JUBLINGREA — earnings call

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Prepared remarks

Moderator · Conference Operator

Ladies and gentlemen, good day and welcome to Jubilant Ingrevia's Q2 FY'25

Questions and answers

Moderator · Conference Operator

We will now begin the question-and-answer session.

The first question is from the line of Siddharth Gadekar from Equirus.

Please go ahead.

Siddharth Gadekar

Congrats on a strong set of numbers and the contract win.

Sir, could you provide some clarity on the $300 million contract like in terms of timeline when do we expect this contract to start?

Deepak Jain

So, that's obviously one of the biggest events for us in this quarter.

So, as I already said, this is a $300 million plus contract which is over next five years.

The commencement of production will probably start sometime late next calendar year because we need time to prepare our Agrochemical plant to be able to produce this intermediate.

Siddharth Gadekar

So, how much incremental CAPEX we will be doing in that plant and how much time will it take to ramp up the entire volume?

Deepak Jain

So, I think as most of you already know we commissioned a new agro intermediate and active plant in the early part of this calendar year.

So, the plan is to do the modifications and expansion in that plant, and we will require at least another Rs.300 crore plus to do that over the next 12 to 14 months for that plant to be ready to deliver on this contract.

Siddharth Gadekar

And largely in terms of margins or ROCE, how should we look at this in terms of this contract?

Deepak Jain

See, I think I have said that in the past also, every decision we take at Ingrevia from an investment perspective, the minimum threshold for us is 20% EBITDA and 20% ROCE.

So, we have applied the same filters and same screens as finalize the commercial construct of this contact as well.

Siddharth Gadekar

And in terms of the value chain, can you just give us some understanding like how many steps would we be doing for the customer, or it would be your basic pyridine derivative that you would be supplying?

Deepak Jain

Siddharth, I unfortunately cannot disclose too much, but what I can say is, it's in one of our core chemistries and #2 it will be a fairly advanced intermediate, so complex one.

Siddharth Gadekar

Just one more last question is on the second contract that we have just spoken about where we said supplies will start from next year.

Can you give some color in terms of how much revenue can we expect from that contract?

Deepak Jain

So, again, I will not be able to give precise numbers.

I think more than the revenue more important thing is it's for a molecule or AI which is a proprietary one and which has not been launched by the innovator.

So, they have engaged us at a fairly early stage and even the initial volumes will be quite significant running into hundreds of tons and it's going to be high margin one for us as well and the supplies of this one will start in the early part of next financial year.

So, this will come earlier than the bigger one that we talk about.

Siddharth Gadekar

So, this we will not have to do any CAPEX, is that understanding correct?

Deepak Jain

Some marginal improvements in one of our existing plants, but no major CAPEX.

Moderator · Conference Operator

We have the next question from the line of Gokul Maheshwari from Awriga Capital.

Please go ahead.

Gokul Maheshwari

Deepak, you mentioned in your opening comments that you are also working on certain newer projects in your horizon.

While you will announce in due course, but if you could just give an overview of what areas are you really looking in terms of these CAPEX projects?

Deepak Jain

So, I think as we announced in Q4 of last fiscal year investor call, our Pinnacle 345 strategy has the aspiration of taking our revenue 3X of our size in next five years.

As part of that, we have worked out bottom-up plans across different business units and then the CAPEX that I talked about for the future are aligned with that strategy.

In fact, I had said that in these calls in the past, almost 100% of all incremental CAPEX is going to go into Specialty Chemical and Specialty part of Nutrition segment in future.

And if I just talk about the specific areas, obviously I cannot share too much details, but most of it will go to serve our CDMO business both on the agro and pharma side, our fine chemicals portfolio through multipurpose plant, our Specialty Nutrition products, particularly on the human and cosmetic grade side.

So, those are the areas where we will be investing further going forward.

Gokul Maheshwari

My second question is, while you mentioned that there is stability and very decent growth in the pharma side, could you elaborate a bit more on where are we on the Agrochem side in terms of your interaction with the customers-- is it destocking done or is prices bottomed or moving, what are you picking up while interacting with your clients?

Deepak Jain

Yes.

So, I think I would maintain what I said on the previous call also, Gokul.

