jubilant ingrevia ltd share price Management discussions


CAUTIONARY STATEMENT

"Statements in the Annual Report, particularly those, which relate to Management Discussion & Analysis, describing the Companys objectives, projections, estimates and expectations, may constitute forward-looking statements within the meaning of applicable laws and regulations. Although the expectations are based on reasonable assumptions, the actual results might differ significantly".

The Life Science Ingredients (LSI) business of Jubilant Life Sciences Limited demerged to Jubilant Ingrevia Limited (Company) with effect from 1st February 2021 and during the year ended 31st March 2021, the financial results of the Company comprises results only for two months of operations, starting from 1st February 2021, being the effective date of demerger. To provide the comprehensive picture of the operations of the Company on continuing basis the results for FY 2020 and FY 2021 has been presented by combining the relevant portion of the published results of LSI Segment of Jubilant Pharmova Limited and Company as under:

• Results from 1st April 2020 to 31st January 2021 and previous year (FY 2020) has been taken from the reported discontinued operations for LSI segment of Jubilant Pharmova Limited.

• Results from February 2021 to March 2021 has been taken from the Audited results of Company.

• EPS has been computed on combined profits assuming existence of share capital throughout the year.

Jubilant Ingrevia Limited (JVL) is a global integrated life science products and solutions provider, serving Pharmaceutical, Nutrition, Agrochemical, Consumer and Industrial customers with its customised products and solutions that are innovative, cost effective and in compliance with the highest-level of quality standards.

Economy

GLOBAL ECONOMIC REVIEW AND OUTLOOK

The onset of the COVID-19 pandemic caused major disruptions within societies and economies across the globe. The global lockdowns adversely impacted several industries, such as manufacturing, construction, and logistics. However, vaccination drives gaining momentum across the world have led to an optimistic outlook of a faster recovery in FY 2021. Many rating agencies have reported a V-shaped recovery rate for the global GDP. The average projected GDP growth rates of developed countries are in the range of 3% to 5% in FY 2021, according to the International Monetary Fund (IMF). The developing countries are expected to witness an improved growth rate as compared to the advanced economies. However, further COVID-19 waves and variants, leading to restrictions and lockdowns, may dampen the growth outlook.

REVIEW OF INDIAN ECONOMY AND GROWTH OUTLOOK

The Indian economy de-grew by 7.3% in FY 2021 adversely impacted by the lockdown, which was imposed to contain the spread of the pandemic. Stringent restrictions announced in the month of April 2020 and May 2020 brought the economy to an abrupt standstill and led to a contradiction of 22.4% in the first quarter of FY 2021. As the economy reopened, pent-up and festive demand led to a fast recovery. The slew of government policy measures and stimulus, including the RsAatmaNirbhar BharatRs package, were introduced in three tranches and valued at ~15% of the GDP They were instrumental in cushioning the worst of the impact.

The second wave is expected to have some impact on the recovery, especially in the first quarter of FY 2022. With an increased focus on vaccination drives, localised restrictions and adaptation to the Rsnew normalRs, the impact is expected to be limited. The IMF expects India to grow 12.5% in FY 2022, with future waves and vaccination drives remaining critical factors for the pace of economic recovery.

Industry Review

CHEMICAL INDUSTRY

This is one of the most pervasive industries for manufacturing with its products being critical to a wide range of end-use, including basic, industrial and consumer applications. The global chemicals market is estimated at US$ 4.2 trillion in FY 2020 and is projected to reach a market size of US$ 5.2 trillion in FY 2025 with a Compound Annual Growth Rate (CAGR) of 4.6% during the forecast period.

In India too, the chemical industry is among one of the major industries with its growth correlated to end-use industries. The Indian chemicals market is estimated at US$ 194 billion in FY 2020 and is projected to reach a market size of US$ 279 billion in FY 2025 with a CAGR of 7.6% during the forecast period. The Government of India has also launched support initiatives, which will aid in the growth of the industry across the country.

