Jubilant Ingrevia Limited (JUBLINGREA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Jubilant Ingrevia's Q2 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Pavleen Taneja, Head of Investor Relations at Jubilant Ingrevia Limited. Thank you, and over to Mr. Taneja.

Thank you, Darvin. Good evening, everyone. Thank you for joining our quarter 2 of financial year 2025 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. Deepak Jain, CEO and Managing Director; Mr. Varun Gupta, CFO, Jubilant Ingrevia Limited; and Mr. Arvind Chokhany, Group CFO, Jubilant Bhartia Group. I now invite Mr. Shyam Bhartia to share his comments. Over to you, sir.

Thank you, Pavleen. A very good evening to everyone. Thank you for joining us on the quarter 2 of the financial year 2025 earnings conference call of Jubilant Ingrevia Limited. We are pleased to announce a healthy quarter-on-quarter, year-on-year growth for the quarter, fueled by enhanced performance of our Specialty Chemicals and Nutrition Health & Solutions business, as well as the advantages gained from cost savings measures implemented over the last few quarters. Let me share the overall market updates with you all. Globally, chemical markets are gradually improving in 2024, with volume showing a marginal growth over last year, and we are witnessing the same in our businesses. The pharmaceutical end-use segment continues to experience steady demand, supported by stable pricing and volume placements. Our Pharma folio in Fine Chemicals reflects the sentiments. We continue to face pressure in Acetyl business though due to low demand in the paracetamol segment. The agrochemical sector is beginning to show some signs of improvement. The excess inventory situation is gradually resolving and the volumes are recovering in pyridine-based products. We are optimistic that steady recovery will continue over the coming quarters. The Nutrition segment, demand remained steady, with niacinamide volumes showing an upward trend and prices rising during the quarter. Meanwhile, the demand for Choline remain stable, although the pricing pressure continued due to high imports. Let me talk about our business updates. In Specialty Chemicals business, we saw a notable increase in volumes of high-margin Fine Chemicals business in both quarter-on-quarter, year-on-year. The pyridine and diketene segments showed material year-on-year growth, driven by higher volumes. The CDMO business continues to show good traction with customers across pharma, agrochemicals and semiconductor segments, although at an early stage. In Nutrition & Health Solutions business, significant year-on-year, quarter-on-quarter growth was driven by increased volumes and prices of niacinamide. Margin growth was boosted by a better product mix and higher share of volumes versus last quarter from human-grade products. In e Chemical Intermediates business, quarter-on-quarter growth was attributed to increase in volumes of ethyl acetate and acetic anhydride. However, year-on-year performance declined mainly due to lower prices. We are excited to share that we have signed a 5-year agreement with a multinational agro innovator to produce a key intermediate for one of their strategic agrochemicals. Jubilant Ingrevia will manufacture the intermediate using the MNC's proprietary technology. As a result of this contract, the company anticipates a significant increase in overall revenue share from its agrochemical CDMO business, both commercial products commencement of production. We are glad to announce that our r inclusion in the prestigious Global Lighthouse Network, GLN, of the World Economic Forum, WEF. WEF has recognized Jubilant Ingrevia Limited's Bharuch manufacturing facility as a global manufacturing lighthouse, making us only Indian company to achieve this distinction in this cohort. Over the last few years, we have made significant investments to digitally transform our plants. And results are evident in the enhanced efficiency, environmental performance and safety measures. We are grateful to the WEF for their ongoing partnership in this journey. Now, let me share a few details of our future outlook. We expect to see improvement in our overall business performance in FY '25, particularly within Specialty Chemicals and Nutrition & Health Solutions business segments. Consistent with the last few quarters, our primary focus remains on customer centricity, utilizing the newly commissioned plants, enhancing operational efficiency, leading to further improvement in margins. We expect sequential improvement in the performance in Q3 and Q4, with H2 FY '25 to be even better versus FY '25. We are committed to our growth plans through our ambitious Pinnacle 345 vision of achieving 3x revenue and 4x EBITDA within 5 years. With this, I now hand over to Deepak to discuss the business in detail and wishing all of you a very happy and a prosperous Diwali.