Agrochemical sector in our view from a demand perspective, we think that the destocking problem is largely over, and we can see volumes coming back and you can also see our results where pyridine which goes almost 50% of our pyridine portfolio is built around Agrochemicals, we are seeing volumes coming back there.

So, for us that's the first indicator and we can already see that growth is coming back.

On the pricing side also, while the broader markets still have softer pricing, at least in our segments, there are pockets where we have already started to see prices also moving up.

Even though I think it may take some more time for the broader market to improve.

But by and that we are seeing good traction both from volume and pricing perspective in our core segment.

Gokul Maheshwari

And just on this part, is China still a headache for us in a sense that they producing as aggressively as what has been in that case for the last 12, 18 months?

Deepak Jain

See, I think if you look at even the import prices from China they seem to have bottomed out and have seen largely a flat trend on pricing over the last few months and even uptick in certain product segments, #1. #2, despite China being aggressive over the last 1-1.5 years, I think as I mentioned in my opening remarks, the China plus one trend is playing out very strongly with the lot of innovators and our customers speaking to us as us being there potentially Indian supplier from a reliability perspective.

And third, I think the biggest proof of this trend is the new contracts that we have signed on the CDMO side.

Both of them are in agro and that's despite the fact that the market has been down over the last 6-8 weeks.

Moderator · Conference Operator

The next question is from the line of Rohan Gupta from Nuvama Institutional Equities.

Please go ahead.

Rohan Gupta

Thanks for the opportunity and first of all, congratulations winning dual contracts in CDMO.

On the second contract, though I do not want to get into too much of the specifics of the contract, but if you can just share that it's at least $300 million kind of contract which you have mentioned in the PPT, what this $300 million means and what over a period of time?

Second, you mentioned that in your earlier remarks that this contract is actually I mean for the new AI, getting associated with the innovator at the early stage of product development.

If you can elaborate a little bit that the product has not yet been commercialized, still in the phase of commercialization phase one, phase two, what stage it is with the innovator and where and what product or at what stage of N minus 1 or final AI what we are making for the customer?

Deepak Jain

So, Rohan, I think you have mixed up the two different orders.

So, let me just talk about each one of them one by one so that there's absolute level of clarity.

The first one, I talked about is the big one, which is $300 million plus spread over next five years.

That is not the new AI.

This is an existing AI.

And we are doing an advanced intermediate for that AI.

It's a big contract.

And as I said, we will need to make our agro intermediate and AI plant ready over the next 12 months for us to be able to deliver on this contract and commercial production will commence sometime in second-half or later part of next calendar year.

So, that's one.

The second one is the new AI, which is a relatively smaller order that we have gotten.

It's for an AI which is not launched yet.

So, the innovator has gotten us involved in the early stage, but they expect the volumes to run into hundreds of tons even at the time of launch.

We are expecting the supplies to commence in the early part of FY'26, which is say April, May timeframe, which is when the product will be launched.

We will be making intermediate for this as well.

And this also is a multi-step process.

We will be doing one of the intermediates in that value chain.

Rohan Gupta

I was talking about the second contract only, not the first one.

So, when you say, sir, the early stage of the product innovation, so the product has yet to be launched by the customers, right, and whether we are replacing in intermediate manufacturing to whom we are replacing, whether the customer earlier was making it by himself or for buying this intermediate from China, what we are…?

Deepak Jain

No. So, Rohan, the final AI is not commercialized yet.

The customer obviously, was in the process of doing the development of the product so far and hence all the steps they were developing internally.

They have now gotten us involved where one of the intermediates which has linkage back to one of the platforms that we have in our portfolio.

That's why they have gotten us involved on this product.

Moderator · Conference Operator

The next question is from the line of Nitesh Dhoot from Dolat Capital.

Please go ahead.

Nitesh Dhoot

Good evening team, and thank you so much for the opportunity.

My first question is on the Specialty Chemical revenue.

What I see is the revenues are up Rs.

50 crore year-on-year for Q2 and as the PPT mentioned that there is a significant volume growth on a year-on-year basis.

So, how much of this growth is coming from pyridine and how much from diketene and where would we be in terms of capacity utilizations for both pyridine and diketene?

Deepak Jain

Thank you, Nitesh.

So, obviously, as you can see in our results, the Specialty Chemical revenue have grown year-on-year by almost 13%.

