Jubilant Ingrevia Q1 2023 Concall Highlights

Operational highlights

• The company had a steady operational and financial performance in Q1FY23, in the backdrop of inflationary headwinds leading to higher raw material and energy costs during the quarter.
• During the quarter the company witnessed significant increase in raw material cost as well as energy cost. However the company has witnessed significant improvement in their logistics situation. The company remains focussed on continuous improvement in efficiencies using various business excellence tools & techniques to maintain competitiveness in an ongoing challenging global environment. 
• The company is confident of moving ahead with their well defined growth capex plan, which is supported by their internal accruals.

Segment Wise Highlights

Speciality Chemicals 

• Revenue of Speciality Chemical business was Rs 382 crores. EBITDA was Rs 64 crores
• Specialty Chemicals revenue grew by 26% on YoY basis driven by higher volume across product segments.
• Share of revenue to customers having Agro Chemical end use grew significantly.
• Segment EBITDA & Margin was lower mainly due to unprecedented and sharp increase in input costs including energy cost, which was passed on partially during the quarter.
• Newly commissioned Diketene plant is now fully stabilized and the company has achieved the designed capacity. The company is gearing up to meet the volume requirement of customers in coming quarters.
• Deliveries of recently contracted CDMO products are on time. All the other products in the CDMO business are moving as per plan. Company’s CDMO pipeline is healthy and progressing positively.
• New GMP and Non-GMP facilities which are expected to be ready during Q3FY23 will help the company in capturing growing demand for CDMO projects.
• For the other speciality chemical products also the company continues to observe positive traction in demand from both domestic as well as from international customers due to the China+1 strategy of most of the customers.

Nutrition & Health Solutions

• Revenue of Nutrition & Health Solution business was Rs 150 crores and EBITDA stood at Rs 19 crores.
• Company’s focus to maximize Niacinamide share in niche segments like food and cosmetics is giving positive results. On a YoY basis the volume in the food and cosmetics segment continues to see a positive trend. However overall Niacinamide sales volume during the quarter was impacted due to the spread of Avian and Swine Flu in the EU and US region resulting in lower segment revenue and EBITDA. However the price realization was better during the quarter.
• Flu situation in the EU and US region is now improving and is expected to normalize during the later part of the current quarter. This is a short-term challenge in the segment, and business continues to maintain its market share and leadership position.
• In the animal nutrition and health solution business the company’s focus is to gain market share of existing products and to further increase revenue by adding new products and new customers for value added speciality premix.
• Animal nutrition and health solution business is witnessing good traction due to the demand from domestic customers.

Chemical Intermediates

• Revenue from chemical intermediates segment stood at Rs 633 crores and EBITDA stood at Rs 76 crores.
• Company’s key product in the segment acetic anhydride witnessed strong demand resulting in 22% volume growth on a YoY basis. On a YoY basis segment has also witnessed a normalized market situation coupled with lower acetic acid prices which is also reflected in the revenue as well as EBITDA.
• After more than one and a half years now acetic acid prices seem to be stabilizing. Revenue from Europe & rest of the world has gone up significantly on a YoY basis. Company’s market share in Europe has improved significantly and is continuing to grow.
• The company continues to maintain domestic market leadership for acetic anhydride and remains the key supplier of ethyl acetate.
• The company is witnessing good traction of demand for its new product i.e., propionic anhydride.
• The company expects to continue their growth in market share in the Europe market.

Outlook and growth capex plans

• The company expects overall healthy revenue growth during FY23, led by volume growth in the Speciality Chemicals & Chemical intermediate business segment. Commissioning of the three new capex of CDMO GMP, two CDMO non-GMP and Acetic Anhydride is likely to aid the revenue growth.
• In the Nutrition & Health Solution segment Niacinamide demand is expected to start normalizing in the later part of the current quarter.
• The company expects the EBITDA of subsequent quarters of FY23 to improve, assuming no unexpected adverse situation
• The company is fully committed towards its growth aspirations and they are excited to realize the emerging opportunities through the ongoing growth capex plan of Rs 2,050 Crore during FY22 to FY25 period.
• The company is strategizing towards improving the revenue mix of Speciality and Nutrition segments to 65% by FY26 from 46% in FY22 and the company believes this to be a key driver for overall margin improvement.

Financial Highlights 

• Revenue from operations during Q1FY23 was at Rs 1,160 crores as compared to Rs 1,145 crores in Q1 last year registering a growth of 2% on YoY basis.
• EBITDA during the quarter was at Rs 151 crores as against Rs 287 crores in Q1FY22.
• EBITDA Margins stood at 12.9% in Q1FY23 as against 25.1% in Q1FY22.
• The drop in YoY EBITDA is mainly due to normalization of EBITDA in the chemical intermediates segment which was high in the previous period due to favourable market situation. The EBITDA Margins of the nutrition segment were impacted due to lower sales on account of bird and swine flu in the Europe and US region while the EBITDA Margins of the speciality chemical segment were impacted due to high energy costs which were passed on only partially during the quarter  
• Finance cost during the quarter was significantly lower at Rs 4 crores as against Rs 13 crores in Q1FY22 a reduction of 68% YoY on account of repayment of debt and lower interest rates.
• PAT during the quarter was at Rs 79 crores as against Rs 168 crores in Q1FY22 witnessing a decline of 53% YoY basis due to lower EBITDA.
• The capital expenditure during the quarter was approximately Rs 77 crores.

