After an over 22 percent rise from its 52-week low, hit in March 2022, brokerage house Prabhudas Lilladher sees a huge upside going ahead in the specialty chemicals firm Jubilant Ingrevia. The brokerage expects the stock to almost double in the next one year.
It has a buy call on the stock and has increased its target price to ₹900 from ₹860 earlier. The new target implies an 85 percent potential upside.
PL believes Jubilant Ingrevia is well placed to capitalize on long-term growth opportunities given (1) a New value-added products pipeline (2) strong traction in CDMO (Contract Development & Manufacturing Organization) (3) import substitution (4) China+1 strategy and (5) commensurate capex outlay of ₹2,300 crore (earlier ₹2,000 crore) over FY22-25.
As per the brokerage, the company's specialty chemicals (SPCM) segment will lead earnings growth aided by the highest capital allocation ( ₹1,300 crore). EBITDA contribution from higher value segments (SPCM + NHS) is expected to increase to 66 percent by FY25E from 53 percent in FY22, as SPCM/ NHS EBITDA grows at 25 percent/7 percent CAGR, while the concentration of its commodity vertical (Chemical Intermediates) reduces to 34 percent by FY25E.
NHS stands for nutrition and health solutions.
In the December quarter, the company's net profit increased 8 percent QoQ to ₹91.4 crore aided by a lower effective tax rate at 25 percent offsetting higher finance costs at ₹6.7 crore vs 5.1 crore QoQ on an increase in working capital borrowing and higher interest rates. Net debt stood at ₹350 crore at end of Q3FY23 vs ₹280 crore in Q2, noted the brokerage.
On a YoY basis, Jubilant Ingrevia's net profit tumbled 29 percent.
The brokerage further informed that the company's consolidated revenue declined 10 percent YoY and 11 percent QoQ to ₹1,160 crore.
Revenue from specialty chemicals grew by 34 percent YoY to ₹468 crore in Q3 FY23, driven by higher price realization and volume growth across product segments. The share of revenue to customers having agrochemical end use has shown significant growth.
Meanwhile, Revenue from the nutrition business de-grew 39 percent YoY to ₹132 crore in Q3 FY23, on account of lower demand, due to the prolonged impact of bird and swine flu in EU and US regions, leading to lower realization.
Revenue from chemical intermediates also fell 23 percent on YoY to ₹559 crore in Q3 FY23, mainly driven by the lower price of feedstock (ie Acetic Acid) leading to lower realization of finished products i.e. Acetic Anhydride & Ethyl Acetate. The company has further improved its market share and volumes of Acetic Anhydride in the EU region on YoY.
"As per the brokerage, the consolidated revenue declined due to lower Chemical Intermediates' revenue on a sharp raw material price decline, offset by an improvement in SPCM sales. SPCM revenue growth was led by higher volumes across pyridine and pyridine derivatives whereas NHS segment revenue at ₹132 crore reflects the continuing impact of Avian Flu in Europe and the US," it pointed out.
It also noted that the firm's EBITDA margin improved sequentially to 13.1 percent vs 11.7 percent QoQ and 16.5 percent YoY led by better product mix and higher volumes in SPCM, despite persisting demand weakness in NHS and price normalization in CI. Meanwhile, EBITDA declined 29 percent YoY but rose 1 percent QoQ to ₹151 crore.
"Specialty Chemicals segment would continue to grow. Overall our FY23, full-year performance is expected to remain in line with our last three quarters. We are fully committed to our growth aspirations and we are excited to realise the emerging opportunities through our ongoing Growth Capex plan, which we have now improved from earlier ₹2,050 crore to now ₹2,275 crore during FY22 to FY25 Period. We continue our efforts towards improving our revenue mix of specialty and nutrition segments to 65 percent by FY27 from 44 percent in FY22 and we believe this to be a key driver for overall EBIDTA and Margin improvements," the company stated in an exchange filing.
A key positive, according to the brokerage, was the firm increased Capex outlay enhanced to ₹2,280 crore from ₹2,050 crore, on account of 1) debottlenecking in the SPCM segment 2) GMP plant for Vitamin B4 towards food and pharma grade and 3) R&D expansion on increased traction in CDMO.
Further, the strategy on alternate energy sources is encouraging, as the company plans to significantly reduce overall energy costs in a phased manner through various initiatives by sourcing power from the grid and renewable sources, added PL.
Jubilant Ingrevia is a global integrated life science products and innovative solutions provider serving, pharmaceutical, nutrition, agrochemical, consumer and industrial customers with its customised products and solutions that are innovative, cost-effective and conforming to premium quality standards. The company is engaged in manufacturing and supply of specialty chemicals, nutrition & health solutions and chemical intermediates through five manufacturing facilities in India.
Despite raising the target price, the brokerage reduces its FY24/25E EBITDA estimate for the firm by 6 percent/4 percent and EPS estimate by 8 percent/5 percent to factor in persisting weakness in Nutrition & Health solutions (NHS) segment along with lower margins in SPCM.
Stock price trend
The stock has fallen 15 percent in the last 1 year and but has risen 22 percent from its 52-week low of ₹401, hit in March 2022.
The stock lost over 7 percent in January extending losses from its 1.6 percent fall in December.
Meanwhile, from its 52-week high of ₹615, hit in February 2022, the stock has shed 20 percent.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.