Jubilant Ingrevia Limited (JUBLINGREA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Jubilant Ingrevia Limited earnings conference call for the fourth quarter and financial year ended March 31, 2023. As a [Operator Instructions] please note that this conference is being recorded. I now hand the conference over to Mr. Pavleen Taneja, Director, Investor Relations, Jubilant Ingrevia Limited. Thank you, and over to you, sir.

Thank you, Tanvi. Good evening, everyone. Thank you for being with us on our quarter 4 and financial year 2023 earnings conference call of Jubilant Ingrevia Limited. I would like to remind you that some of the statements made on the call today could be forward-looking in nature, and a detailed disclaimer in this regard has been included in the press release and results presentation that has been shared on our website. On the call today, we have Mr. Shyam Bhartia , Chairman; Mr. Hari Bhartia, Co-Chairman; Mr. Rajesh Srivastava, CEO and Managing Director; Mr. Prakash Chandra Bisht, CFO, Jubilant Ingrevia Limited and Mr. Arvind Chokhany, Group CFO, Jubilant Bhartia Group. I now invite Mr. Shyam Bhartia to share his comments.

Thank you, Pavleen. A very good evening to everyone. Thank you for joining us on Q4 and Financial Year 2023 Earnings Conference Call of Jubilant Ingrevia Limited. We are happy to announce that during the year, FY '23, our Specialty Chemicals business grew 29%, Chemical Intermediate business placed highest ever volume of Acetic Anhydride and gained higher market share globally. However, Nutrition business has faced headwinds for niacinamide, leading to lower volume as well as lower price realization. EBITDA in FY '23 was lower mainly on account of higher energy prices and challenging market situation of niacinamide business. During the quarter, -- though our Specialty Chemicals business recorded a higher revenue and Chemical Intermediate business have placed higher volumes of acetic anhydride year-on-year. However, overall revenue was lower due to price of acetic acid leading to lower price of acetic anhydride and headwinds we continue to face in niacinamide business. Though EBITDA during the quarter for Chemical Intermediates business improved year-on-year. However, overall EBITDA performance impacted due to challenging market situation of niacinamide and some of our specialty products meant for agrochemical customers. We firmly believe that challenges faced in niacinamide business in some of the products in our Specialty Chemical made for agrochemicals are of short-term nature, and business is confident to regain volumes, revenue and profitability as market situation improves. Our endeavors towards growth plan remains undebted through our structured growth CapEx, and we are confident that driving robust growth in future. This growth was led primarily through our Specialty Chemicals and Nutrition Business segment. We are also glad to share that the Board has recommended a final dividend of 250%, that is INR 2.5 per equity share of the face value of INR 1 each for FY '23. This shall result in cash flow -- cash outflow of INR 39.8 crores. During the year, company has already declared an interim dividend of 250%, that is INR 2.5 per equity share of INR 1 each and the total dividend for FY '23 works out to the 500%. That is INR 5 per equity share of INR 1 each amounting to INR 79.6 crores of cash outflow. With this now, I hand over to Rajesh to discuss about the business in detail.

