Jubilant Ingrevia Ltd - Moving Up the Value Chain
Updated: Mar 11, 2022
Incorporated in 2019, Jubilant Ingrevia Ltd (JVL) houses the Specialty Chemicals, Nutrition & Health Solutions, and Life Science Chemicals businesses, which have been demerged from Jubilant Pharmova Ltd (erstwhile Jubilant Life Sciences Ltd) with effect from February 1, 2021. JVL had identical shareholding as Jubilant Pharmova as on the demerger date. The objective was to create separate & focused entities & unlock shareholder value.
Since the company was listed only in March 2021, there is very limited information available about the history of the demerged entity. I have tried my best to give a future outlook of the business.
In the current blog, I will cover:
JUBILANT BHARTIA GROUP
The history of the Jubilant group dates back to 1978 and the group has interest in pharma, life sciences, QSR, agri & polymer among others.
List of group companies:
Jubilant Ingrevia Ltd
The life sciences of the business has been in existence since 1978 which is now called Jubilant Ingrevia. Jubilant Ingrevia Ltd(JVL) is a powerhouse company with respect to chemistry. They are a globally integrated life science products and innovative solutions provider. Having more than 35 chemical platforms(Acetyl, Pyridine/ Piperidine, Ketene/ Diketene, Halogenation & others), it is one of the highest in the country is a proof of company's expertise. Jubilant ingrevia has a portfolio of 100+ products. And among these the top 20 contribute 90% of revenue.
Trying to understand these complex product and the vast list of product(100+) is quite a daunting task. So, I have just focused on the value addition, backward integration and scale of the company's capacities being globally #1 in many of the product they manufacture.
The word 'Ingrevia' is born out of the combination of words “Ingre” denoting 'Ingredients' & “vie” in French meaning 'Life' (i.e. Ingredients for Life).
Jubilant Ingrevia has products in 3 categories:
1) Specialty Chemicals (32% of revenue)
2) Nutrition & Health Solutions (18% of revenue)
3) Lifescience Chemicals (50% of revenue)
Company export 60% of sales and has 5 manufacturing facilities across India. There are 14 multi-purpose plant out of a total 61 plants(that's humungous) in these 5 facilities/sites. Company has 100+ products and 1400+ clients.
Plants are in Gajraula(UP), Nira(Maharashtra) and Bharuch(Gujarat). Gajraula facility have their own captive power plant. Most of the plants are cGMP certified.(another great feat).
To add to the above, Jubilant Ingrevia is a one stop shop (CDMO) for pharma and agro-chemicals from process development & clinical phase to commercial manufacturing.
Current capacity utilization stands at around 80-85%.
Also, company does not share sub-segment wise revenue and capacities of each product as well as the name of the clients.
Key Pointers- Jubilant Ingrevia Ltd
Despite having such robust know-how and chemistry expertise, Jubilant Ingrevia has suffered in the past due to :
China's anti-dumping duty on import of pyridine from India since 2013. (Removed in end 2019)
Ban on paraquat : Major user of Pyridine. Paraquat was a widely used herbicides. Agrochemicals accounts for more than half the consumption of pyridines. Paraquat ban in several countries impacted the offtake of pyridine and lower pricing environment.
Unfavorable demand-supply situation in favor of supply for many years.
Paraquat ban: Jubilant Ingrevia pivoted to produce gamma picolines (used in Anti-tuberculosis drugs) and beta picolines (used in Vitamin B3, Animal Feed and other. Internally, they now utilize about 45% of their Pyridine & Picolines volume for captive value-added products.
90 scientists including 20 PHDs
152 patent application
Just to add:
R&D expense deduction from tax has also been removed by the Govt, jolting a blow to the incentive towards R&D.
Sectors served by the Jubilant Ingrevia's products:
Nutrition: Animal Nutrition | Human Nutrition Premixes | Nutraceuticals| Energy Drinks
Agro-Chemicals: Herbicides | Insecticides | Fungicides
Direct-Consumer: Cosmetics | Anti-Microbial | Mouthwashes
Industrial: Paints | Prints & Packaging | Fuel Blending | Solvents
Jubilant Ingrevia Ltd- Business Segments
1. SPECIALITY CHEMICALS
The Specialty Ingredients business of Jubilant Ingrevia manufactures Pyridine, Picolines, Cyanopyridines and Piperidine. These are used as Specialty Ingredients/building blocks for the production of a range of agrochemicals, pharmaceuticals, dyes, solvents, metal finishes, fine chemicals etc. The Indian speciality chemicals industry is estimated to have market size of $36 billion in 2020 growing with CAGR of 12.4% to reach $64.5 billion by 2025.
