A Jhunjhunwala bet is being backed to climb 54% in 12 months

Jubilant Ingrevia, a portfolio stock of Rakesh Jhunjhunwala, is being backed to set the Street alight over the next year as investors may rerate the stock because of its compressed valuations to peers despite high earnings per share growth potential.

Brokerage firm Edelweiss Securities recently initiated coverage on the stock with a buy rating and a price target of Rs 1,006, implying returns of nearly 54 per cent.

“The company’s solid presence in pharma and agro, and relationships with global leaders would help it successfully foray into growth avenues such as new chemistry (diketene) and intermediate manufacturing for agrochemicals/CDMO,” Edelweiss Securities said in a report.

As per Edelweiss Securities, Jubilant Ingrevia’s business model is currently underappreciated by investors given that the company is generating a return on capital employed of greater than 22 per cent and has a debt-free balance sheet.

To be sure, Jubilant Ingrevia is a niche player within the niche specialty chemical industry. The company is one of the leading producers of pyridine-based value-added products, which is used in manufacturing of vitamins, dyes, medicines and other organic compounds. However, this business is largely overshadowed by the lifesciences business of the company, which is commoditised and therefore, earns lower margins.

Jhunjhunwala pared his stake in the company to 5.5 per cent in the quarter ended September from 6.3 per cent in the previous quarter.

Edelweiss Securities is of the view that the company is capable of creating a dominant market position in a niche specialty chemical market and is witnessing growth bubbles in the form of new chemicals like diketene and contract manufacturing of agrochemicals.

“We believe JIL’s solid relationships with global pharma and agrochemical leaders and a strong sector tailwind will facilitate growth in agrochemical intermediates/CDMO space,” Edelweiss Securities said.
Such is the confidence of Edelweiss Securities that despite valuing the company’s specialty chemicals business at 10 per cent discount to industry average and the commodity business at just 10 times one-year forward earnings, it sees 54 per cent upside in the stock.

The risks to Edelweiss’ bullish outlook are a major setback to the company’s specialty chemical business, inability to successfully foray into new chemical and agro-chemical intermediates and delay in commissioning expansion projects.

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