Thank you, Mr. Bhartia. Very good evening to all of you. At the outset, let me welcome you all for joining us today for Q4 and FY '23 investor call of Jubilant Ingrevia Limited. I sincerely hope that you and your loved ones are keeping very well. Let me now take you through the financial and operational performance of Jubilant Ingrevia Limited for the fourth quarter and financial year 2023. For the year FY '23, our revenue was lower over last year mainly due to lower price of acetic acid, leading to lower price realization of both acetic anhydride and ethyl acetate and due to headwinds we faced in niacinamide business. While our Specialty Chemical business revenue maintained healthy growth of 29%, we have also been successful to improve our market share of acetic anhydride by placing significantly higher volume over last year. Overall, in FY '23, our EBITDA was lower, mainly due to high energy costs, including coal prices, lower performance of niacinamide and normalization of as acetic anhydride market situation as compared to last year. Revenue during the quarter was lower on year-on-year basis due to lower price of acetic acid, leading to lower sales price realization of acetic anhydride and ethyl acetate and lower demand of niacinamide leading to lower volume as well as lower price realization. EBITDA during the quarter was down on a year-on-year basis, mainly due to lower performance of niacinamide and the headwind phased in Specialty Chemical business, mainly from agrochemical customers. However, Chemical Intermediates segment EBITDA improved on a year-on-year basis due to better price realization of acetic anhydride. We have started witnessing improvement in demand of niacinamide, while we expect improvement in demand of agrochemical customer to normalize by end of Q2 FY '24. On the energy cost front, we have arrested the increase in cost to a great extent, supported by lower coal prices as well as improving operational efficiencies both in generation as well as in conjunction. Further, our plans to reduce overall energy cost by sourcing power at Gajraula from grid, which will start by end of Q2 and from renewable sources which will materialize during next financial year or on the track. Now let me take you through the updates on all our 3 business segments: Specialty Chemicals. Our Specialty Chemicals business during FY '23 has recorded revenue growth of 29% over last year, mainly due to higher volume sales of both existing as well as new products. However, EBITDA for the year was lower over last year, mainly due to higher energy costs during the year and lower demand of agrochemical customer during H2. During the quarter, revenue of Specialty Chemical was lower year-on-year basis, and EBITDA for the quarter was lower year-on-year basis, mainly due to lower demand from agrochemical customers, leading to significant drop in price realization of some of our products meant for agrochemical and use. We continue to see positive traction in demand of our CDMO products in view of this during construction of our new GMP facility we have taken a conscious decision to upgrade the capacity, which though have delayed our GMP plant, however, will benefit us in longer term. We have commissioned both our cGMP plant in Bharuch and non-GMP plant in Gajraula now. Our new cGMP multipurpose plant in Bharuch will help us to facilitate our global pharmaceutical clients, new dev development program and will position Jubilant Ingrevia Limited as a leading partner of choice to innovators within regulated markets. Our multipurpose non-GMP plant at Gajraula will further aid us to structurally shift more towards value-added Specialty Chemical business. This multipurpose product facility has been engineered to handle multistep complex chemistries and will expand company's forehand to value-added derivatives of both pyridine and non-pyridine based products. Nutrition & Health Solutions, our Nutrition business has recorded 28% lower revenue during FY '23 over last year and EBITDA was impacted significantly mainly due to severe headwinds we have faced during the year due to avian and swine flu in U.S. and EU regions, leading to lower volume and significant price erosion of niacinamide. During the quarter, revenue of Nutrition business was lower -- were also lower year-on-year. However, sequentially, volume has started improving, while price remained under stress during the quarter. Business has started witnessing the improvement in demand as well as improvement in price of niacinamide in the present quarter. As mentioned by Mr. Bhartia, we firmly believe that the challenges faced in this segment are of short-term in nature and business is confident to regain volumes and revenue and profitability, along with improvement in market situation. Our efforts towards increasing our presence of niacinamide in food and cosmetic and used segment is yielding positive results. And in view of this, we have approved the CapEx to build new cGMP-compliant facility which will produce about 3,000 tonnes per annum cosmetic grade of niacinamide. This capacity will be ready during the quarter April to June 2024. In addition, our development work on bringing up new cGMP-compliant facility for food grade Vitamin B4 is going on track. We expect to approve this CapEx sometime during July to September quarter this year. Both the above initiatives will reduce our high dependency on global feed market and will provide consistency to our Nutrition business. Chemical Intermediates. Our Chemical Intermediates business has recorded lower revenue during FY '23 over last year, mainly due to lower prices of acetic acid, leading to lower price realization of acetic anhydride and ethyl acetate. We continue enhancing our market share of acetic anhydride both in domestic as well as international markets. Chemical Intermediates business EBITDA for FY '23 was lower than last year, mainly due to normalization of prices which was better during last year due to better market situation of acetic anhydride. During the quarter, revenue of Chemical Intermediate was lower year-on-year basis, mainly driven by lower price of acetic acid leading to lower price realization of finished products. EBITDA during the quarter was higher on year-on-year basis due to higher volumes. Overall outlook of acetic anhydride market appears to be stable, with global demand continues to grow in several end-use segments. During the quarter, we have been successful in bringing new customers for acetic anhydride, mainly in Europe region, which will ensure good utilization of newly added capacity of acetic anhydride. We would continue rationalizing our sales ethyl acetate and specialty ethanol to niche customers only to optimize our margins. Other financial details. The company was under the old tax regime during FY '23, and the ETR is 29.6%. Net debt at 31st March was INR 312 crores and net debt-to-EBITDA ratio was at 0.54x on the basis of trailing 12 months EBITDA. The net working capital percentage and number of days of working capital for Q4 FY '23 on the basis of our trailing 12 months turnover were at 17% and 62 days, respectively. The capital expenditure during quarter was INR 146 crores and for FY '23 was approximately INR 481 crores. Outlook and growth CapEx plan. The Specialty Chemical business, though we expect short-term impact in demand from agrochemical customers for some of our Specialty Chemical products, and we expect demand to normalize during H2 this year. Our niacinamide business is already witnessing improvement in global demand. And accordingly, we see price is also moving up. Our next new CapEx plan is going on track, and we continue to focus on improving our revenue mix from Specialty and Nutrition business segment. And with this, I would like to conclude our opening remark. We will now be happy to address any questions that you may have. Thank you.