What I can tell you is in terms of volume; the growth has been much higher than this 13%.

Obviously, as all of you know versus last year the prices have come down.

So, that shaved off part of our overall growth.

The growth in terms of volume is close to 25% in this portfolio for us and it is a broad-based growth within our Specialty portfolio.

So, the pyridine building block has grown, pyridine derivatives have grown, diketene derivatives have also grown, microbial has also grown.

So, it's across segments.

In terms of second part of your question, the utilization level, on diketene, I think I had answered that in the previous quarter also and broadly the answer is same.

We have done two phases of extension in diketene.

The phase one happened almost 1.5, 2 years back.

There, our plants are running at (+75%) utilization levels.

The second phase expansion happened in the early part of this calendar year around March where we launched two more products.

Of the two products, for one the utilization levels are already close to 70%.

For the second one, we have supplied samples from the new plant to a few big customers and they are just in the final stages of approving the samples.

As soon as that happens, we expect even the second plant to take to 50% plus utilization hopefully within this or later by next quarter.

Nitesh Dhoot

In terms of pyridine capacity utilization?

Deepak Jain

We have mentioned in the past we have 48,000 tons of capacity for pyridine and picolines and we are running it at close to 75% to 80%.

Nitesh Dhoot

Secondly, on the capacity utilization on acetic anhydride on the 2,10,000 tons capacity and also in the food grade acetic acid if you can help elaborate?

Deepak Jain

So, acetic anhydride, you're right, we have almost 2,00,000 tons of capacity.

We are running acetic anhydride at around +70% utilization across our plants.

Obviously, as I mentioned in my opening remarks, there is some pressure on anhydride business particularly driven by lower paracetamol volumes and production.

We are hoping as the markets improve will be able to take that utilization level up.

But despite that if you see quarter-on-quarter in our broader acetyl portfolio, there has been an increase in volumes.

Nitesh Dhoot

On the choline chloride business, what I understand it's a largely domestic market oriented product there.

So, what's the strategy in terms of the pharma and the food grade, etc., that you mentioned?

Deepak Jain

So, choline does not go in pharma grade.

We have two parts of choline business; one is the animal feed grade choline which is the dry CC and liquid CC choline chloride, which we do largely in domestic market, but we also supply to some of the neighboring international markets.

That business volume wise is holding up, but there is some pressure on pricing because of the imports.

So, we are working through our cost structure and other areas to be able to maintain our market share there.

We are the biggest player in the domestic market there.

On the second part of choline, where as I announced in the previous two calls, we have launched a food grade and human Nutrition grade choline products, choline chloride and choline bitartrate.

Those products we have started to see in the market.

We are getting very good traction with most of our customers.

Many of the customers have now visited our plants as well and they have done the audit.

So, we are hoping that the volumes will start picking up in that segment in the coming months.

Moderator · Conference Operator

The next question is from the line of Gaurav from Invesco Enterprises.

Please go ahead.

Gaurav

Thanks for this opportunity and congratulations for the good set of numbers.

So, my question is on our vision to grow our revenue to three times and EBITDA to four times in five-year time horizon.

So, I just want to understand what would be the base year when we are evaluating that from this number that we want to take to the three times of the revenue, is it the FY'24 or is it the current initial year FY'25 as the base year?

Deepak Jain

Somebody else also had asked this question in the last call.

So, the base year for revenue is FY'24, which is let's say 4,200 crore of revenue and the landing year is FY'29.

So, all the bottom-up estimates and planning was done keeping those numbers in mind.

Having said that, as I explained in the previous investor call, obviously there were certain assumptions we have made at that time when we did this exercise in January, February timeframe on pricing as well as market recovery, particularly on the Agrochemical side.

Given that there is some uncertainty and lag on that recovery, obviously, there could be a couple of quarters of a timeline tweaking to this, but by and large we stick to the overall vision we have crafted under Pinnacle 345.

Gaurav

Just for an understanding purpose, since mainly our revenue comes in three segments, Specialty Chemical, Nutrition and Health Solutions and the third one that is the chemical intermediates, which is a significant portion of our revenue, but in terms of the EBITDA this is not so great as compared to the Specialty Chemical and Nutrition and Health Solutions, right.

