Jubilant Ingrevia : LSI pureplay or too diversified? (2023)

Jubilant Ingrevia: LSI pureplay or too diversified? (1)

Jubilant Life Sciences Limited (JLL) demerged its Life Science Ingredients (LSI) and Pharma businesses w.e.f. 1st Feb, 2021 with the intention of unlocking shareholder value by creating separate & focused entities for both businesses, allowing the management to capture attractive growth opportunities and to enable the shareholders to hold onto pure-play entities. Let’s understand the structure of JLL pre and post demerger before we go deeper into the LSI Business.

The pre-demerger JLL comprised of 4 parts namely Jubilant Pharma Limited, Jubilant Biosys Limited, Jubilant Therapeutics Limited and Life Science Ingredients Business with their respective businesses shown in Exhibit 1

Jubilant Ingrevia: LSI pureplay or too diversified? (2)

LSI Business has now been carved out and renamed Jubilant Ingrevia while the remaining businesses continue to operate under the demerged entity which has been renamed Jubilant Pharmova Limited w.e.f. 1st Feb, 2021. The structure post-demerger can be seen in Exhibit 2

Jubilant Ingrevia: LSI pureplay or too diversified? (3)

Now let us have a deeper look at the LSI Business which is set to be listed in March, 2021 (as per management estimates) with a mirror shareholding pattern of Jubilant Pharmova Limited as on the record date of 5th February, 2021.

Let’s have a look at the numbers first before we dig deeper into the business.

During 9M FY21, the LSI Business (referred to as Jubilant Ingrevia henceforth) had a revenue of Rs. 2413 cr (2% growth YOY), EBITDA stood at Rs. 418 cr (34% growth YOY), PAT was Rs. 221 cr (28% growth YOY) while EPS for the same period was Rs. 13.86 (Exhibit 3)

Overview

The beginning of Jubilant Ingrevia can be traced back to 1978 when Jubilant Lifesciences started its operations as Vam Organic Chemicals Ltd. Today, Ingrevia operates 61 plants across 5 sites in 3 states with 3 R&D Centers and houses 90 highly qualified scientists (out of which around 20 are PhDs). It has 1400+ customers spread over 50+ countries with its products having application in Pharma, Nutrition, Agrochemicals, Consumer Products and other industrial applications like Paints & Coatings, Print & Packaging, Solvents, Fuel Blending (Exhibit 4).

Jubilant Ingrevia: LSI pureplay or too diversified? (5)

Ingrevia’s business has 3 broad segments (Exhibit 5)

Jubilant Ingrevia: LSI pureplay or too diversified? (6)
  1. Speciality Chemicals

Ingrevia has a portfolio of around 70 products (the largest globally) in Pyridines, Picolines & its derivatives. It is the lowest cost producer of Pyridine-Beta Picoline enabling it to be amongst the top 2 globally.

Pyridine and Beta-Picoline are derived as joint products from the same manufacturing process. To produce one, the other has to be necessarily produced.

Ingrevia utilizes about 45% of its Pyridine & Picoline volume for captive value-added products thus keeping it insulated against fluctuations in prices of inputs used for downstream products.

It serves around 420 customers globally, including 15 of the top 20 pharma & 7 of the top 10 agrochemical companies. Ingrevia also offers CDMO services in this segment with 4 intermediates being in Phase II across anti-viral therapeutic and cosmetic applications and 3 intermediates in Phase III across antineoplastic, antiretroviral, and antithrombotic therapeutics.

Applications of its various products from this segment can be seen in Exhibit 6 while breakup of sales across applications can be seen in Exhibit 7.

Jubilant Ingrevia: LSI pureplay or too diversified? (8)

2. Nutrition & Health Solutions

Jubilant Ingrevia: LSI pureplay or too diversified? (9)

Ingrevia offers around 34 products in this segment serving around 400 global customers. It is the number 1 producer globally of Niacinamide (a form of Vitamin B3) and amongst the top 2 manufacturers of Vitamin B3. Beta Picoline, a key RM for Vitamin B3 is completely produced in-house. Vitamin B3 has several applications as seen in Exhibit 8.