We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Harsh Shah from Dimensional Securities.

Sir, first question is on Specialty Chemical division. To the price reduction, which we have seen, is it more related to demand slowdown? Or have you also seen additional supply come into the market? And what would be the inventory situation right now?

So in Specialty Chemical, the agrochemical customers demand was under pressure, so therefore, we saw the price realization was lower. And also the -- some of the products like pyridine, the prices have been under pressure. Therefore, the [Audio Gap] last year and last quarter.

By how much percentage have the realization been impacted?

Very difficult to do the exact percentage, but yes, there has been significant reduction in price realization. It was difficult to give you product-wise.

No. Maybe on a blanket basis in both Chemical Intermediate as well as Specialty Chemicals.

No, Chemical Intermediates, the price realization has been as per the acetic acid prices. So there has not been any deterioration of price. Our margins also have been good. So Chemical Intermediates, there was no challenge.

Okay. And do we continue to hold any inventory in our book, which was bought at a higher price that still needs to get sold and whose impact is yet to be recognized in the books?

No, no, no. We are not carrying -- so this performance is not because we are carrying high inventory. This performance was because globally, agrochemical demand was lower. So other suppliers have been supplying at much lower price to liquidate their material, but this is not the case for us. We are not carrying any extra inventory.

Okay. And sir, what would be the volume growth for Q4 and also for full financial year FY '23 across all 3 segments?

Volume growth in terms of Chemical Intermediates, we have grown to the extent of 7% to 8%. In Specialty Chemicals, in quarter 4, our volume has been almost flat. We have not grown. In Nutrition business, as you know, our volumes have degrown from last year. But sequentially, from Q3, we have grown our volume in niacinamide.

Okay. And sir, there's been slight -- there is an increase in the other expenses. Could you explain what could that be?

So the increase in the other expenses, primarily over last year is on account of this year's higher freight expenses, the higher warehousing charges and higher processing charges. Over the last quarter, the increase is mainly the above factors, which is freight, warehousing charges and processing charges, in addition to that, higher consumption of stores and displays. So these were the reasons for which... the most specific in a point -- these are general expenses.

They are general in nature. They are mostly general in nature.

And just last question. So since the realization of many of our products, key products has come down, be it Nutrition or Specialty Chemical even Chemical Intermediaries, are you changing our guidance of revenues because the guidance which we have given, the prices of all these products are much higher than what they are now. So do we stick to the same revenue guidance? Or do we want to bring that down in terms of absolute number revenue of the incremental CapEx.

No. So if you see, there is no fundamental change which is happening. This is -- as Mr. Bhartia also said, I also said, both these -- what is happening in the market is short term in nature. This is not going to last long. We are already seeing improvement in niacinamide market situation, and we are very hopeful that H2 even agrochemical market should start improving. So I don't think we are doing any change in our guidance for CapEx.

No, no, not the CapEx, but the revenue that you'll be generating from this CapEx. There is guiding or doubling of the revenue. So with the prices coming off?

There is no change much. There is not much change because we have given you guidance based on what realistically we will do. We have not given guidance, which is very hypothetical. It's more realistic guidance we have given.

The next question is from the line of Naushad Chaudhary from Aditya Birla.

Two clarifications. Firstly, in Specialty business, what percentage of revenue comes from Agchem and is entirely from the generic section? Or do we work on any innovative molecules here in specialty?

So Agchem is contributing to almost 37% to 38% up of our Specialty Chemical revenue. And these are mostly the value-added derivatives, which we supply to large agrochemical companies, we are not supplying any innovative molecules.

Okay. And in terms of margin and EBIT run rate, this used to generate INR 60 crores, INR 70 crores that has come down to around INR 40 crores, do you believe next 2 quarters is difficult to guide on this? Or do you think this could be a bottom and sequentially you should see an improvement at least on the EBIT side in this division?

