This Small Cap Chemical Stock Can Give 81% Return, Says Prabhudas Lilladher

If you buy shares of Jubilant Ingrevia, a small-cap chemical stock, you may earn a return of nearly 81% from it, believes Prabhudas Lilladher. The leading stock broking firm has reduced its estimates for the first half of this fiscal year and next year because of the headwinds at play.

Jubilant Ingrevia's consolidated revenue declined 12% YoY/1% QoQ to Rs 11.5 billion as estimated. It was largely led by chemical intermediates (CI) revenue decline on lower raw material prices (key RM acetic acid prices down 40% YoY), and a decline in prices of nutrition & health solutions (NHS) products while SPCM revenue was +5% YoY/flat QoQ.

FY23 has been a challenging year due to the non-availability of contracted coal and NHS volumes. It was impacted due to avian influenza and the CI segment witnessing price correction led by key raw materials (acetic acid price corrected 40% YoY) and spread normalisation, as per the brokerage firm's research note.

Outlook, Valuation & Rating

While H1FY24 might remain muted as some of these challenges persist, the NHS segment is witnessing healthy volume recovery coupled with improved prices. Acetic anhydride volumes are also improving steadily and CDMO is also seeing strong traction (to aid absorption of new capacities), the stock broking firm mentioned.

Further, Prabhudas Liladher explains, "We reduce our FY24/25E EBITDA estimate by 18%/13% and EPS estimate by 14%/6% to factor) headwinds on global agrochemicals (generics) along with resultant margin pressure in Specialty Chemicals (SPCM) in H1FY24 and spreads normalisation in CI."

The brokerage firm shares the valuation details of the company stock and, based on its analysis, it would rally by nearly 80%. "We cut our SOTP-based TP to Rs715 (earlier Rs 810) to factor weak Q4 performance and near term headwinds. We believe with capex outlay and timeline's intact, aided by healthy operating cashflows and a strong balance sheet, the company is well poised to tap into long term growth opportunities as challenges abate. Reiterate 'BUY'," it added.

Dividend Announcement

The Board of Directors of the company has, in its meeting held on 16th May 2023, recommended a final dividend of 250%, i.e. Rs 2.50 per equity share of Re 1 each, for the year ended March 31, 2023.

It is subject to the approval of members at the ensuing annual general meeting. No record date or book closure details were shared by the company.

About The Company

Jubilant Ingrevia is a small cap company incorporated in 2019. It offers high-quality and innovative life science ingredients to enrich all forms of life. The company offers a broad portfolio of high-quality ingredients that find application in a wide range of industries. Its portfolio also extends to custom development and manufacturing for pharmaceutical and agrochemical customers on an exclusive basis.

Stock Movement

The current market price of the stock is Rs 396.50 per share, which has marginally increased by 0.09% over the previous day's closing. In the last one year, the share price plunged by 13.94%, but since its listing in March 2021, it has surged by 32.61%.

Disclaimer

The stock has been picked from the brokerage report of Prabhudas Lilladher. Greynium Information Technologies, the author and the brokerage firm are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.