Q&A Highlights

• In the Gajraula plant the company uses coal for power as well as steam generation. The company is allowed to procure FSA (Fuel Supply Agreement) coal from the government on a contract basis. But because of the government decision not to supply coal to industries for a short term period the company did not get those volumes which were at a good price and the company had to import the material from outside which were at a much higher price. That has impacted hugely on the company’s profitability for the quarter. This is in the tune of almost Rs 45 crores. Even today the FSA coal is not available but the company expects that the FSA coal will be available from 1st september. Therefore what impact the company had in quarter 1 partly will also have in quarter 2. This is a one time impact which the company has never seen in the past.
• The Diketene plant is stabilized and the company has achieved the capacity. Now the company is gearing up to supply the volumes to the customers. Real capacity utilization will be seen at the end of Q2FY23 or from the start of Q3FY23.
• The company has passed on all the rise in the input raw material prices for all of its products. But the unprecedented increase in coal prices unfortunately was not fully passed on. So the company was able to pass on the sharp increase in energy costs only partially. 
• The demand of acetic anhydride in the European market is increasing. There are new uses of acetic anhydride which are consuming large volumes of acetic anhydride and therefore the demand is much more than the volume which is available. Since there is improvement in the demand and therefore the company’s market share in the European market is growing.
• The QoQ decline of the speciality chemicals is not only due to the rise in coal costs, there are two incidents linked to it. First, China was locked down for almost two and a half to three months i.e., last quarter and the company has a good export business of speciality chemicals even in China. So due to this there was an impact on volumes in China. This is a one time impact. Second reason was that in the pyridine plant the catalyst is changed once 6-7 years. The company didn’t plan this change in this year but they had to take the catalyst change during the first quarter. So the company had some impact on the volumes of pyridine also. These two reasons have led to the decline in the speciality chemical segment business QoQ.
• But now the company is coming back with better volumes in pyridine as well as China is now picking up in the speciality chemical segment. These were the one offs which led to the decline in the speciality chemicals segment QoQ.
• The Nutrition segment also had the impact of the rise in coal costs but on the pricing front the nutrition business has done well but the volumes were affected due to the Avian and Swine flu in the Europe and the US region. But now the situation is improving. We will see normalization of the nutrition business in Q3FY23.
• The products which the company sells in Europe are value added products. The company’s end uses of products are not very energy intensive and the contribution of energy costs to the finished products is not very large. So there is no drop in the company’s products consumption in Europe. 
• The fluorine speciality chemical plant is expected to start next year because the product is still under scale. The company already has a fluorination plant from where they are developing 2-3 products. All the customer approvals are taking place from the existing plant. The company has announced the extension of fluorination derivatives capacity which should come next year.
• In the speciality segment and the nutrition segment the current margin profile should be in the range of 18-20%. In the chemical intermediates segment the margin profile should be close to 10%. An improvement in this margin profile will happen as and when the new capacities in the specialty and nutrition segment are on stream to increase the proportion of speciality segment and the nutrition segment. From the second half of FY23 the company’s margin profile is expected to improve.
• The company is taking various ESG initiatives to reduce the carbon footprint. 
• The demand for the green acetic acid is specifically for the food products. The other products which the company is making in the speciality chemical segment are used for pharmaceutical and agrochemicals as value added intermediates.
• On the ethanol side the company is planning for the grain based ethanol plant.
• There is an inventory loss of acetic acid. We closed the last quarter at around $740 of acetic acid. And June quarter we closed at $540. There has been some impact negatively. The margin in acetic anhydride business is purely on volume. Volumes of acetic anhydride have significantly grown in the Europe market. So volumes of acetic anhydride are strong and it is expected to be strong.There is also an impact of coal prices on acetic anhydride but the company is in a position to recover that.
• In case of chemical intermediates the company is in the position to push the margins because of volumes.
• During the quarter, changes in inventory is negative and of Rs 112 crores which is due to the fact that the company sold the extra volumes of the low cost inventory.
• All the agroactive products the company is working on are under approval process with the customers. Also the company has started working on regulatory approvals in various countries working with customers. The agroactive plant will be ready by Q4FY24 since it is a greenfield expansion. By that time the company expects that it should be in a position to get the approvals from customers as well as get the regulatory approvals in various countries. The company would be in a position to start commercial operation of agroactives plant by FY25.
• The company is doing capex in phases.In the first phase the company is doing a capex of Rs 200 crores. In the agrochemical for phase-I the asset turnover will be close to between 1.5 – 2x. Phase-II will consist of herbicide and further expansion of insecticide which the company has not yet announced.
• Acetaldehyde expansion which was there in the Q4FY22 presentation is not included in the Q1FY23 presentation because the acetaldehyde investment was for the captive consumption which has gone along with the other investments. Acetaldehyde is also used for food grade acetic acid.
• Overall capex of Rs 2,050 crores will generate a peak revenue of around Rs 4,500 crores implying an asset turnover of 2.25x. Roughly segment wise asset turnover would be:

1. Speciality Chemicals: 1.5 – 2x
2. Nutrition & Health Solution: 2 – 2.5x
3. Chemical Intermediates: 2 – 2.5x

• • Nutrition Premixes is not a significant business in the nutrition segment. Domestically it is a smaller part of the business which is growing now. Currently the company is focussing on the Indian market because demand for the nutrition premixes is growing. Animal feed segment is looking for more and more premixes and the market is growing and therefore the company is also launching new products in this niche segment where the margins are better. 
  • Niacinamide is the larger part of the business in the nutrition and health solution segment. 
  • There was lower utilization of Niacinamide due to the spread of Avian and Swine Flu in the Europe and US regions.
  • In the current year the company is not expecting a volume growth over last year in vitamin B3 because the first quarter and second quarter would be impacted. But from Q3 onwards the demand will be normalized.
  • The Vitamin B3 expansion will start in this year and mainly be completed in the next year.
  • The number of new inquiries for the CDMO business is increasing. 
  • The company would get a bigger opportunity in import substitution as well as in higher exports. 
  • Speciality Chemicals segment is the most intensive segment in Power and F