I can fairly assume this is the bottom we are touching. We have to have improvement from here. May not be immediately, but as I said from H2 will be definitely coming back to the normal situation.

And what all things should have to happen for the improvement from here on? Would that be from the price or would it from the raw material side, what should help from here on to improve this profitability.

Just -- I mean, if the demand improves in agrochemical, our products are very well suited. Customer will buy. And of course, we will sell the product as we have been doing it earlier. Fundamentals are same.

Okay. And these are our specialty largely are spot business? Or do you work on a contractual term?

No. So we do, as we explained earlier also, We always have the annual volume confirmation of the customers. And we discuss the volume dispatches every quarter. So we know we have the visibility of volume. But if the market situation changes, the customer can change his volume in between also. So we don't -- clearly what volume is asking during the year. .

Okay. Sir, in specialty, see there is an operating deleverage challenge, but do you also -- are you also experiencing the pricing pressure as well?

Yes. Because the demand is lower, of course, the pricing pressure is there.

Understood. And you expect this to improve from second half of this?

Yes. Yes.

The next question is from the line of Siddharth Gadekar from Equirus Capital.

So first on Specialty Chemicals. We have just highlighted that our volumes were flat Y-o-Y in Specialty Chemicals. And by the revenue numbers, they have increased 5% Y-o-Y. So what am I missing here in terms of like is that a realization decline, volume decline? Or what explains the margin profile in this quarter?

So sometimes this revenue also depends on the product mix, which you sell during the quarter, right? So it's difficult to say that -- so what we said that, yes, the revenue has increased, but volume has been flat. So because of product mix. We have almost 40 products to sell. So depending on which product mix, sometimes it happens.

Sir, secondly, in terms of agrochemicals, can you just point out which products actually have seen a slowdown that has impacted our performance?

So agrochemical pyridine and some pyridine derivatives because we have mainly pyridine, pyridine derivatives, which we are selling to agrochemical customers.

So the end agrochemicals, if you could highlight which are the agrochemicals which have seen the...

Yes. The biggest one is paraquat, diquat which is produced out of pyridine and there are many [indiscernible] products where we supply.

And lastly, in terms of our CapEx, we have removed the CapEx slide from the presentation. Is there a change in our CapEx guidance or anything?

No. Actually, for so many quarters, we have been just repeating the same picture. So -- and that we did because we formed a new company, we wanted much better communication, but I now don't want to confuse you guys. But there is no change in our guidance, as I said earlier. It's just that we made our presentation much more cleaner -- but of course, if there is any clarification question like you are asking, there is no change in CapEx.

Also what should be the CapEx for FY '24 and '25 then?

So '24, '25 or '23, '24?

FY '24 and FY '25? For the next 2 years.

Okay, FY '24, FY '25. So FY '24, I think we have a guidance of almost INR 700 crores cash outflow and FY '25 should be close to INR 600 crores as we said earlier, if you see our earlier presentation.

The next question is from the line of [indiscernible] from Spark Investment Advisors.

My question is more to do with the power cost, which has gone up substantially, it's a contract from FY '21 and FY '22? And also there is jump in the other expenses. So can you help us understand how the power costs are likely to move in coming 2 to 3 years? And how will it impact the profitability?

So if you see the quarter 4, our energy costs are close to normal situation, of course, a little higher, but it is -- it used to be very high in Q1, Q2, Q3. But we have arrested it, as I said. One is that coal prices have come down. Secondly, we have done a lot of efficiency improvement. And also, if you see our consumption profile in efficiency improvement, we have improved. So I think there is not much now in terms of very high cost of power and fuel. But of course, we are working further to optimize our energy cost. But yes, FY '22 has been very high as you have seen that.

Yes. So the [statistic] basis, what will be the power cost as a percentage of sales or some other ratio that you can help us with.

Again, percentage becomes very difficult because in our case, sometimes revenue becomes difficult to explain because of raw material prices. But on an average, if you see last year, we have been close to 18% of our revenue on our energy cost. So that percentage keeps changing. Right now, I think in Q4, it is close to about 23%, that's what I said that maybe little bit more improvement will be close to our normal situation.

Okay. And in terms of the Nutrition business, what is the outlook for FY '24 and -- for FY '24 and for next 5 years and for next 3 years as well?

