space. Meanwhile, the commodity chemicals business shall continue to support cash flows.”
JIL has committed a capacity expansion plan of ₹2000 crore over the next two years with specialty chemicals business cornering a chunk ( ₹1250 crore) of this spending.
The company was recently awarded a CDMO project worth ₹270 crore (spanning three years) for manufacturing pharmaceutical intermediates for an MNC.
Gupta and Gupta and Edelweiss further said, “The recent addition of di-ketene chemistry further strengthens its position to capture import replacement. The company is looking forward to adding newer derivative products across both pyridine and di-ketene chemistry bases. Given strong traction in demand, management has revised its capex guidance for the specialty chemicals segment.”
Specialty chemicals to reach 65% of the company's total business and the company is focused on doubling this turnover by FY25. It aims to launch 36 new products by FY26.
JIL has a strong balance-sheet as well with debt/equity at 0.2x for FY22. The company’s total debt stood at ₹230 crore at end-Mar-21.
3 key risks
Volatility in acetic acid prices, product bans and competition in CDMO business remain the key risk areas for JIL.
Edelweiss note said, “JIL’s life sciences division (LSI) is one of the major producers of derivatives of acetic acid such as acetic anhydrides and ethyl acetate in India. The company commands global leadership in the segment and is amongst the top three global players in acetic anhydride merchant market. Supply-side disruption in China has sent prices of acetic acid surging. We believe volatility in acetic acid prices poses a major risk to the company’s overall earnings as LSI contributes nearly 50% to consolidated revenue and about 35% to profit.”
Share price
As on 9.30 am June 22, 2022, share price of JIL is trading down 0.87% on the BSE, at ₹436.65 per share.
The shares touched their 52-week high of ₹877.95 per share and is currently a percentage points higher than its 52-week low of ₹401.35.