Should you invest in India’s leading zinc oxide manufacturer’s IPO?

Take a closer look at the exclusive details of J.G. Chemicals Ltd's IPO inside

About the Issue:  

J.G. Chemicals Ltd is launching its initial public offering (IPO) for equity shares valued at Rs 10 each. The IPO price range is set between Rs 210 and Rs 221 per equity share, resulting in a total issue size of Rs 251.19 crore at the upper price band.  

The IPO is scheduled to commence on March 05, 2024, and will conclude on March 07, 2024. The market lot size for the IPO is 67 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 13 lots, equivalent to 871 shares or a total investment of Rs 1,92,491 assuming the upper price band. 

Objects of the Issue  

The offer encompasses both the fresh issue and the offer for sale. It's important to note that the company will not accrue any proceeds from the offer for sale. The company plans to allocate the net proceeds raised from the fresh issue for the following purposes:

1. Investment in Material Subsidiary, viz. BDJ Oxides

a. Repayment or pre-payment, in full or in part, of all or certain borrowings availed by its Material Subsidiary

b. Funding capital expenditure requirements for setting up of a research and development center situated in Naidupeta, Andhra Pradesh

c. Funding its long-term working capital requirements

2. Funding long-term working capital requirements of the company

3. General corporate purposes

Promoter holding  

Suresh Jhunjhunwala, Anirudh Jhunjhunwala and Anuj Jhunjhunwala are the promoters of the company. The promoters and promoter group currently hold a pre-issue shareholding stake of 100 per cent in the company.   

Company profile  

According to the CARE Report, J.G. Chemicals Ltd holds the title of India's leading zinc oxide manufacturer in both production volume and revenue, specifically utilizing the French process, which is the predominant technology in zinc oxide manufacturing and has been embraced by major producers across the Americas, Europe, and Asia. As of March 2022, the company's market share stood at approximately 30 per cent.

It offers more than 80 grades of zinc oxide, catering to a diverse range of industrial applications. These applications span across industries such as rubber, ceramics, paints & coatings, pharmaceuticals & cosmetics, electronics & batteries, fertilizers, specialty chemicals, and lubricants.

In the past three years, the company has successfully marketed and sold its products to over 200 domestic customers and over 50 global customers across more than 10 countries. Additionally, it serves as a supplier to nine out of the top 10 global tyre manufacturers and all of the top 11 tyre manufacturers in India. Furthermore, it supplies to prominent paints manufacturers, footwear companies, and cosmetics firms in India.

As of December 31, 2023, the company's total installed capacity of 77,040 MTPA is distributed among its three manufacturing facilities situated in Jangalpur (West Bengal), Belur (West Bengal), and Naidupeta (Andhra Pradesh). Notably, the Naidupeta facility, which is the company's largest manufacturing site, is owned and managed by its Material Subsidiary.

Financials  

The company has witnessed sustained and robust growth over the last few years. In FY23, both revenue and net profit witnessed strong year-on-year growth, with a 28 per cent surge in revenue and 33 per cent rise in net profit compared to FY22.

Nevertheless, the figures for 9MFY24, while commendable, have fallen short of previous performance and could potentially experience a notable decline for the overall FY24 if not recuperated in the forthcoming quarter. The management believes that its business is not subject to any seasonal fluctuations.

The company boasts a return on equity (RoE) and return on capital employed (RoCE) of 30 per cent and 29 per cent, respectively, for the fiscal year 2023.

Valuation and outlook  

The issue is priced with a P/BV ratio of 3.22 times, calculated using its Net Asset Value (NAV) of Rs 68.68 as of December 31, 2023. When we calculate the PE ratio for the company by considering the annualized FY24 earnings relative to the fully diluted paid-up equity capital, the resulting PE ratio stands at 30. J.G. Chemicals Ltd demonstrated exceptional outperformance compared to its listed peers, excelling in terms of both valuation and returns. Hence, we advise investors to contemplate subscribing to the offering with a long-term perspective.