J. G. Chemicals Ltd IPO | News | Overview | Verdict

IPO listed on 13 Mar'24

J. G. Chemicals Ltd

Minimum Investment

₹ 14,807 / 67 shares

Grey market premium

₹ 50 (23% premium)

Issue price

₹ 221

Listing price

₹ 209

% since launch

Listing on

Mar 13, 2024

Our Verdict:

J. G. Chemicals Ltd is the largest Zinc Oxide manufacturer in India, boasting a 30% market share domestically. The firm is branching out into the sectors of ceramics, pharmaceuticals, and agrochemicals, which promise higher profit margins. However, the expansion into these areas might be gradual due to the regulated nature of these sectors.
In terms of valuation, the IPO seems to be fairly priced with a Price-to-Earnings (P/E) ratio of 13x based on FY23 earnings. However, when considering the annualized FY24 earnings against the post-IPO fully diluted paid-up equity capital, the P/E ratio escalates to 35 times. Additionally, the positive grey market premium (GMP) also predicts a favourable debut on the stock exchanges.
Considering these factors, it is advisable for risk-tolerant investors to consider subscribing to the IPO for short-term gains. Those with a long-term investment horizon might want to monitor the firm’s progress in its new ventures, as its long-term success will depend significantly on the effective implementation of its diversification strategy.

About the company

Founded in

15 Mar'75

Managing director

Anirudh Jhunjhunwala

JG Chemicals stands as India's largest zinc oxide manufacturer and ranks within the top 10 globally. It offers a diverse portfolio of over 80 zinc oxide grades, meeting the needs of a broad spectrum of clients across various industries. Its key subsidiary, BDJ Oxides Pvt Ltd, distinguishes itself as the sole zinc oxide producer in India with IATF certification, making it a preferred supplier for tyre manufacturers that serve Original Equipment Manufacturers (OEMs).
JG Chemicals boasts a combined manufacturing capacity of 77,040 MTPA across three facilities located in Jangalpur and Belur in Kolkata, West Bengal, and Naidupeta in Nellore District, Andhra Pradesh.

STRENGTHS

Market Leadership: JG Chemicals stands as the largest manufacturer of zinc oxides in India and ranks among the top 10 globally. It utilizes the French process, the leading technology for zinc oxide production, which is adopted by major producers in the Americas, Europe, and Asia. As of the end of March 2022, the firm held a market share of approximately 30%.
Impressive Financial Performance: JG Chemicals has exhibited notable financial growth, with its revenue from operations increasing at a Compound Annual Growth Rate (CAGR) of 34% between FY21 and FY23. During this period, the firm also reported a significant 32% growth in EBITDA and a 40% increase in net profit.
Robust Return Metrics: JG Chemicals has consistently enhanced its Return on Equity, which grew from 24.23% in FY21 to 30.50% in FY23. Additionally, its Return on Capital Employed rose from 25.27% in FY21 to 29.38% in FY23.
Leading Supplier Status: JG Chemicals is recognized as a key supplier to nine of the top ten global tyre manufacturers and all of the top 11 Indian tyre manufacturers. It also serves prominent manufacturers in the paints, footwear, and cosmetics sectors in India.
Established Customer Relationships: JG Chemicals has forged enduring relationships with a diverse clientele across various end-user industries. Over the past three years, it has successfully marketed and sold its products to over 200 domestic and more than 50 international customers across over 10 countries.

RISK FACTORS

Underperformance in 9M FY24: For the first nine months up to December 2023, JG Chemicals experienced a substantial decrease in financial performance, with EBITDA falling to Rs 32.94 crore from Rs 85.12 crore for the entire fiscal year of 2023. Similarly, net profit dropped to Rs 18.51 crore, down from Rs 56.79 crore in FY23. The firm faced challenges in FY24 due to a significant decrease in Zinc prices, leading to lower product prices and high raw material costs, which pushed EBITDA margins below 7% in 9M FY24.
Dependence on a Single Product: JG Chemicals’ revenue is heavily reliant on the sales of zinc oxide (in various grades), accounting for over 98% of its total revenue over the past three years. A decrease in demand for zinc oxide could significantly impact its business and financial outcomes.
Dependence on Subsidiaries: A considerable portion of JG Chemicals’ revenue is obtained from its key subsidiary, BDJ Oxides. In the nine months of FY24, 64% of its operational revenue came from this subsidiary.
Concentration of Customer Base: A major share of JG Chemicals’ revenue is generated from a limited number of clients. In the nine-month period ending December 31, 2023, and for the full fiscal year 2023, its top ten clients constituted 77.02% and 76.09% of its revenue, respectively. The loss or diminution of business from these principal clients could critically impair the company's operational efficiency and financial stability.
Cash Flow Concerns: JG Chemicals noted negative cash flows from operations in FY21, alongside negative cash flows from investing and financing activities over the last two fiscal years. Persistent negative cash flows may adversely affect its operational viability.

Financials

All Values are in Cr.

Issue details

Issue type

Mainstream

Issue size

₹ 251.19 crore

Fresh Issue

₹ 165 crore

OFS

₹ 86.19 crore

Price range

₹ 210 - 221

Lot size

67 shares

Issue Objective

The net proceeds from the issue are intended to be utilised towards:

Investing in its key subsidiary, BDJ Oxides, for the purposes of (i) repaying or pre-paying specific loans it has taken; (ii) financing the capital expenditures needed to establish a research and development center in Andhra Pradesh; and (iii) supporting its long-term working capital needs;
Providing for the long-term working capital needs of the company; and
General corporate purposes.

Dates

Bidding open

5 Mar'24

Bidding close

7 Mar'24

Allotment date

11 Mar'24

Refund date

12 Mar'24

Listing

13 Mar'24

IPO Reservations

Qualified institutional buyers

<50%

Non-institutional investors

>15%

Retail individual investors

>35%

Read the Offer Document

This document has been issued by Liquide Solutions Private Limited for information purposes only. It does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. Investors should seek personal and independent advice regarding the appropriateness of investing in any of the funds, securities, other investment or investment strategies that may have been discussed or referred herein and should understand that the views regarding future prospects may or may not be realized. In no event shall Liquide Life Private Limited and / or its affiliates or any of their directors, trustees, officers and employees be liable for any direct, indirect, special, incidental or consequential damages arising out of the use of information / opinion herein.

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