Portfolio of 70+ products and contributes 32% of revenue.
Lowest cost manufacturing of Pyridine-Beta and all value-added products, long approval process of customers - it takes about 3-5 years and in some cases.
Here, Jubilant Ingrevia is the largest manufacturer in the Pyridine‑based value chain, offering 85 value‑added products using renewable starting materials. Company is one of few companies with complete forward and backward integration.
Sub-Segmentation of Specialty Chemicals:
1.1 SPECIALITY INGREDIENTS
Here the company offers building blocks such as Pyridine, Beta Picoline, Alpha Picoline, Gamma Picoline, 3‑Cyanopyridine, 4‑Cyanopyridine, Piperidine, Alkyl Pyridine mixtures etc. The Indian market for vitamin feed supplements is growing at a CAGR of 7.5% during the forecast period.
While key end‑use of Pyridine is for manufacturing herbicides in agrochemical industry. Other product application include:
Beta Picoline: Used to manufacture nutritional product 'Vitamin B3'.
Alpha Picoline: Used in manufacture of agrochemicals and many industrial applications
Gamma Picoline and its key derivative 4‑cyano pyridine: Used in making anti‑tuberculosis drugs which help in eradication of tuberculosis.
Alkyl Pyridine mixture: Used as an intermediate to make corrosion inhibitor formulations
in the oil and gas industry.
Just to add, Pyridine is produced alongside Beta Picoline.
1.2 FINE CHEMICALS
Fine Chemicals Business offers value-added derivatives of Pyridines and Picolines such as Amino Pyridines, Halo Pyridines, Acetyls of Pyridine, Carboxaldehydes of Pyridine, Carboxylates of Pyridine, Carboxylic acid of Pyridine, etc
These products are used in several important therapeutic segments such as anti‑ulcerative, anti‑diabetic, anti‑thrombotic , anti‑histamine , anti‑neoplastic, anti‑idiopathic pulmonary fibrosis, multiple anti‑retroviral drugs, among others.
These products also find applications in Cosmetics, Flavours and Fragrance and Electronics
1.3 CROP PROTECTION CHEMICALS
Here, the co. offfers value added intermediates & Actives specially developed for the Agro Chemical Industry. Jubilant’s product range includes Halogenated and Fluorinated intermediates and actives with wide application in the agrochemical industry.
1.4. CDMO (Contract Development and Manufacturing Org for Pharma & Agrochemical)
Services arm of the business gives customized solutions for pharma and agro industry.
The business provides Custom Development and Manufacturing services for:
• Key Starting Materials and Regulatory Starting Materials
• Advanced Intermediates
• Patented or Generic API’s
• Large Volume Intermediates and Actives for Agrochemical companies
Under CDMO, the company started their product development with process development moving to Clinical Phase Manufacturing that is Phase I / II / III and then move up to commercial supply of products. Under commercial supply, they have Feedstock, Specialty Building Blocks, Specialty Chemicals, n-1/n-2 GMP Intermediates.
Co. continuously collaborate on late‑phase and launch products with more than more
than eight collaborations with global pharmaceutical and biotech companies.
In the specialty chemical segment company has developed and commercialized six new products during the year—three in CDMO and rest in Fine Chemicals and Crop Protection Chemicals.
2. NUTRITION & HEALTH SOLUTIONS
It comprises Nutrition & Health Ingredients, Animal Nutrition & Health Solutions and
Human Nutrition. One of the key products in this segments is Vitamin B3 (Niacinamide and Niacin) . Co. is #2 globally in terms of manufacturing these 2 products. Vitamin B3 is manufactured through an eco‑friendly route, starting from a renewable source, instead of conventional fuels, thereby reducing their carbon footprint.