It is worth noting that pyridine (one of the joint products in manufacture of beta picoline) is extensively used in paraquat, a herbicide. Paraquat has been banned in more than 32 countries on account of its high toxicity which resulted in deaths of those using them and coming in regular contact with them. As a result, demand for pyridine has come down, resulting in production cuts and in turn production cuts in Beta-Picoline as well. As a result, prices of Beta-Picoline (a major RM for Vitamin B3) are expected to go up. Ingrevia however is not majorly dependent on paraquat for its pyridine consumption. With a cut in production of Pyridine-Beta Picoline by other players, Ingrevia expects to gain market share in Vitamin B3 on back of its continued low cost production.

Ingrevia is also India’s largest manufacturer of Vitamin B4 (Choline Chloride). It has an extensive range of offerings in Animal and Human Nutrition Space (Exhibit 9 and 10) with some of the products being contract manufactured and some simply being imported and traded (not manufactured).

Jubilant Ingrevia: LSI pureplay or too diversified? (10)
Jubilant Ingrevia: LSI pureplay or too diversified? (11)

Life Science Chemicals

Globally, Ingrevia is among the top 2 manufacturers of Acetic Anhydride and Propionic Anhydride in the merchant market while it is the largest manufacturer of Bio-Acetaldehyde.

It is also amongst the leading suppliers of fuel grade Ethanol to Oil Marketing Companies (OMCs), supporting India’s Ethanol Blended Petrol(EBP) Programme wherein OMCs sell petrol blended with ethanol up to 10%. This programme has been extended to the whole of India except Union Territories of Andaman Nicobar and Lakshadweep islands with effect from 01st April, 2019 and it seeks to reduce pollution, import dependence for energy requirements, conserve foreign exchange and increase value addition in the sugar industry enabling them to clear cane price arrears of farmers.

Ingrevia’s life science chemicals find application in a wide range of industries as visible in Exhibit 11

Jubilant Ingrevia: LSI pureplay or too diversified? (12)

Breakup of sales of life science chemicals across geographies and applications can be seen in Exhibit 12

Jubilant Ingrevia: LSI pureplay or too diversified? (13)

Road Ahead

Ingrevia’s management expects global customers to diversify their supply chain from China and to establish a reliable alternate second source. India is likely to emerge as the next best alternative. Ingrevia thus has extensive expansion plans. It plans to introduce more than 60 new products over the next 3–4 years and to invest around 900 crore during the same period.

In the speciality chemical segment, it plans to invest Rs. 550 crore over 3 years. This shall be utilized in forward integration of Ketene capabilities by launching 6 Diketene derivatives and adding 8 value-added Diketene derivatives later on. It also plans to invest in CDMO expansion by setting up GMP & Non-GMP multi-product facilities for pharma & crop protection customers. It might also explore moving up the value chain from its existing products to produce agro-active.

In the nutrition & health solutions segment, Ingrevia plans to invest around Rs. 100 cr over the next 3 years. It plans to expand Vitamin B3 capacity by 20% from the current 13,000 MT/year and launch various value-added grades of Vitamin B3. It plans to upgrade its facility to be US DMF & European CEP compliant so that it can enter the regulated pharma market of Niacinamide. It also intends to enhance its portfolio with value-added premixes and invest in premix plant expansion.

In the life science chemicals segment, Ingrevia plans to invest in another acetic anhydride facility to take advantage of the lack of such fresh facilities globally. It will invest around 250 crore which will increase its acetic anhydride capacity by 35% and will further strengthen its global leadership.

Conclusion

Jubilant Ingrevia plans to forward integrate into several niche markets while consolidating its leadership position in its existing products under the able leadership of its CEO and MD, Mr. Rajesh Srivastava who has been with the company since 2000. With a focussed attempt at execution, Ingrevia’s journey ahead shall be one to watch out for.

Sources: Jubilant Lifesciences concalls, annual report, Jubilant Ingrevia analyst meet, investor presentation and other publicly available information

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