Thank you, Mr. Bhartia. A very good evening to all of you. At the outset, I would like to thank you all for joining us today for the quarter 2 of FY '25 Investor Call of Jubilant Ingrevia Limited. Let me first take you through the overall market overview for the second quarter of this fiscal year. In pharmaceuticals, during the quarter, we observed steady demand and good visibility on volume across segments, particularly in pyridine derivatives. Additionally, prices largely remained stable, with slight increase in certain segments. However, demand driven by paracetamol segment continues to face challenges as most customers operated their plants at suboptimal capacities. In the agrochemical sector, demand is slowly returning and issues related to global inventory destocking seems to be easing. However, we anticipate that full recovery will be gradual. Volumes for pyridine-based products are also showing signs of recovery. We expect that additional capacity in select agrochemical products in the coming years will further boost pyridine demand. In Nutrition, we are seeing an increase in niacinamide volume offtake, with prices also experiencing the rise. Demand for choline remained stable, although pricing pressure from international competition persisted for most part of Q2. We are also making ongoing efforts to gradually enhance traction in products in that human consumption. We have rolled out several new initiatives in the last 3 quarters in line with our Pinnacle 345 growth road map that we announced a few months back. Let me share a few key highlights to demonstrate the progress across those initiatives. Number one, our core product platforms continue to drive growth and maintain our leadership position. We upheld our market share despite facing significant challenges in the acetyl sector. We achieved significant bond growth in pyridine and picoline on a year-on-year basis. We are now globally #1 player in pyridine and picoline and the only [ scaled ] non-Chinese player. In niacinamide, we retained our leadership position being the top 2 players in feed grade. We also achieved steady quarter-on-quarter growth in volumes, along with marginal increase in prices. In acetic anhydride we have marginal quarter-on-quarter growth in volume, although prices continue to remain under pressure. Despite the challenging circumstances, we managed to maintain our market share in H1 FY '25 in both Indian and European markets. Number two, we continue to maintain our revenue share of the Specialty and Nutrition business to 59% and EBITDA share at 73% in the overall portfolio. Our Fine Chemicals, Microbial and Nutrition products are showing strong year-on-year growth. Our new product lines in diketene and food-grade choline bitartrate are demonstrating strong momentum as well. During the quarter, we secured orders in agrochemical space with 2 large MNC agro innovators. On the first one, by securing one of the largest CDMO deals in the agrochemical sector in India, we will serve as a critical agro intermediate supplier for a product from a multinational corporation. Our aim is to partner with the client to scale up production in a reliable, sustainable, cost-efficient and quality-assured manner. Furthermore, this partnership suppose our commitment to rapidly growing and investing in our CDMO business in the coming years. On the second one, we also have received -- we have also received similar but relatively smaller CDMO orders from another agrochemical innovator for a key intermediate of their new AI. The supplies are expected to start in early FY '26, and we hope this intermediate will scale up significantly in coming years as our innovator customer grows the AI volumes going forward. Our extensive customer engagement through roadshows continued in quarter 2 of FY '25 also with successful events held in Japan, Europe, U.S., China and India. These efforts have generated significant interest in collaborating across the agro, pharma, nutrition and semiconductor spaces. We are already experiencing an increase in our export share rising to 48% in Q2 FY '25 compared to 38% in Q2 of FY '24, thereby reducing our reliance on the domestic market. Our export grew by 30% year-over-year, with the European Union and Japan driving this growth. With the China Plus One strategy gaining momentum, we are seeing a steady stream of inquiries from global clients. Many of these discussions are progressing into advantages, and we are confident in our ability to meet their long-term needs in the future. Number three, with our heightened emphasis on ESG, sustainability is central to our operations. As global leaders, particularly in Europe and the United States ramping up their efforts to cut Scope 3 emissions, Jubilant Ingrevia is dedicated to aligning with this goal and furthering our sustainability initiatives. In recognition of our ESG efforts, the WEF has honored our Bharuch manufacturing facility as a global manufacturing lighthouse, making us the only Indian company to achieve this distinction within the cohort and amongst the select few ones in chemicals industry globally. Through this program, we implemented 4 [ IR ] technologies at our Bharuch site and reskilled many employees to prepare them for a digital future. Utilizing over 30-plus integrated use cases that leverage artificial intelligence, machine learning, IoT-based digital [ trains ] and predictive platforms, we achieved a 60% reduction in overall process variability and significantly increased production volumes. This initiative also boosted workforce productivity by more than 20% and cut Scope 1 emissions by over 20%. Number four, our long-term CapEx plans are on track, with continued investments in new opportunities such as food and cosmetic-grade niacinamide, slated for commissioning in Q3 of FY '25 and other multipurpose [ plants ] in the pipeline. In coming quarters, we will announce the launch of more CapEx projects in line with our long-term growth strategy. Number five, we have further strengthened our leadership team by welcoming Mr. Varun Gupta as our new CFO and Mr. Birajeev Singh as our new supply chain head. Both Varun and Birajeev come with deep experience and expertise in their respective fields. With all the changes we have made in the organization, including in the top team, in last 1 year, I'm glad to share that we now have one of the best and most energized team at [ JBL ] to drive us towards our long-term Pinnacle 345 ambitions. And number six, finally, on cost front, as I have announced in the previous quarters, we continue to make the organization leaner and agile, with over INR 120 crores per year of savings already mobilized. We have also been able to successfully manage our net working capital at optimal levels for last 3 quarters, driven by our inventory optimization and aggressively -- aggressive DSO management. Now let me take you through the updates on all of our 3 business segments individually. Specialty Chemicals. During the quarter, the Specialty Chemicals segment revenue grew by 13% on a year-on-year basis on account of higher volumes coming from pyridine's building block and derivatives. EBITDA for Specialty Chemicals grew by 26% on a year-on-year basis on the back of increase in volumes of high-margin Fine Chemicals pyridine derivatives, both quarter-on-quarter and year-on-year, touching almost 20% EBITDA margin. Our CDMO business is on a robust growth plan, underscored by the signing of a 5-year USD 300 million-plus contract with a multinational agro innovator. The diketene plant operated at a healthy utilization level, with good volume traction in the newly commissioned facility. The pyrithiones platform demonstrated strong market acceptance and experience both quarter-on-quarter and year-on-year growth. In Nutrition & Health Solutions business segment, during the quarter, revenue for the Nutrition business increased by 12% year-on-year, driven by higher sales volumes of both animal- and human-grade niacinamide along with elevated pricing. EBITDA for the quarter increased by 29% year-over-year, primarily due to shift in volume mix towards human-grade products as well as Lean initiatives and optimized input costs. Overall, niacinamide demand remained stable during the quarter, though pricing improved significantly during the quarter. Newly launched products, food-grade column choline chloride and choline bitartrate, continued getting traction in the market. Our GMP-compliant facility for food and cosmetic grade vitamin B3 is set to launch in Q3 FY '25, and we are already seeing strong customer interest in booking advanced volumes. In Chemical Intermediates business segments, quarterly revenue increased by 5% on a quarter-on-quarter basis due to improvement in volumes of acetic anhydride and ethyl acetate. EBITDA for the quarter improved by 13% on quarter-on-quarter basis, primarily due to marginal -- marginally higher volumes and cost saving initiatives, although this was partially offset by rising ocean freight costs in broader acetyls business. We witnessed improved volumes of ethyl acetate and acetic anhydride, even though acetic anhydride volumes remain under pressure on account of lower demand from paracetamol. Our market share for acetic anhydride in Europe remained firm, supported by the acquisition of new customers. We also maintained a dominant position in the domestic market for acetic anhydride. With this, let me now hand over to Varun to discuss the financials of the company. I wish you all very happy Diwali.