Speciality Chemicals Industry

The growth of the speciality chemicals market is primarily attributed to the increase in R&D activities to develop new products, rise in demand in the Asia Pacific region, and the growth in the end-user industries. However, key factors such as volatile raw material costs and environmental concerns regarding toxicity issues of some speciality chemicals are projected to slowdown the growth. The global speciality chemicals industry is estimated at US$ 857 billion in FY 2020 and it is expected to grow at 6.4% CAGR to reach US$ 1,168 billion by FY 2025. (Projected on the basis of given CAGR)

The growth in the Indian market has been driven by a combination of an increase in domestic demand from end-user segments and strong export growth. The Indian speciality chemicals industry is estimated to have market size of US$ 36 billion in FY 2020 growing with CAGR of 12.4% to reach US$ 64.5 billion by FY 2025. (estimated on the basis of CAGR)

INDIA: SPECIALITY CHEMICALS MARKET FY15 - FY25

Custom Development and Manufacturing Organisation (CDMO)

CDMO is used for custom synthesis of Agrochemical Technical Grades or Active Ingredients, Intermediates and Speciality Chemical products along with other Fine Chemicals such as Active Pharmaceutical Ingredients.

Source: Secondary Research, Primary Interviews, Related Research Publications, Industry Journals, Press Releases, and MarketsandMarkets Analysis

In FY20, ~80% of the Indian Speciality Chemicals CDMO market was captured by Fine Chemicals (by value), which are single molecule compounds that are utilised in Crop Protection Chemicals and Active Pharmaceutical Ingredients industries. These single molecule compounds are mainly Active Ingredients in either agrochemical or pharmaceutical formulation. Active Ingredients are among the expensive chemicals utilised in the agrochemical or pharmaceutical final consumer product, significantly contributing to the total

INDIA: CUSTOM DEVELOPMENT AND MANUFACTURING MARKET FY15 - FY25

Source: Secondary Research, Primary Interviews, Related Research Publications, Industry Journals, Press Releases, and MarketsandMarkets Analysis cost. IndiaS CDMO market is driven by R&D investment in the development of new molecules and chemistries along with efforts to reduce capital investments in the overall Fine Chemicals segment. One of the major driving factors for the Indian CDMO market is the increase in contract manufacturing of Fine Chemicals. Major global companies prefer to invest in contract manufacturing primarily due to low-cost manufacturing in India and the redirection of innovatorsRs focus towards core competencies.

NUTRITION INDUSTRY

The nutrition industry is one of the most robust and fast-growing markets. The growing health and wellness trend, changing food landscape, increasing demand for fortified food products and growing demand for nutritional supplements packed in single tablets and capsules have been instrumental in driving the growth of this market. Vitamin and Mineral supplements are added in the feed according to the type of livestock, life stage, permissible formulations, dosage, and nutrient composition of the feed. The market for vitamin feed supplements is projected to be valued at US$ 5,051.5 million by FY 2025 at a CAGR of 7.2% from FY 2020 to FY 2025. The Asia Pacific market accounted for the largest share of 28.4% in FY 2019 and is projected to grow at a CAGR of 7.4% during the forecast period. While RoW (Rest of the World) is projected to be the fastest-growing market at a CAGR of 7.7% from FY 2020 to FY 2025.

There has been a positive trend in end-use markets with annual production of meat growing steadily. Poultry, which is most susceptible to vitamin deficiencies among other livestock, has been growing at the highest rate in India. Also, compared to the livestock sector, the poultry sector in India is better organised, more scientific, and constantly moving towards modernisation. These factors are expected to have a beneficial impact on the market for feed vitamins. India is not dependent on imports for livestock feeds as the country is an important exporter of solvent-extracted meals.

