Jubilant Industries Ltd. -- FY12e 850 cr. Revenues -- US$ 3 bn. Group Backing -- World Leadership in Operational Segments

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

Views are invited on Jubilant Industries Ltd. [ NSE – JUBLINDS ; BSE – 533320 ], a US$ 3 bn. Jubilant Bhartia Group company which counts amongst its group successful companies like Indian-listed  Jubilant Foodworks, Jubilant Lifesciences and AIM-listed  Jubilant Energy.

The most interesting aspect which compels us to invite fellow members' views with an aim to understand the company better is its valuation at just INR 220.24 cr. vis-a-vis FY12e revenues of  INR 854 cr. & FY13e revenues of  INR 1125 cr.. Such valuations, even when the company enjoys not only domestic but a world-leadership status in each of the operational segments makes the company hard to ignore for any serious fund manager. We have tried to deal with each and every aspect in our research note inluding the critical parameters of peers like  Pidilite,  Wacker Chemie (Germany),  Pantaloon,  Shoppers Stop,Aditya Birla Retail,  Reliance Retail,  Bharti Retail, etc.

----------------------Glimpse Inside Research Note -------------------------

 

Why Jubilant Industries Ltd. deserves to be a part of one's core portfolio ? :

1. Clean & Credible Management led by Mr. Hari Bhartia [ current President of Confederation of Indian Industry (CII) ] and backing of a strong US$ 3 bn. Jubilant Bhartia Group ( promoters of Jubilant Foodworks, Jubilant Lifesciences & Jubilant Energy-AIM Listed ) are the first and foremost factors that go in favour of Jubilant Industries Ltd.

2. High Corporate Governance followed by the company, which is evident from the fact that it is one of the few top-notch Indian & MNC companies which has voluntarily chosen to publish comprehensive annual Corporate Sustainability Report (CSR) as per Global Reporting Initiative (GRI) standards and its CSR2011 has attained the highest rating A+ and is audited by Ernst & Young.

3. Leadership Position (not only domestic but a world-leadership ) in each of the Operational Segment is the other highlight of the company. Before going into its details lets briefly analyse company's positioning in each of the operational segment :

• 2^nd Largest Brand ( Jivanjor ) next to Pidilite's Fevicol in Indian Consumer Adhesives Segment
• 1^st position in India ( 90 % share ) and 3^rd position Globally in Food Polymer Segment (Solid PVA)
• 1^st Position in India & 3^rd Position Globally in Vinyl Pyridine Latex (VP Latex)
• 4^th Largest Brand (Ramban) in Indian SSP Fertilizer Segment
• 2^nd Largest Hypermarket Chain with 20 % marketshare in Bangalore

4. Revenues of Performance Polymer Segment (which includes Consumer Products-Jivanjor Brand, Food Polymer & Latex Business) has grown over last five years at a CAGR of 17.8 % backed by a 8.3 % CAGR in actual volumes. If we exclude here the low-margin Application Polymer business, which the company has disposed off in FY11, then, the actual volume and sales performance of Consumer Products, Food Polymer and Latex Business is really heartening and signals robust demand for company's products in each of the segment.

5. Now, we will go into slight detail of each of the operational segment of Jubilant Industries Ltd. starting with Consumer Products Segment.

6. Consumer Products Segment ( Jivanjor Brand ) contributed ~Rs. 120 cr. to FY11 revenues of the company. Under this segment, company manufactures and sells consumer & woodworking adhesives, footwear adhesives, epoxy sealants and wood finishes. Its Jivanjor Brand in adhesives segment, which, the company has built over last many years, has withstood the pressure from the likes of Pidilite and Huntsman and progressed to become 2^nd Largest Brand after Pidilite's Fevicol in Organised Indian Consumer Adhesives Market.

7. Company has renewed the thrust on R&D and considerably strengthened distributor network in last few months to aggressively penetrate further deep into the Indian Market so as to make Jivanjor an even stronger No.2 Brand and capture some marketshare out of the peers. A case in point here is its recent launch of its super premium category adhesive 'Lamino', which is first of its kind adhesive launched by any company in India designed specifically for laminates. Its recent launch in Delhi, Mumbai, Hyderabad, Chandigarh and other major towns of India met with tremendous positive response and this product is expected to contribute handsomely in second half of FY12.

8. To move to the second operational segment, viz., Food Polymers, under which company manufactures and is a global supplier of Solid PVA which is used to make gum base of chewing gum and bubble gum. It is the only manufacturer in India commanding ~ 90 % marketsharedomestically and is the 3^rd largest supplier to global chewing gum and bubble gum industry.