Thank you, Deepak. Festive greetings and a very good evening to all of you. I would like to thank you all for joining us today for the quarter 2 of financial year '25 investor call of Jubilant Ingrevia Limited. I'm excited to interact with all of you in my first investor call. The overall revenue during the quarter stood at INR 1,045 crores as against INR 1,020 crores in quarter 2 financial year '24. The revenue was higher mainly due to higher year-on-year revenue from Specialty Chemicals and Nutrition & Health Solutions business segments. The EBITDA for the quarter as INR [ 135 ] crores, reflecting a [ 13% ] increase quarter-on-quarter and 7% increase on a year-on-year basis. This growth was primarily driven by margin improvements in the Specialty Chemicals and nutrition segments along with cost optimization initiatives. During the quarter, we also reduced our net debt. When the net debt of the company as on 30th September '24 was INR 650 crores and net debt-to-EBITDA ratio was 1.4x on the basis of trailing 12 months EBITDA. The CapEx expenditure incurred during the quarter was INR 91 crores and year-to-date for the first 6 months was INR 207 crores, which was primarily funded through internal accruals. Net working capital percentage of turnover for quarter 2, 2025 was lower at 17.1% as against 24.3% in quarter 2 financial year '24. Number of days of working capital has reduced to 63 at against 89 in the same quarter last year. The PAT for the quarter is INR 59 crores as against INR 57 crores in quarter 2 financial year '24. With this, I would like to conclude our opening remarks. We are now happy -- we'll now be happy to address any questions that you may have.

[Operator Instructions] First question is from the line of Siddharth Gadekar from Equirus.

Congrats on the 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?

So that's obviously one of the biggest events for us in this quarter. So as I already said, this is $300 million-plus contract, which is over the next 5 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.

Sir, 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?

So I think as most of you already know, we have -- we commissioned a new agro intermediate and actives plant in the early part of this year -- in calendar year. So the plan is to do the modifications and expansion in that plant, and we will require at least another INR 300 crores plus to do that over the next 12 to 14 months for that plant to be ready to deliver on this contract.

Sir, and lastly, in terms of margins or ROCE, how should we look at this in terms of this contract?