INDIA: FEED VITAMIN SUPPLEMENTS MARKET, FY15 - FY25

e-Estimated; p-Projected

Source: Secondary Research, Primary Interviews, Related Research Publications, Industry Journals, Press Releases, and MarketsandMarkets Analysis Cattle feed in the country is essentially enriched with trace minerals such as Manganese, Iron, Cobalt, Zinc, Copper and Iodine. Macro minerals such as Phosphorus and Calcium are also major constituents. Poultry feed constitutes all of these components as well as Vitamin B complex vitamins.

The Indian market for vitamin feed supplements, especially for poultry and ruminant feedstuff, is growing owing to the increasing demand for animal protein and poultry products.

FEED VITAMIN SUPPLEMENTS MARKET SHARE, BY LIVESTOCK SPECIES, FY20

FEED ADDITIVES INDUSTRY

Feed additives are added to livestock feed as they improve the feed quality, prevent diseases, thereby improving livestock performance and health. They also increase the yield and quality of food obtained from the livestock. The feed additives market is projected to grow at a CAGR of 6.1% from FY 2020, to reach US$ 47.0 billion by FY 2025 in terms of value. The growth of this market is attributed to the growing focus on livestock and their welfare, which, in turn, is driven by the global increase in demand for meat and poultry products, rise in global feed production with improved technologies and increasing standardisation of meat products due to contamination from bacteria such as Salmonella, Campylobacter jejuni, Yersinia enterocolitica, Clostridium perfringens, and Staphylococcus aureus. India is expected to be one of the fast-growing markets for livestock feed as animal husbandry is a dominant occupation in the country.

India accounted for the second-largest share of the additives market with 10% in FY 2020, in terms of volume, in the Asia Pacific region. The country is expected to be one of the fast-growing markets for livestock feed, as animal husbandry is a dominant occupation in the country. India was the sixth-largest producer of feed in FY 2019, according to a survey conducted by Alltech. The country had about 1,201 feed mills in FY 2018, with the production of about 34.2 million MT of feed. This also marked a 7% increase in the amount of feed production in the country in FY 2019 from FY 2018.

NUTRACEUTICAL PRODUCTS

The growth in nutraceutical products is attributed to the increasing number of health-conscious consumers, along with the increasing demand for functional food, functional beverages, and dietary supplements. In India, nutrition structure/function health claims are permitted, and nutritional labelling is mandatory for all functional foods as per the Food and Safety Standards Act (FSSA), 2006. In India, the rising healthcare costs and adoption of preventive measures for diseases is driving the nutraceutical products market.

INDIA: NUTRACEUTICAL PRODUCTS MARKET, FY15-FY25

INDUSTRIAL CHEMICALS

Industrial chemicals include Sulphuric Acid, Ethylene, Propylene, Nitrogen, and Sodium Hydroxide among others. These are manufactured through complicated chemical reactions, most industrial chemicals are made by extraction and purification from natural substances, including minerals, natural gas, petroleum, plants, air, and water. Oxygen and Nitrogen gas are made by freezing air, Phosphates from marine deposits, Ethanol by fermenting corn, Chlorine from salt water and many chemicals are made by boiling petroleum.

India is one of the major production hubs for chemicals. The rapid urbanisation and globalisation has had a positive impact on the demand patterns in the Packaging and Paints & Coatings industry. Consumers are increasingly demanding for better infrastructure and lifestyle which has led to the growth of the market. Global players have also established their manufacturing centres in the Indian market so as to benefit from the lower costs of production.

Vitamins and minerals contribute to a larger share of the

Indian dietary supplements market, which is followed by the herbal, proteins, and other segments.

India is projected to be the fastest growing country in the Asia Pacific region for functional food and beverage products, owing to a vast consumer base and the growing demand for healthier food and beverage products. According to the President of India Food Processors Association, the major growth propeller for functional food and beverage products in the country is the increasing disposable income level of consumers. Consumers are now willing to spend an additional amount for fortified products, which has helped manufacturers of functional food ingredients to gain a substantial market opportunity. This trend is also aided by the growing awareness of the consumption of healthy food products with many consumers solely focused on obtaining optimal nutrition.