Vitamin B3: Used in Animal Feed ; Human Nutrition; Personal Care. Niacinamide is also used in metal plating for obtaining uniform surfaces as well as in the production of production of insecticide formulations.
Major demand of Vitamin B3 is for Animal Feed at 60%, followed by Food at 25%, rest to Cosmetics & Others. Largest manufacturer of Choline Chloride (Vitamin B4) in India.
Portfolio of 34 products and contributes 18% of revenue.
Company also has 18 branded solutions to farmers & channel partners.
Co's Vitamins business is fully backward integrated with feedstock raw material (i.e. Beta Picoline and 3-Cyanopyridine) which is produced by their Specialty Chemicals business captively. For Nutrition segment, the contract is quarterly.
Vitamins are commodity products. But demand-supply situation is favorable leading to higher Niacinamide prices. Nutrition portfolio is 80% into Animal Nutrition & 16% is from Human Nutrition.
About 80% of the revenue of Nutrition and Health solutions business is from exports and withdrawal of the MEIS benefits on exports by the Govt has impacted their EBIDTA margin. In particular, 95% of Vitamin B3 is exported.
Earlier exporters were given incentive in the form form of MEIS but due to it not being in compliance with WTO norms, it was to be reframed. The reframed scheme came as RODTEP which EXCLUDED sectors such as Pharma, Chemicals & Steel from any sort of export benefits, making them less competitive compared to other countries.
3. LIFE SCIENCE CHEMICALS
In this segment, the company manufactures Acetyl Products, Ethanol & Specialty Gases and holds leadership positions in most of them.
Co. manufactures Acetyls from agro-based feedstock including molasses and alcohol.
Product portfolio: Ethyl Acetate, Acetic Anhydride, Acetic Acid, Acetaldehyde, Formaldehyde and Propionic Anhydride. Portfolio of 6 products and contributes 50% of revenue.
End industry application: Pharmaceuticals, Crop Protection, Food & Beverages,
Textiles, Packaging, Adhesives, Aromatics, etc.
Acetic Anhydride: Fastest growing applications for Acetic Anhydride are wood acetylation, pharmaceuticals & food and nutrition. Also used to manufacture Acephate, Ibuprofen, Paracetamol, Aspirin.
Noodles that we eat has a modified starch which is made out of Acetic Anhydride. The perfumes that we use, the cigarettes that we smoke, the paints & coatings, the wooden decks around our house, car seat belt, chewing gum has a bit of Acetic Anhydride. In FY20 they commissioned their new Acetic Anhydride facility in Bharuch in Q4FY20.
There is a strong demand for Acetic Anhydride and there is no new facility addition announcement globally in the recent past. Company's customers are exploring to shift from high cost to low-cost countries. They are adding another Acetic Anhydride facility to increase capacity by ~35% by investing ₹250cr over next 3 years.
Jubilant is among the two global suppliers of Acetic Anhydride and are the largest supplier in India.
Ethyl Acetate: Ethyl Acetate is an environment‑friendly solvent, which is used by the Pharmaceutical, Packaging, Coating and Ink industries. Jubilant's Bio‑ethanol route Ethyl Acetate offers much lower carbon footprint (CO2 per ton of chemical) of 2.29 as against 5.66 through Petrochemical route. Demand of Ethyl Acetate has been strong specially due to higher consumption of
Inks and Adhesives used to manufacture packing materials.
Propionic Anhydride: Jubilant is the largest producer of Propionic Anhydride in India. Propionic Anhydride act as an important building block for herbicides.
Acetaldehyde: Co is world’s largest producer of Bio‑based Acetaldehyde which is backward integrated to Bio‑Ethanol. Bio‑based Acetaldehyde manufacturing process produces significantly less CO2 per ton of Acetaldehyde as compared to the Petro route.
Co. also has storage hubs at Europe and USA for its life sciences products.
The revenues of the Life Science Chemical business are extremely dependent on acetic acid as a raw material and it is a pass-through business, but it impacts the revenue to a large extent and profit margins to come extent.
Raw material: Key raw material for life sciences biz is acetic acid. Hence, dependent on the prices of Acetic Acid(Very volatile). Given that Jubilant Ingrevia is the largest Acetic Acid importers in India for those products and gives a strong negotiating position .