See, I think I have said that in the past also, every decision we take at Ingrevia from investment perspective, the minimum threshold for us is 20% EBITDA and 20% ROCE. So we have applied the same filters and same screens as we finalize the commercial construct of this contract as well.

Sir, 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 a basic pyridine derivative that we will be supplying?

Siddharth, I unfortunately cannot disclose too much, but what I can say is it's in one of our core chemistries. And number two, it will be a fairly advanced intermediate. So complex one.

Just one more last question 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?

So again, I won't be able to give precise numbers. That one is also -- I think more than the revenue, the 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 tonnes. And it's going to be a 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 talked about.

So for this, we won't have to do any CapEx, is that understanding correct?

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

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

Deepak, you mentioned in your opening comments that you are also working on certain newer projects in the horizon, while -- which 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?

So I think as we announced in the Q4 of last fiscal year investor call, our Pinnacle 345 strategy has the aspiration of taking our revenue 3x of our size in the next 5 years. As part of that, we have worked out bottom-up plans across the different business units. And then the CapEx that I talked about for future are aligned with that strategy. Broadly speaking, most of the new incremental CapEx -- I think not broadly. In fact, I have said that in the call -- in these calls in the past, almost 100% of all incremental CapEx is going to go into Specialty Chemicals and specialty part of Nutrition segment in future. And if I just talk about the specific areas, obviously, I can't 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 sites. So those are the areas where we'll be investing further, going forward.

Okay. And my second question is, if you could just comment on -- 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 the destocking done? Or are prices bottomed or moving? What are you picking up while interacting with your clients?

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 grows 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 coming back. On the pricing side also, while the broader market still have softer pricing, at least in all 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 large speaking, at least we are seeing good traction, both from volume and pricing perspective in our core segments.

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

See, the -- I think if you look at even the import prices from China, they seem to have bottomed out and it's been largely a flat trend on pricing over the last few months and even uptick in certain product segments. That's number one. Number two, despite China being aggressive over the last 1.5 years, I think, as I mentioned in my opening remarks, the China Plus One trend is playing out very strongly with a 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.

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

First of all, congratulations on winning [ dual ] contracts in CDMO. Sir, on the second contract, though I don't want to get into too much of the specifics of the contract, but if you can just share that there's roughly $300 million kind of contract which you have mentioned in 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, I mean getting associated with the innovator at early stage of product development. If you can elaborate it a little bit, that the product has yet not been commercialized. It's still in the phase of commercialization, Phase I, Phase II. 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?

So Rohan, I think you have mixed up the 2 different orders. So let me just talk about each one of them one by one so that there's an absolute level of clarity. The first one I talked about is the big one, which is $300 million plus, spread over the next 5 years. That is not the new AI. This is an existing AI, and we are doing an advanced intermediates for that AI. And 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 the commercial production will commence sometime 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 has not launched yet. So the innovator has gotten us involved in the early stage, but they expect the volumes to run into hundreds of tonnes, even in -- at the time of launch, we are expecting the supplies to commence in the early part of FY '26, which is, let's say, April, May time frame, which is then the product will be launched. We'll be making intermediates for this as well. And this also is a multistep process. We will be doing one of the intermediates in that value chain.

Yes, sir. I was talking about the second contract only on the first one. So when you say the early stage of product innovation or the -- and so the product has yet to be launched by the customers, right, I mean? And whether we are replacing an intermediate manufacturing, to whom we are replacing, whether the customer earlier was making it by himself or buying this intermediate from China? What we are...

No. So Rohan, this product is not -- the final AI is not commercialized yet. The customer will be -- obviously, they were in the process of doing the development of the product so far. And hence, all the steps they were developing internally. They have now got 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 in this product.

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

My first question is on the Specialty Chemicals revenue. What I see is the revenues are up INR 50 crores 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 utilizations on capacity, utilizations for both pyridine and diketene?

No, thank you. Thank you, Nitesh. So obviously, the -- as you could see in our results, the Specialty Chemicals revenue has 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 shaped 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 blocks have grown, pyridine derivatives have grown. Diketene derivatives have also grown. So it is more -- Microbial has also grown. So it's across segments. In terms of your second part of your question, the utilization levels on diketene, I think I had answered that in the previous quarter also. And broadly, the answer is same. We have done 2 phases of expansion in diketene. The Phase I happened almost 1.5, 2 years back. There, our plants are running at 75%-plus utilization levels. The second phase expansion happened in the early part of this calendar year, around March, where we launched 2 more products. Of the 2 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 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 latest by next quarter.

And then in terms of pyridine capacity utilization?

Pyridine capacity utilization is the question?

Yes, sir.