So, whatever proportion of revenue was there in FY'24 vis-à-vis what we envisage as per our Pinnacle 345 strategy, what would be the ratio of these three segments then we are envisaging to achieve a turnover of maybe approximately Rs.

12,000 crore after five years, is it going to the same proportion or proportion is going to be changing or I mean to say the mix is going to change?

Deepak Jain

No, so Gaurav, I think you have seen the number part.

You should also revisit the slide which we put in our presentation behind Pinnacle 345.

What it clearly states is the overall direction is to increase the share of Specialty and Nutrition in our business and that is something which we explicitly if you see even today's investor presentation we have laid out what percentage of EBITDA is coming from Nutrition and Specialty and that is close to 73% now.

The plan as well as expectation is that will continue to grow.

Today, acetyl constitutes roughly 35% to 40% of my revenue and almost 25% of EBITDA.

The relative share of acetyl in the overall portfolio will continue to come down as Specialty and Nutrition portfolio grow on the back of all the investments we have done in last three years and what we will continue to do even in future, as per the plans I described in response to one of the questions which came earlier.

Gaurav

I got that, and I was going to the presentation also, but when we are modeling or when we are expecting that, in terms of the percentage of the mix, right, you have clearly mentioned that 60% of the revenue between these two segments and EBITDA somewhere around 73% kind of EBITDA that is coming as of now.

But, over a period of time three, four, five years, this revenue mix I am not focusing on because EBITDA you have already given that four times you want to increase vis-à- vis FY'24, right.

So, what is going to be the mix change from 60% as of now which is going to be 65%, 70%, do your energy is more concentrated towards increasing the share?

Deepak Jain

Gaurav, I will not be able to give precise numbers as I should not, but yes, it will be north of 75% for sure for Specialty plus Nutrition together.

Gaurav

To achieve this strategy, any impact going to be in terms of our debt numbers like for incremental CAPEX, is it going to be funded from the internal accruals or external debt would be required to be taken up?

Deepak Jain

Yes, so I think again, I explained that in the last two calls and then we maintain that and you can see even in our last three quarters, we have been able to manage our debt in fact lower than what it was four quarters back, despite the fact that we have been continuously investing, So, what it means is by and large, our intent is to fund as much of incremental CAPEX as possible from our internal accrual which we have already seen and as well as the efficiency initiatives that we have taken.

So, we are going to continue.

We are expecting at least Rs.

600 to 800 crore of incremental CAPEX every year for the next three years at least and we feel a major proportion of that we can fund through internal accruals as well as the EBITDA which we hope to get on the back of all these investments.

If at all we need to, we will need to increase our debt level marginally only, right now we are at Rs.

650, 700 crore as Varun explained, but in no scenario we want it to go beyond Rs.

900, 1,000 crore and keeping our coverage ratio well under 1.4x, which is what we have internally set as a benchmark.

Moderator · Conference Operator

The next question is from the line of Malay Sameer from Breakthroughs in Stock Market.

Please go ahead.

Malay Sameer

Hi Deepak, congratulations for the 2 orders that you’ve got in CDMO.

Very impressive.

I just want to pick your mind on the Bio Secure regulation that is expected to be coming in by 2034.

We hear that there could be a very big swing away from China to the country that can supply and fill in that gap.

Now that we are becoming one of the world's largest suppliers and we have a full backward integration chain, do you think these orders that are coming in right now are just the tip of an iceberg?

Deepak Jain

That's a very good question.

First, let me answer your question at a slightly macro level based on all the interactions I have had with the customers as I mentioned in the past and then you can see in our IR presentation also.

We have been doing several road shows, we have done seven of them and we have met some 120, 130 customers and not just at a buyer level, but at a CXO level in many of these meetings.

So, obviously we gather a lot of insights and understanding of how the customers are thinking about their future supply chain.

And the consistent thing which I have heard in all these meetings is that everyone wants to diversify and add more reliable scale suppliers in India to de-risk from China and then that is what I said in my opening remarks as China plus one strategy which I think most of us have now heard several times, but I can tell you not even a single customer did not talk about it.

So, everyone is just talking about it, thinking about it proactively, some are of course at advanced stages, some are still thinking about it, but sooner or later it was anyway supposed to happen.