9. It is worthwhile to note here that Gum Industry worldwide is highly concentrated with top 6 players accounting for ~85 % market. Jubilant counts amongst its international clients, Wrigley's, Perffetti and GumLink which together account for ~50 % of the world gum market.
10. Also, the Solid PVA market itself is a very concentrated one with top 4 manufacturers supplying 75 % of the global demand. Jubilant atpresent occupies 3^rd largest position in global Solid PVA suppliers list and with the recent doubling of capacity of its plant, the company is set to become the 2^ndlargest Solid PVA manufacturer of the world after Wacker Chemie of Germany. Its entire expanded capacity is booked which augurs very well for the visibility of growth in this segment till FY15.

11. Third operational segment of the company is Latex under which it manufactures and is a global supplier of synthetic lattices like VP Latex, SBR Latex and NBR Latex. This segment contributed~Rs. 80 cr. to FY11 revenues of the company. It is worthwhile to note here that Jubilant was amongst the first companies to introduce VP Latex in India and is currently occupying No.1 position domestically and No.3 position globally in VP Latex. Company has recently expanded its capacity of Latex manufacture by 15 % in FY11 considering high demand for its products and the increased capacity utilisation is expected to show benefit in current FY12.

12. Agri-Inputs is the fourth operational segment of the company which is dominated by 'Ramban' Brand. This segment contributed ~Rs. 261 cr. to FY11 revenues of the company. Here again the company's acumen of building strong brands becomes evident as its Ramban brand occupies thefourth largest SSP fertilizer brand position in India. SSP fertilizer industry, which got a fillip because of the new NBS policy of Indian Government, is expected to reap rich rewards because of SSP fertilizer's positioning in the entire complex fertilizer landscape. Favourable treatment in NBS policy has made SSP fertilizer the cheapest and most effective amongst the lot becuase of which SSP fertilizer consumption in India is projected to grow to 6 mn. MT by FY13 from current 3.5 mn. MT. This is the basic reason why major Urea producers like Chambal Fertilizer and Tata Chemicals have recently decided to set-up new plant and expand existing capacities for SSP manufacture tocapitalise on the opportunity this sector has in store for coming few years.

13. With an expected annual industry growth of ~35 % (especially SSP Fertilizer) for coming two fiscals, Agri-Input segment of Jubilant is expected to be a steady cash generator as the company improves capacity utilisation based on higher demand. It is worthwhile to note here that when other major peers in this segment (SSP) like Liberty and Khaitan have choose to aggresively expand the capacity of their plants as also to set-up new plants in anticipation of demand, Jubilant has decided to play safe by only concentrating on improving utilisation of its existing capacities so that this segment remains steady cash generator to feed the exponential growth of Retail (Hypermarket), Food Polymer and Consumer Products (Jivanjor Brand) segments.

14. The last but most promising operational segment of the company viz., Retail (Mall cum Hypermarket) is the result of Jubilant Industries' recent acquisition of a group firm which runs a Hypermarket chain under brand 'Total' and has, as on date, ~8,25,000 sq.ft. under opration in 5 mall-cum-hypermarkets with another 1,12,000 sq.ft. getting operational by Decemember'2011 which will make it the 3^rd largest hypermarket chain of India and Largest (No.1) hypermarket chain of Bangalore in terms of area under operation. All the other hypermarket chains of India except (Pantaloon) including Hypercity (Shoppers Stop), Trent (Star Bazaar), Bharti Retail (EasyDay Market), Reliance Retail (Reliance Mart), Max Retail (SPAR Hypermarket), RPG group (Spencer Hyper) and Aditya Birla Retail (More) have less than 9,00,000 sq.ft. under operation as on date [Refer Page 18 for all Hypermarket Chains details ]. Although, like-to-like comparision here is improper since the format of Jubilant (Total) is of mall-cium-hypermarket which no one else follows but, still, such a huge area of operation will bring in lot of cost efficiency and drive exponential growth from FY13 onwards.

15. FY11 revenues of Retail segment was Rs. 315 cr.

16. The most interesting aspect here, which speaks highly of the transparent and ethical practices followed by the management of Jubilant is evident from the fact that inspite of Retail division of the group currently being 100 % owned by the promoters of Jubilant Industries as also exuberant valuations at which listed retail companies are trading at present on the bourses where, even Hypercity (the only pure comparable peer) was acquired by Shoppers Stop at more than 0.5 times sales just last year, the company has decided to issue only 0.38 cr. (38.35 lacs) shares as consideration for 100 % acquisition of Retail business, which, at current market price of Jubilant Industries, works out to be only Rs. 71 cr.

17. To acquire such promising Retail business at just 0.2 times FY11 sales inspite of it having one of the largest areas under operation in India with a leadership position in Bangalore commanding 20 % marketshare, signifies a great deal of justice done with minority shareholders of Jubilant Industries for which the management deserves an applaud.