JG Chemicals IPO: 5 Things to Know

The Indian stock markets is ablaze with red-hot IPO activity, and the fervor shows no signs of abating.

March 2024 is poised to be a bustling month for the initial public offering (IPO) market, with numerous prominent startups and companies gearing up to make their public debut.

Following a hectic period for IPOs on Dalal Street, the first week of March 2024 is expected to witness the entry of seven new IPOs, collectively aiming to raise Rs 14.8 billion.

Amid this ongoing surge, a chemical company is preparing to join the market, contributing another exciting chapter to this dynamic narrative.

#1 About JG Chemicals

JG Chemicals was founded in 1975 and is a zinc oxide manufacturer using the French process. The company produces more than 80 grades of zinc oxide.

This product is used in various industrial applications such as ceramics, paints and coatings, pharmaceuticals and cosmetics, electronics and batteries, agrochemicals and fertilizers, speciality chemicals, lubricants, oil and gas, and animal feed.

The company operates three manufacturing facilities in Jangalpur and Belur, both in Kolkata, West Bengal and Naidupeta in Nellore District, Andhra Pradesh. Naidupeta is the largest facility, owned and operated by the material subsidiary.

What Sets this IPO Apart?

JG Chemicals is currently the largest zinc oxide manufacturer in India in terms of production and sales.

BDJ Oxides, a subsidiary of JG Chemicals, is the sole zinc oxide company in India with an IATF certification.

This certification is highly sought after by tyre manufacturers in their vendor selection process. JG Chemicals' dedication to quality is further emphasized by its ISO certifications and REACH certification, enabling it to supply its products to the European Union.

Additionally, the company's recognition as a 'One Star Export House' reflects its excellence in international trade and commerce.

Here are the key details of the JG Chemicals IPO.

Issue period: 5 March 2024 to 7 March 2024

Type of issue: Book Built Issue

Price band: Rs 210-221 per share

Face value: Rs 10 per equity share

Lot size: 67 Shares

Application limit: Maximum thirteen lots for retail investors. Retail investors can make an application for a minimum of Rs 14,807 for one lot (67 shares).

Tentative IPO allotment date: 11 March 2024

Tentative listing date: 13 March 2024

#2 A Look at the Financials

The company has demonstrated robust financial performance, with revenue from operations witnessing a compound annual growth rate (CAGR) of 21.5% between the financial years 2021 and 2023.

The company was able to grow its volumes at a CAGR of 12.1% on the back of its long-term relationship with tyre companies and its ability to offer the right quality at the right price to customers.

Similarly, its net profit surged significantly, growing at a remarkable CAGR of 25.4% over the same period, reflecting operational efficiency and effective cost management.

JG Chemicals Financial Snapshot (2021-23)

Particulars	31-Mar-21	31-Mar-22	31-Mar-23
Revenues (Rs in bn)	4.4	6.2	7.9
Revenue Growth (%)	-	40.9	27.4
Net Profit (Rs in m)	288	431.3	567.9
Net Worth (Rs in bn)	1.1	1.5	1.9

Data Source: Company's Red Herring Prospectus (RHP)

JG Chemicals has constantly reduced its debt and brought its debt to equity ratio down to 0.1x from 0.6x in 2021.

#3 Peer Comparison

As per the company's red herring prospectus, these are the industry peers of JG Chemicals.

Peer Comparison

Company	Revenue from Operations (2023) (Rs in bn)	EPS (Basic) (in Rs)	Return on Net Worth (%)
JG Chemicals	7.9	17.3	27.5
Rajratan Global Wire	8.9	19.7	22.8
NOCIL	16.2	8.9	9.6
Yasho Industries	6.8	59.5	28.5

Data Source: Company's Red Herring Prospectus (DRHP)

Among the listed peers, JG Chemicals has the low revenue from operations in 2023, at Rs 7.9 bn.

JG Chemicals has a competitive EPS 17.3 compared to the other companies. Rajratan Global Wire has a slightly higher EPS, while NOCIL and Yasho Industries have lower EPS figures.

#4 Arguments in Favour of the Business

• One of the key entry barriers in the zinc oxide industry is the customization of products to meet specific customer requirements. JG Chemicals' ability to tailor its offerings to meet the diverse needs of its clients not only enhances customer loyalty but also serves as a significant competitive advantage in the market.
• Over its four decades of operation, JG Chemicals has cultivated robust and enduring relationships with a spectrum of customers across multiple industries, such as tyres, ceramics, paints, cosmetics, and batteries. The company supplies to 9 of the top 10 global tyre makers and all of the top 11 Indian tyre makers.
• JG Chemicals has a diverse customer base. This provides the company with a solid foundation for sustained growth, reduced risk exposure, and the flexibility to navigate changes in the business environment.

#5 Risk Factors

• The company faces a substantial risk due to its heavy reliance on a single principal product, zinc oxide, in various grades. Any decline in the demand for this product could have adverse consequences on the company's business and financial performance. The vulnerability is exacerbated by potential slowdowns in end-use industries, particularly the tyre industry.
  
  Furthermore, changes in registration requirements, non-renewal of registrations, regulatory bans, trade sanctions, or other restrictions imposed at a national level could significantly impact the business or its products.
• Additionally, its dependency on its material subsidiary, BDJ Oxides Private Limited, poses a notable risk. Any decline in the performance of this subsidiary could negatively impact the overall business, financial condition, and operational results.
• The absence of trademark registration for the company's logo is identified as a risk factor. The inability to protect intellectual property rights may lead to adverse effects on the business, financial condition, and operational results.
• Moreover, a significant portion of the company's revenue is derived from a select group of customers. If one or more of these customers decide not to source their requirements from the company, there could be adverse implications for the business, financial condition, and operational results. This concentration risk in customer dependence underscores a potential vulnerability that the company must manage.

Conclusion

JG Chemicals is a company that primarily focuses on serving industries such as tyres, ceramics, paints, cosmetics, and batteries. These sectors are experiencing sustained growth, providing the company with significant exposure.

The Indian tyre sector alone accounts for 70% of rubber consumption, making JG Chemicals well-positioned to benefit from the continued expansion of these end markets.

Furthermore, the government's massive Product Linked Incentive (PLI) boost towards the automotive sector and the global trend of China Plus One also works in favour of the industry.

Besides, a huge export opportunity is knocking at the doors of the Indian tyre industry, this will further aid the company.

The chemical industry is expected to perform well in the future, particularly due to the emergence of lucrative opportunities in the pharmaceutical sector and a better performance in the US market.

Companies in this industry have reported a positive shift from double-digit price declines to mid-single-digit reductions in the US market.

Nevertheless, it is always prudent to conduct thorough research before making any investment decisions.

Ensure that the investment aligns with your financial objectives and matches your risk tolerance level.

For more information on IPOs, check out the list of upcoming IPOs.

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