Now, with the Bio Security Act and obviously with the expected results of US elections, there is a feeling that it will become increasingly difficult for customers to rely only on Chinese suppliers and hence at least I expect this trend to only accelerate from here and leading to more and more outsourcing of manufacturing not just in pharma but also in Agrochemicals, cosmetics, semiconductor spaces to India.

Coming to now the second part of your question, I see, these two contracts, these are only the tip of the iceberg in terms of the number of such opportunities we expect to catch and realize in the coming years.

Obviously, the size of those opportunities could be different depending on which customer and which molecule you're talking about.

The first one that I described is a big opportunity in agro and it's one of the biggest contracts even in the Indian Agrochemical industry.

So, those ones are rare in my view.

So, in terms of numbers, to give you a sense, out of these 120 plus customer meetings, we have already created a pipeline of almost 100 plus opportunities.

Now, the size of those opportunities vary and obviously not all of them is going to convert, but we have created an internal funnel which we are working on and hoping that as some of these duty structures and China plus one strategy play out, we will be able to convert many more contracts in the coming quarters and years.

Malay Sameer

So, I was thinking aloud that if a large player is shifting away from China to India, they will look at a full backward integrated chain.

And as you just said in the presentation that we are such a large player not just in India, but of course India too, but we are a very large player globally, so would not that make us the first choice in India for those people to transition away from China?

Deepak Jain

We cannot generalize that.

Of course, the chemistries and product platforms which we have and there are seven or eight of them and you can see it in our IR presentation also, anything which is falling in those value chains, obviously we will be the natural and first contender to grab those opportunities.

We still need to be competitive, responsive, agile, all of that will still be required, but we will obviously have a natural advantage there.

Likewise, some of our peer companies in India who are present and deep in other value chains, they will have an advantage over us in those chemistry.

So, we cannot generalize it.

It is dependent on the chemistry.

I think the second part of it is of course all these companies while diversifying their value chains outside of China they are having a very strong focus on ESG as well and that is something where we score over many of our Indian peers, absolutely hands down, because if you see our ESG journey, we started way back in 2001 we are #2 in EcoVadis and Dow Jones ranking for several years now.

Every year we are taking several new initiatives and many of them we have announced in our presentations as well.

So, that advantage is going to be a huge and that advantage is going to give us an edge versus our peers.

On top of that, now if I take the recent WEF Green Lighthouse recognition that our plant had that's just establishes us as one of the not only just cost affected backward integrated and environmentally focused player but also digitally advanced player or peer in Indian chemical industry.

So, if you put all of those elements together, our backward integration, the different product platforms, cost competitiveness, environmental focus or ESG focus, digitally- enabled plants, and on top of that, willingness to invest CAPEX ahead of revenue, it makes us a very solid contender for all these opportunities which are coming India's way in the next few years.

Malay Sameer

So, Deepak, like for the first order that you announced, you're saying that it will come somewhere late in calendar '26 because we are investing into the peripheral -

Deepak Jain

Sorry, calendar '25, not calendar '26.

Malay Sameer

Okay.

Because we are investing in peripheral equipment, etc., so is it okay to assume that the future orders that will come to us will be executed with a much shorter time lag than receiving the orders compared to what we have done in the first two orders?

Deepak Jain

We have two examples right here.

One, we are going to execute within four to six months from now, another one which will take at least 12 months.

So, what I am trying to say is every order by definition, CDMO, ‘C’ stands for customize and customize means you have to have a customized set of facility depending on the nature of chemistry, the complexity of the molecule.

So, obviously if there is a molecule which falls in our chemistry and can be fitted into one of our existing plants the timeline for that will be much shorter.

That's a three to six months.

And that's why we are creating a multipurpose plant ahead of time so that we are ready with excess capacity and we can fix some of these molecules into those plants.

Obviously, if there is a bigger molecule which requires a specific kind of technology or process setup, the timelines and then we have to create a new plant or make significant changes to an existing plant, the timeline for that will be at least 12 months.

So, at this stage it's very difficult to give you a timeline in a generic way.

It will be customized to every order, but what I can assure and tell you is internally, our projects team, our design team, our operations team, we are gearing ourselves to ensure, even our R&D team, we are agile and in responding to our customers and deliver as quickly as possible because it's important not just for my P&L and balance sheet, it's important for my customers P&L even more because they wanted the products yesterday and they are coming to us now because of this pressure coming to them and with the Bio Security Act which you talked about, there is a huge amount of urgency in their minds to move quickly.