GLOBAL INDUSTRIAL CHEMICALS MARKET, FY 2015-FY 2025

LIFE SCIENCE CHEMICALS

The global Acetic Anhydride in terms of end-use is dominated by industrial applications largely driven by its demand from use in the production of Cellulose Acetate flake, Monochloroacetic Acid, and detergents. Industrial applications account for approximately 79% of the total market, followed by pharmaceutical applications, which accounted for approximately 14% in FY 2020, and other applications such as agrochemicals and nutrition.

GLOBAL ACETIC ANHYDRIDE MARKET, FY 2015-FY 2025

Ethyl Acetate global market, in terms of end-use application, is also dominated by industrial applications largely driven by the demand from paints and coatings, inks and printing and adhesives industries among others.

Industrial applications account for ~67% of the total market, followed by pharmaceuticals, which accounts for ~31% in FY 2019.

GLOBAL ETHYL ACETATE MARKET, FY 2015-FY 2025

The Indian market for acetic anhydride is estimated to hold a market size of US$ 201.5 million in FY 2020 and is estimated to reach US$ 249.1 million with a CAGR of 4.3% by FY 2025. The industrial applications of Acetic Anhydride in the manufacture of Cellulose acetate and in detergent industries is the highest in the Indian context as consumer demand for cigarettes have remained steady in the market. The textile industry in the country has also been booming which has also aided in the growth of the market for Acetic anhydride.

The Indian market for Ethyl acetate is estimated at US$ 118.5 million in FY 2020 and is projected to reach US$ 139.2 million with a CAGR of 4.4% by FY 2025. India is the fastest-growing country during the forecast period. The higher purchasing power in the country has led to a strong demand in the sectors such as Construction and Paint & Coatings due to which the demand for Ethyl acetate is projected to be high during the forecast period.

Financial Performance FY 2021

(In Rs Million)
Particulars FY20 FY21 YoY (%)
Total Revenue from Operations 31,786 34,911 10%
Speciality Chemicals 11,044 11,236 2%
Nutrition & Health Solutions 5,369 6,299 17%
Life Science Chemicals 15,374 17,376 13%
Other Income 100 148 48%
Total Income 31,886 35,059 10%
Total Operating Expenditure 27,795 28,794 3%
Segment EBITDA
Speciality Chemicals 2,369 2,683 13%
Nutrition & Health Solutions 949 1,302 37%
Life Science Chemicals 993 2,360 138%
Unallocated Corporate (Expenses)/Income (219) (80) -
Reported EBITDA 4,091 6,265 53%
Depreciation and Amortisation 1,221 1,248 (2%)
Finance Cost 877 705 20%
Profit Before Tax (Before Exceptional Items) 1,994 4,313
Exceptional Items 17 129 (661%)
Profit Before Tax (After Exceptional Items) 1,977 4,183 112%
Tax Expenses (Net) (228) 1,022 -
Profit After Tax 2,205 3,161 43%
EPS - Face Value Rs 1 13.8 19.9 43%
Segment EBITDA Margins
Speciality Chemicals 21.4% 23.9%
Nutrition & Health Solutions 17.7% 20.7%
Life Science Chemicals 6.5% 13.6%
Reported EBITDA Margin 12.9% 17.9%
Net Margin 6.9% 9.1%

Note

During the year ended 31st March 2021, the financial results of the company comprises results only for two months of operations, starting from 1st February 2021, being the effective date of demerger. To provide the comprehensive picture of the operations of the Company on continuing basis, the results for FY 2021 has been presented by combining the relevant portion of the published results of LSI Segment of Jubilant Pharmova Limited and Jubilant Ingrevia Limited are as Under:

- Results from 1st April 2020 to 31st January 2021 and previous year(FY 2020) has been taken from the reported discontinued operations for LSI segment of Jubilant Pharmova Limited.

- Results from February 2021 to March 2021 has been taken from the Audited results of Jubilant Ingrevia Limited.

