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We initiated on Jubilant Ingrevia (’Ingrevia’) on March 18th, 2021 (note) at INR 240 per share, since then the stock is up >2.4x in less than 4 months! It still trades at ~11x FY23E EV/EBITDA, given the visibility on improving profile and robust pricing environment we believe there is room for further re-rating. Ingrevia came out with a robust set for Q4FY21 on the back of pricing in Acetic Anhydride and Ethyl Acetate (LS Chem EBITDA 19% vs 4% YoY).

Demand side disruption in Acetyls is likely to continue over short term. On Spec Chem the growth was led by CDMO, Q3FY22 to see commercialisation of Diketene products – a big trigger. We believe Ingrevia’s transition to Specialty remains underappreciated with >70% of EBITDA contribution from non-commoditised segments. We thus revise our Mar-22 target price from INR 420 in base case to INR 770 valuing at 15x EV/EBITDA, which implies 35% upside on the CMP. Our Bull / Bear case TP is at INR 1015 and INR 450 respectively.

Q4FY21 results were led by robust performance in Acetyls; Other segments also encouraging

* Q4FY21 sales were up 31% YoY; led by LSChem (up 46% YoY) while Spec Chem / Nutrition were up 17% / 22% respectively. Margin expansion were led by robust pricing environment in LSChem (19% vs 4% in Q4FY20).

* Pricing are expected to sustain over short-term before reverting to normalised base. Acetic acid prices remain flat on annual base. Spec Chem sales were on the back of new CDMO projects while Animal Nutrition and Vitamin B3 prices supported Nutrition.

Transition to Specialty in underappreciated; >70% of EBITDA from Specialty

* Commodity sales has reduced from 60% in FY19 to 46% in FY23E further >70% EBITDA is contributed from non-commoditised business

* INR 650crs of INR 900crs in new capex is earmarked towards non-commoditised business. Of Which Diketene to be live in Q3FY22 while CDMO is gaining traction amongst agrochemical client.

Faster ramp-up in Spec Chem to improve business profile; deserving of higher multiples

* Ramp up of Diketene and CDMO business is faster than anticipated. New capex initiatives into superior segments such as Diketene, CDMO, Pre-mixes to improve its overall margins profile.

* Since our initiation at INR 240 per share, the stock is up more than 2.4x in less than 4 months, however still trades at ~11x FY23E EV/EBITDA, we thus believe there is still room for further re-rating.

* On account of the above, be believe Ingrevia has sufficient room to grow its profitability and improving business profile is deserving of higher multiples. We thus revise our Mar-22 target price from INR 420 in base case to INR 770 valuing at 15x EV/EBITDA, which implies 35% upside on the CMP. Our Bull / Bear case TP is at INR 1015 and INR 450 respectively.

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