Moderator · Conference Operator

We have the next question from the line of Dhruv Muchhal from HDFC Asset Management.

Please go ahead.

Dhruv Muchhal

Apologies if this is a repeat.

If you can please help us some more granularity on the CAPEX plans that you have Rs.

600 to 800 crore per annum over the next three, four years, I understand largely this will be in Specialty and Nutrition, but some more granularity, where do they go, is it agro, is it pharma, is it I am not sure, pyridine, what areas are you looking at?

Deepak Jain

Dhruv, for the CAPEX, there were questions in the previous three calls also.

So, the wave-I of our CAPEX plan we had announced almost 2.5 years back of Rs.

2,000 crore.

And at that time, we had announced a bunch of projects.

65% to 70% of that CAPEX was supposed to go into Specialty and the Specialty part of our Nutrition portfolio, which we have by and large stuck to, and as I speak this fiscal year with almost Rs.

1,300, 1,400 crore of investment which had already happened in the last two years, we are going through the last leg of initial or wave-I, say, Rs.

2,000 crore that we had announced 2.5 years back.

So, this year with a couple of projects already in play between our boiler in Bharuch and the cosmetic and food grade Niacinamide plant and the few other debottlenecking and expansion plans, we will exhaust the wave-I Rs.

2,000 crore CAPEX.

So, that's wave-I.

But in order to deliver on our Pinnacle 345 aspiration in FY'29 or near about that time, we will need to take a wave-II CAPEX of Rs.

2,000 to 2,500 crore over the next three years which will be roughly, let's say, Rs.

700-800 crore that I was saying earlier.

What I can tell you is 100% of that will be geared towards opportunities which are falling in Specialty and Nutrition side of the portfolio.

Obviously, a lot of those opportunities which all will also be driven by what kind of CDMO and other contracts that we get from the customer because many of these will be multi-purpose plants where we can absorb any customized requirement which comes from our customers.

But the focus would be on CDMO opportunities in agro, in pharma, in semiconductors, the fine chemical derivatives in our pyridine and diketene value chain, the human and high value animal food and Nutrition grade products in our Nutrition portfolio.

So, those are the opportunities which we are looking at as we draw the investment plans for this second wave of Rs.

2,000, 2,500 crore of CAPEX over the next few years.

Dhruv Muchhal

So, primarily in the Specialty segment, the investments will be targeted towards the CDMO segment, be it pharma, agro or fine chem or semis, that is the fair understanding is it?

Deepak Jain

CDMO and fine chemical derivatives.

As you know, we are world #1 in pyridine and diketene also we have aspiration to become a global leader, and we do those derivatives, and this is our core portfolio.

So, we will be creating a multi-purpose plant to serve our pyridine and diketene derivatives portfolio to expand it in the coming years.

So, CDMO and fine chemicals are the two major parts within Specialty.

Dhruv Muchhal

Quickly on the first CDMO, $300 million contract, just trying to understand nature because there are various terms with industry uses for contracts.

Is this take or pay, is it equal revenue over every five years and once this comes how does your Specialty segment margins look like say, FY'27 when the full benefits probably starts to flow in?

Deepak Jain

So, Dhruv, I cannot disclose all the details for obvious reasons, but it is a classic CDMO contract where there is an obligation on both sides, the buyer and the seller.

It's a five-year contract with an even split of revenues over the five years.

And on the margin and ROCE, as I already answered in response to I think somebody asked one of the questions in the earlier part of this call, our internal threshold is 20% EBITDA and 20% plus ROCE.

So, this contract crosses the threshold on those benchmarks.

Moderator · Conference Operator

Ladies and gentlemen, we will take that as the last question for today.

I would now like to hand the conference over to the management for closing comments.

Over to you, sir.

Pavleen Taneja

We thank you all for joining this call today.

We hope we have been able to answer your queries.

For further clarification, we would request you to contact me and thank you once again for your interest in Jubilant Ingrevia Limited.

Moderator · Conference Operator

On behalf of Jubilant Ingrevia Limited, that concludes this conference.

Thank you all for joining us.

You may now disconnect your lines.

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