- EPS has been computed on combined profits assuming existence of share capital throughout the year

REVENUE FROM OPERATIONS

Total Revenue from operations of the Company during the year was at Rs 34,911 million as compared to Rs 31,786 million in FY 2020. Revenue grew by 10% on YoY basis, driven by growth in volume and pricing together.

Revenue from Speciality Chemicals segment grew 2% YoY driven by growth in Fine Chemicals and new CDMO projects. Speciality Chemicals revenue stood at Rs 11,236 million as against Rs 11,044 million in FY 2020 and contributed 32% to overall revenue.

Revenue from Nutrition & Health Solutions segment grew by 17% on YoY basis, driven by conducive market condition and robust growth in Niacinamide prices. Segmental revenue stood at Rs 6,299 million in the year as compared to Rs 5,369 million in previous year.

Revenue from Life Science Chemicals segment grew by 13% YoY driven by favourable market conditions from Pharma, Packaging, Industrial applications both in domestic as well as export markets. Segmental revenue stood at Rs 17,376 million in the year as compared to Rs 15,374 million in previous year.

EXPENDITURE

Expenditure from operation were at Rs 28,794 million in FY 2021 as compared to Rs 27,795 million in the previous year. Material cost stood at Rs 18,364 million vs 16,854 million in FY 2020. Power and Fuel was at Rs 3,235 million as compared to Rs 3,616 million in FY 2020. Employee benefit expense in FY 2021 was at Rs 2,990 million as against Rs 2,845 million in FY 2020. Other expense were marginally lower at Rs 4,204 million as compared to Rs 4,481 million in FY 2020.

EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTISATION (EBITDA)

The Reported EBITDA (after allocation of corporate Expenses/Incomes) was at Rs 6,265 million in FY 2021 as compared to Rs 4,091 million in the previous year. Translating to EBITDA margin of 17.9% in FY 2021, as against 12.9% in FY 2020.

The EBITDA of Speciality Chemical segment was at Rs 2,683 million as against Rs 2,369 million in FY 2020 with margins of 23.9% as against 21.4% in FY 2020. Nutrition & Health Solution Segment EBITDA was at Rs 1,302 million as compared to Rs 949 million in FY 2020, translating to EBITDA margin of 20.7% in FY 2021. Life Science Chemical Segments EBITDA was at Rs 2,360 million as compared to Rs 993 million in FY 2020, translating to EBITDA margins of 13.6% in FY 2021.

FINANCE COST AND DEPRECIATION

Depreciation and Amortisation expenses were at Rs 1,248 million vs Rs 1,221 million in FY 2020. Finance cost was at Rs 705 million as compared to Rs 877 million in FY 2020. During FY 2021, Company reduced Gross Debt and Net Debt by Rs 7,472 million and Rs 5,938 million respectively.

PROFIT BEFORE TAX

Profit Before Tax was at Rs 4,183 million as compared to Rs 1,977 million in FY 2020.

TAX EXPENSE

Tax expenses for the year was at Rs 1,022 million in FY 2021 as compared to Rs (228) million in FY 2020, lower tax in FY 2020 was primarily driven by tax rate revision by finance ministry in October 19, which led to deferred tax liability reversal.

PROFIT AFTER TAX

During FY 2021, Profit After Tax was at Rs 3,161 million, as against Rs 2,205 million in the previous year. Earnings Per Share (EPS) was at Rs 19.9 per equity share of Rs 1 each.

KEY FINANCIAL RATIOS
Key Financial Ratios/Parameters Units FY20 FY21
Debtor Turnover times 7.93 8.20
Inventory Turnover times 2.62 2.75
Current Ratio times 1.3 1.6
Interest Coverage times 3.3 7.1
Net Debt to Equity Ratio times 0.22
Reported EBITDA Margin % 12.9 17.9
Net Profit Margin % 6.9 9.1
Return on Net Worth % - 16.4
Return on Capital Employed (RoCE) % 12.0 20.2