Life Sciences Chemical market condition remained favorable due to disruption created by URI storm in southern industrial states of US, which impacted availability of Acetic Acid leading to higher prices of acetic acid. It has started to normalize now.
Strong Backward Integration
Backward integration helps in improving the margins.
25% of JVL's volume of Life Science Chemicals is consumed in-house by Specialty Chemicals. Nearly 45% of their Pyridine & Picolines volume is used in-house for value-added products in Specialty Chemicals & for Vitamin B3. And, for Vitamin B3 (Niacinamide & Niacin), 100% in-house sourcing of Beta Picoline. Leading to competitive cost advantage.
Jubilant Ingrevia Ltd- Subsidiaries:
1.Jubilant Infrastructure Limited:
It is the wholly-owned subsidiary(100%) of the company and has
developed a Sector Specific Special Economic Zone (‘SEZ’) for Chemicals in Gujarat.
2.Jubilant Life Sciences (USA) Inc. :
It is the wholly-owned subsidiary of the Company. It undertakes sales and distribution of specialty ingredients, nutrition & health ingredients, life science etc in North America.
3. Jubilant Life Sciences NV:
This is a wholly-owned subsidiary of the Company. 99.99% of its shares are held by the Company and the balance by Jubilant Infrastructure Limited. It is engaged in the supply
of life science ingredients such as ethyl acetate, acetic anhydride, etc. and nutrition and health ingredients (feed and food grade) to the European markets.
4. Jubilant Life Sciences International Pte. Limited:
This corporation incorporated in Singapore, is a wholly owned subsidiary of the Company.
5. Jubilant Life Sciences (Shanghai) Limited:
It undertakes sales and distribution of products in China. This wholly-owned subsidiary of the Company is held through Jubilant Life Sciences International Pte. Limited.
6. Jubilant Crop Protection Limited
On June 2, 2021, Jubilant Crop Protection Limited was incorporated as a wholly-owned subsidiary of
the Company, inter-alia, to carry on the business of manufacturing of Pesticides/plant protection chemicals.
7. Mister Veg Foods Private Limited, India for a consideration of ₹2.4cr , representing potential 20.99% shareholding in MVFPL, once converted. MVFPL is engaged in the manufacture of plant based meat & fish and mainly catering its products in north India.
Jubilant Ingrevia Ltd- Financials
Company has reduced its net debt from ₹1276cr in FY19 to ₹529cr by 31st Dec 2020. The net debt level stood at ₹386cr as of June 30th 2021, a significant reduction from FY19 level. The increase in revenue and profitability in Q1FY22 was aided by increasing acetic acid prices which in turn boosts the revenue and profit of Life Science products.
Also, JVL has reduced power and fuel cost from 361.6cr in FY20 to 323.5cr in FY21, adding to the bottom line.
1. Globally lowest cost producer of Pyridine – Beta & all value added products
2. Long approval process of customers, takes about 3-5 years for product approvals and facility audit
3. Demonstrated expertise in handling multi-step chemistries (~13 steps) upto commercial scale. That is quite significant. Pyridine is a 5-6 step chemistry. The CDMO product developed for its customers are 6-7-8 step chemistries. Remdesivir was 13 step chemistry.
1. Complete backward integration to key RM i.e. Beta Picoline & Differentiated niche technology (air oxidation) for mfg of Niacinamide – leading to lowest cost
2. Attained deep reach to farmer community for Animal Nutrition & Health products
3. Brand Recognition –“ANICHOL” for Vit-B4 is leading brand & other 18 Brands
4. Capability of handling large “Ketene” volumes
5. Strong internal systems to manage controlled substances
6. For nutrition business barriers for the segment are: complete backward integration to key RM i.e., Beta Picoline & differentiated niche technology (air oxidation) for manufacturing of Niacinamide – leading to lowest cost
7. Given the scale of the company, they are the lowest cost producer of many of the chemicals manufactured by them and now they are moving up the value chain.
1. The most important factor that will be driving the future growth of the JVL is the fact moving up the value chain in most of their product segments
2. In agro-chemicals the company is moving from the existing products to manufacture agro-actives and an investment in a new world manufacturing facilities for pesticides. For other products they are moving from ingredients to pre-mixes.