So for 3 years, it is very difficult to confirm, but I can only tell you that in Nutrition business, the situation, we can see today is improving both in terms of price as well as demand. So we are happy to say that, of course, this quarter, we will have lag. But by end of this quarter, our situation is coming much, much better than what we have been earlier.

Okay. You have previous margin around 20% at time in Nutrition business [in terms of lag]. So what will be our sustainable number is what we are trying to understand.

I think we hope that H2 should be in a position to catch up.

The next question is from the line of Rohit Sinha from Sunidhi Securities.

One is that how we are seeing this Chinese market before and after the reopening of economy which all we are talking about and how it is now increasing our business segment?

I missed your point. You were asking about Chinese market.

Yes, yes. How the Chinese markets are actually influencing our business and how mainly it has influenced before and after the opening of this economy?

So we have been saying that few products like niacinamide or maybe some base products of pyridine where we have some competition from China and of course, there if China gets aggressive, we get impacted. But most of our other products like CDMO and other specialty derivatives there is hardly any competition we face. And in Chemical Intermediates, there is no competition from China. So I don't think there is much impact in these businesses. But some products like niacinamide, we have competition in China. Pyridine, we have competition in China. So we see if China becomes aggressive, then of course, we see the impact in price reduction.

Okay. So any change we have seen in the last few months especially, I mean, already, we are seeing kind of pressure in pyridine and niacinamide. So any improvement as of now? Or still it is a [indiscernible] integration?

Yes. So niacinamide, I already said that improvements are happening now. Niacinamide, we can clearly see the improvement both in demand as well as pricing. And China has really come out of material. So obviously, situations are improving.

Okay. Okay. And sir, one thing that what are the factors of measures, which should help us in sustaining the margin Speciality Chemical despite the volatility in the acetic acid prices or raw material, let the price be up or down, but we should at least manage to hold somewhere average margin in the segment. Or it may be, again, the question that we are looking at actual EBITDA growth or EBITDA margin improvement in that segment?

No, Specialty Chemical is not that situation. You can say Chemical Intermediate, I can agree with you that depending on acetic acid, our margin percentage may vary. But yes, in Chemical Intermediates, we continue to see our EBITDA improvements because of volume growth. Coming back to Speciality Chemicals, we have more or less stable margins in most of the product, but sometimes when the market situation like we have now, which is not only for us, it is for the global. There, then it becomes difficult to hold the prices and we have to compete with the market. And that time, we have to really see our margins going down. But in specialty, it doesn't happen that raw material prices goes up, so our margin will go down.

No. Just because this quarter, obviously, we are taking a different kind of pressure, but that is where I was indicating that it should not be coming again going forward as I think we were also saying that this should be a bottom out kind of situation for the...

Yes.

Okay. And one last question, if I can squeeze in. In power cost says earlier -- even was also question at how you are placed going forward. So as we are seeing that therefore on quarter-on-quarter, we are improving on power cost. So how we are now placed with the coal dependency? And are we still looking the opportunity for renewable process? I mean putting our plant and or looking for sourcing the renewal.

Overall power -- over coal prices have come down, as you know. So overall cost has come down. But in Gajraula , we see some positive results in terms of our contract volume supplies. Some volumes have started coming in. So that is why you see improvement. Coming back to further improvement, as we have said in our speech also, in Gajraula, now we are also going to get connectivity of grid. So of course, our power cost will further reduce and also, we are working on sourcing the renewable energy, which is solar and wind combined. That something will happen after a year or so, maybe 1.5 years so that we are not committing for this year. But yes, we are working, which will long term give us the benefit starting next year onwards. But currently, I think situation is very much in control both because the overall market price of coal has come down and government has eased a little bit of supplies of contracted coal in Gajraula.

The next question is from the line of Nitesh Dhoot to from Prabhudas Lilladher.

So my first question is on the Specialty Chemicals and on the CDMO side. So we had a couple of contracts totaling INR 270 crores. So that was to be executed over a 3-year period. How much are we targeting to execute in FY '24 from this contract? And if you can provide a revenue guidance for CDMO facilities overall for FY '24.

So that contract, which we had informed you is happening as contract volume. There is no change. Of course, what happens in these customers, sometimes the volumes you dispatch in one quarter and then second quarter, the volumes does not go. So quarter-on-quarter may vary. But on an annual basis, whatever we have -- customer has asked for is happening. There is no change.