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Jubilant Ingrevia (‘Ingrevia’) came out with its Q2FY22 results, which showed significant QoQ de-growth in absolute EBITDA and margins on the back Acetyls (LS Chem EBITDA 14% vs 27% QoQ). Large part of sequential decline was on account of Inventory gains in Q1FY22 and reduction in % spreads. As per us, Q2FY22 can be considered as base for absolute EBITDA in acetyls while the margins may continue to decline on the back of higher Acetic acid prices. Spec Chem margins declined on the back of higher input costs, which should be passed on with a lag. Nutrition business showed sustained volume led growth on the back of Vitamin B3, feed and food business.

The stock has had a phenomenal run since our IC on March 18th, 2021 (note) at INR 240 per share, since then the stock is up >3.5x in 7 months! Given the run-up in the chemicals space, we believe Ingrevia remains attractively priced, based on relative valuations as it trades at 12x FY23E EV/EBITDA. We revise our FY22/23 estimates based on the performance in H1FY22 and overall guidance. We also upgrade our target price from INR 770 (Mar-22 TP) in the base case to INR 1040 (Mar-23 TP) valuing at 15x FY24E EV/EBITDA, which implies 55% upside on the CMP. Our Bull / Bear case TP is at INR 1,300 and INR 635 respectively.

QoQ margin decline on the back of elevated Q1FY22 base in Acetyls

* Q2FY22 sales were up 56% YoY/ 7% QoQ; led by LSChem (up 84% YoY/11% QoQ) while Spec Chem / Nutrition were flat on top line down 3% / up 7% respectively. Margin decline were led by shrinking %spreads in LSChem (14% vs 27% in Q1FY22 vs 10% in Q2FY21).

* Q2FY22 should be the absolute EBITDA base for Acetyls business while in % terms the margins may shrink given the rise in Acetic acid prices. Spec Chem and Nutrition segments saw impact of higher input prices which should be passed on. Volume growth across segment likely to continue over H2FY22.

All set for the next leg of growth with capex commercialisation across multiple segments

* Ingrevia to monetize new capex initiatives diketene plant commercializing in Q4FY22, CDMO and food grade Acetic acid plant in Q1FY23, Nutrition premixes plant in Q2FY23 and Agro Active Intermediate and Acetic Anhydride plant in Q4FY23.

Risk / Reward favourable as trading at 12x FY23E EV/EBITDA; deserving of higher multiples

* We believe Ingrevia’s transition to Specialty remains underappreciated with >70% of EBITDA contribution from non-commoditised segments. Given the run-up in the chemicals space, we believe it remains attractively priced based on relative valuations as it trades at 12x FY23E EV/EBITDA. Thus, we believe Ingrevia’s improving business profile is deserving of higher multiples.

* We thus upgrade our target price from INR 770 (Mar-22 TP) in the base case to INR 1040 (Mar-23 TP) valuing at 15x FY24E EV/EBITDA, which implies 55% upside on the CMP. Our Bull / Bear case TP is at INR 1,300 and INR 635 respectively.

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