3. CDMO: Co is planning to increase focus to leverage its long standing relationship with innovator pharma & agro-chemicals companies to expand its CDMO operation. There are already 7 ingredients in the pharma pipeline of which 4 intermediates are in Phase III for Anti-Viral therapeutic, Cosmetic applications and 3 intermediates are in Phase II for Antineoplastic, Antiretroviral, Antithrombotic therapeutic. Also, JVL has 4 ingredients in agro pipeline out of which 1 Intermediate is in Stage III that is development & launch, while 3 Intermediates are in Stage II that is efficacy & Toxicology study.
4. Diketene: In the process of launching its diketene(highly complex due to high temperature cracking and storage hazards) and its value added derivatives. There has been increase in the demand for Diketene product due to closing of some old plants of Diketene. It has led to demand-supply mismatch(basically a commodity product). JVL's diketene plant is likely to come on stream by Q3FY22. Capacity would be 6000T-7000T. It will house 6 diketene products. Subsequently, they will add 8 value added Diketene derivatives
China is not being preferred as a supplier and one of the leading companies coming out of Diketene, shifts the equation in favor of demand.
Diketene is used as a reagent (A reagent is a substance or compound added to a system to cause a chemical reaction). Manufactured by dehydrating acetic acid at 700-750 degree Celsius. Laxmi organics is the only manufacturer of Diketene in India & 40% of diketene is imported into the country. JVL will cater to the import substitution part of it.
5. Going forward company will be launching derivatives of diketene. As well as multiple derivative chemistries in the pipeline. Diketene Derivatives & Agro actives are large value products.
6. Launch value added anhydrides and aldehydes products. Used as intermediates in the manufacturing of pharma, insecticides & dyes.
7. Jubilant Ingrevia is putting in efforts to improve market share of Vitamin B3 for specialized and higher margin segments like Food, Cosmetics etc. and also focusing to enhance market share
in North American markets.
8. Jubilant Ingrevia is moving up the value chain from straight ingredient supplier to pre-mix solutions provider. Also moving up into the Herbal Category of animal feed under the brand name 'Phytoshiled' and actively working in the space of plant-based proteins to move into meat and egg analogs.
9. JVL has 60+ new products in the pipeline over the next 3-4 years
10. Most of the new product introduction is towards better value and high margin profile.
11. The demand and pricing environment is expected to remain favorable due to supply disruption in China and dual supply sourcing being considered by customers. Also, Indians are quite good with the chemistry skills as well as cost competitive.
12. China terminates anti-dumping duties on pyridine imports from India, Japan
Capital Expenditure (CAPEX)
CAPEX of 900 cr for the next 3 years. Of that ₹550cr will goto specialty chemicals, ₹100cr towards nutrition business and rest ₹250cr towards life sciences business. Also, the company always keeps doing debottlenecking from time to time to capture any sudden growth opportunity(Agile in moving from one product to another). The funding of this 900cr capex will largely from internal accruals.
At peak capacity the turnover from the fixed asset will be 2-2.5x in 2-3 years.
Capex estimated for FY22 is ₹360cr. These CAPEX are for:
1. CDMO facility at Bharuch which is expected to be in operation during
the quarter April to June 2022.
2. Two Multi-Purpose plants of Specialty Chemicals which are expected to be in operation during the quarter April to June 2022.
3. Food Grade Acetic Acid which is expected to be in operation during the quarter April to
4. Acetic Anhydride Plant which is expected to be in operation during the quarter Jan to March 2023.
5. Agro Actives Phase-1 which is expected to be in operation during the quarter Jan to March 2023
Given that Jubilant Ingrevia has very limited history and the last quarter result being the full fledged result, assuming the last quarter EPS of 10.5 and then conservatively extrapolating it to 35, the Price to earning ratio coming to 20x at the CMP of ₹703. Similar assuming the revenue to be ₹4000cr, the price to sales comes at 2.8x.
Whereas if you consider its closest peer Laxmi Organics, the Price to earning stands at 107x and price to sales at 7.7x. Huge valuation divergence between the 2 companies.
One can add the stock on correction.