IPO Analysis

IPO: JG Chemicals

Everything you need to know about the IPO of the JG Chemicals

JG Chemicals IPO review: Everything you need to know

JG Chemicals is coming up with its IPO (initial public offering) on March 05, 2024. Here's a breakdown of the company's strengths, weaknesses, and growth prospects to help investors make an informed decision.

In a nutshell

  • Quality: Its three-year average ROE and ROCE are 28 and 27 per cent, respectively.
  • Growth: Its revenue and net profit grew at an annual growth rate of 34 and 55 per cent, respectively, over the last three years. However, its operating margin is lower compared to its peers.
  • Valuation: The stock is valued at a P/E and a P/B of 15.2 and 2.2 times, respectively, compared to its peers' median and average of 43.0 and 6.1 times, respectively.
  • Overview: Growth in the tyre industry should provide ample growth opportunities. Moreover, the industry is experiencing tailwinds from the China plus one policy and the PLI scheme for EV and electronics manufacturing. However, its key revenue source, the tyre industry, is highly cyclical. In addition, sudden surges in raw material costs may hinder growth as it has no long-term contract with suppliers.

About the company

JG Chemicals is India's largest zinc oxide manufacturer in terms of production and revenue for zinc oxide manufacturing through the French process. For the uninitiated, zinc oxide produced from this process is of better quality and is usable in all end-user applications. As of March 2022, it commanded a 30 per cent market share. It operates three manufacturing facilities: two in Kolkata and one in Andhra Pradesh.


  • Long-term relationships with customers: In the last three financial years, it catered to over 250 customers, of whom around 90 per cent were repeat customers.
  • High client stickiness. The industries it supplies to are subject to stringent regulatory and industry standards; hence, switching costs are high. This ensures that clients do not jump ship often.


  • Revenue Concentration- The rubber and tyre industry is its primary revenue source (91 per cent of 9M FY24 revenue). It supplies to nine of the top 10 global tyre manufacturers. Any downturn in this industry would impact the company's performance.
  • Lack of long-term agreements. It relies on international suppliers of raw materials but has no long-term agreements with them. Thus, any increase in the cost or lower availability would significantly impact operations.

IPO details

Total IPO size (Rs cr) 251
Offer for sale (Rs cr) 86.19
Fresh issue (Rs cr) 165
Price band (Rs) 210-221
Subscription dates March 5-7, 2024
Purpose of issue Repayment of borrowings, funding capex for R&D centre and working capital requirements of the company

Post IPO

M-cap (Rs cr) 866
Net worth (Rs cr) 383
Promoter holding (%) 71
Price/earnings ratio (P/E) 15.2
Price/book ratio (P/B) 2.3

Financial history

Key financials 2Y growth (% pa) FY23 FY22 FY21
Revenue (Rs cr) 34.3 785 613 435
EBIT (Rs cr) 32.5 72 53 41
Consolidated PAT (Rs cr) 54.6 55 40 23
Net worth (Rs cr) 35.7 200 148 108
Total debt (Rs cr) -2.7 70 94 74
EBIT is earnings before interest and tax
PAT is profit after tax

Key ratios

Ratios 3Y average (%) 9MFY24 FY23 FY22 FY21
ROE (%) 28.4 8.2 30.5 30.6 24.2
ROCE (%) 26.8 11.9 29.4 25.8 25.3
EBIT margin (%) 9.1 5.1 9.2 8.7 9.5
Debt-to-equity - 0.1 0.3 0.6 0.6
ROE is return on equity
ROCE is return on capital employed

Risk report

Company and business

  • Are JG Chemicals' earnings before tax more than Rs 50 crore in the last 12 months?
    Yes, its earnings before tax was Rs 77 crore as of March 31, 2023.
  • Will JG Chemicals be able to scale up its business?
    Yes, growth in the rubber industry should help it scale up. Also, the China plus one policy and opportunities in the EV space stand to fillip growth.
  • Does JG Chemicals have recognizable brands with client stickiness?
    Yes, the industries it supplies to are subject to stringent regulatory and industry standards. This ensures that switching costs are high.
  • Does the company have a credible moat?
    Yes, its market leadership and the high switching costs for clients provide a strong moat.


  • Do any of the company's founders still hold at least a 5 per cent stake in the company? Or do promoters hold more than a 25 per cent stake in the company?
    Yes. The promoter's stake will be 71 per cent post-IPO.
  • Do the top three managers have more than 15 years of combined leadership at JG Chemicals?
    Yes, the top three managers have over 50 years of leadership experience at JG Chemicals.
  • Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
    Yes, we have no information to suggest otherwise.
  • Is the company's accounting policy stable?
    Yes, there is no information to suggest otherwise.
  • Is JG Chemicals free of promoter pledging of its shares?
    Yes, promoters have not pledged any shares.


  • Did the company generate a current and three-year average return on equity of more than 15 per cent and a return on capital employed of more than 18 per cent?
    No. Its three-year average ROE and ROCE are 29 and 27 per cent, respectively. However, as of December 31, 2023, its ROE and ROCE were 8 and 12 per cent, respectively.
  • Was the company's operating cash flow positive during the last three years?
    No, it reported negative operating cash flows in FY21.
  • Is the company's net debt-to-equity ratio less than one?
    Yes, as of December 2023, its net debt-to-equity ratio was 0.1.
  • Is JG Chemicals free from reliance on huge working capital for day-to-day affairs?
    No, it requires huge working capital for its daily operations. Most of the IPO proceeds (58 per cent) would be used for working capital requirements.
  • Can the company run its business without relying on external funding in the next three years?
    Yes. It has been cash flow positive in the last two years, has reduced its debt, and will use the IPO proceeds for working capital requirements.
  • Is JG Chemicals free from meaningful contingent liabilities?
    Yes. Its contingent liabilities as a percentage of equity was 0.8 per cent as of December 2023.


  • Does the stock offer an operating earnings yield of more than 8 per cent on its enterprise value?
    Yes, the stock offers a 7.7 per cent operating earnings yield on its enterprise value based on its 12-month earnings as of March 2023.
  • Is the stock's price-to-earnings less than its peers' median level?
    Yes, it is valued at a price-to-earnings ratio of 15.2 times compared to peers' median level of 43.0 times (as of March 2023).
  • Is the stock's price-to-book value less than its peers' average level?
    Yes, it is valued at a price-to-book ratio of 2.3 times compared to peers' average level of 6.1 times (as of December 2023).

Disclaimer: This is not a stock recommendation. Do your due diligence before investing.

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