J. G. Chemicals IPO

J. G. Chemicals Limited has filed its DRHP with market regulator SEBI on January 06, 2023 to raise capital through IPO. The IPO of the Company consists of Fresh Issue and Offer for Sale. The size of Fresh Issue is up to [●] Equity Shares aggregating up to 202 crore and OFS of up to 5,700,000 Equity Shares aggregating
up to [●] crore. As part of OFS the selling shareholders are Vision Projects & Finvest Private Limited, Jayanti Commercial Limited, Suresh Kumar Jhunjhunwala (HUF) and Anirudh Jhunjhunwala (HUF)

Business Model of the Company

J. G. Chemicals Limited India’s largest zinc oxide manufacturer in terms of production and revenue for zinc oxide manufacturing through French process, which is the dominant production technology for producing zinc oxide and has been adopted by all the major producers in Americas, Europe and Asia (Source: CARE Report). The market share of the Company is around 30% as of March 2022 (Source: CARE Report). The Company sells over 80 grades of zinc oxide and are among the top ten manufacturers of zinc oxides globally (Source: CARE Report).

Since the incorporation in 2001, the Company has expanded its business and scale of operations and has grown into a large, diversified zinc oxide player with a global footprint. The product of the Company caters to a wide spectrum of industrial applications, including in the rubber (tyre & other rubber products), ceramics, paints & coatings, pharmaceuticals & cosmetics, electronics & batteries, agro-chemicals & fertilizers, speciality chemicals, lubricants, oil & gas and animal feed.

Owing to the legacy of over four decades in manufacturing businesses, the benefit from its experience in catering to a wide array of customers and it has built a long-standing relationship with customers across end-user industries in the tyres, ceramics, rubber, paints, cosmetics and batteries industry. Over the last three years, the Company marketed and sold its product to over 200 domestic customers and over 50 global customers in more than 10 countries.

Management of the Company

(i) Suresh Jhunjhunwala aged 69 years is an Executive Chairman and Whole-timeDirector of the Company. He passed Bachelor of Commerce (Part- I) Honors Examinations of University of Calcutta in 1972. He is responsible for strategy formulation and identifying new growth areas for the Company. He has been associated with the Company since its incorporation and has over 35 years of experience in chemical and speciality chemical industry.

(ii) Anirudh Jhunjhunwala aged 43 years is a Managing Director and CEO of the Company. He holds a bachelors’ degree of Commerce from Calcutta University and holds a master’s degree in business administration from University of Warwick. He is responsible for the overall business activities of the Company. He has been associated with the Company since its incorporation and has over 20 years of experience in chemical and speciality chemical industry.

Object of the Issue

Offer for Sale

The Company will not receive any proceeds from the Offer for Sale by the Promoter Selling Shareholder and the proceeds received from the Offer for Sale will not form part of the Net Proceeds. The Promoter Selling Shareholder will be entitled to the proceeds of the Offer for Sale after deducting his proportion of Issue expenses and relevant taxes thereon.

Fresh Offer

The Company proposes to utilize the Net Proceeds from the Issue towards:

1. Investment in the Material Subsidiary, viz. BDJ Oxides (i) repayment or prepayment, in full or in part, of all or certain borrowings availed by the Material Subsidiary; (ii) funding capital expenditure requirements for setting up of a research and development center situated in Naidupeta (“R&D Centre”); and (iii) funding
its long-term working capital requirements

2. Funding long-term working capital requirements of the Company; and

3. General corporate purposes.

In addition, the Company expects to receive the benefits of listing of the Equity Shares on the Stock Exchanges and enhancement of the Company’s brand name amongst its existing and potential customers and creation of a public market for the Equity Shares in India.

Risks in the IPO

The Company’s revenue is dependent on few major customers

Over the last three years, the Company marketed and sold its products to more than 50 global customers in over 10 countries and to more than 200 domestic customers. The top 10 customers contributed ₹ 3,177.58million, ₹ 4,634.99 million, ₹ 3,337.20 million and ₹ 3,136.39 million constituting 74.76%, 75.63%, 76.67% and 78.53% of the revenue from operations, in six months period ended September 30, 2022, Fiscal 2022, Fiscal 2021 and Fiscal 2020, respectively. If one or more of such customers choose not to source their requirements from the Company, the business, financial condition and results of operations may be adversely affected.

The lack of long term relationship with customers

The Company does not have long term agreements with its customers and rely on purchase orders for delivery of the products. Loss of one or more of the customers or a reduction in their demand for the products could adversely affect the business, results of operations and financial condition.

The Company is heavily dependent on machinery

The of the Company business is dependent on its ability to efficiently manage the manufacturing facilities, which is subject to various operating risks, including those beyond the control, such as the breakdown, failure of equipment or industrial accidents, severe weather conditions (including heavy rainfall), natural disasters and infectious disease outbreaks such as the COVID-19 pandemic resulting in unplanned slowdowns and/or shutdowns. The Company is heavily dependent on machinery for the manufacturing operations. Any unscheduled, unplanned or prolonged disruption or break-down of the machinery could adversely affect the business, financial results and growth prospects.

The Company is dependent on third party transportation and logistics service providers

The Company relies on third party transportation and logistics providers for procurement of its raw materials and supply of its products to the customers. The Company does not have any long-term contractual arrangements with such third-party transportation and logistics providers and engage their services, as and when required, on spot basis. Disruptions of logistics could impair the ability to procure raw materials and/or deliver the products on time, which could materially and adversely affect the business, financial condition and results of operations

Manufacturing facility being utilized by the Company on leasehold basis

A part of the manufacturing facility and the registered office premises are being utilized by the on leasehold basis and the Company is subject to terms and conditions imposed on the Company by the lessor. In any event the Company is unable to renew such leasehold rights, the business, financial condition and results of operations may be adversely affected.

Financial Performance

As per the financial statements of the Company, here are Financial Highlights for FY22 compared to FY21:

Total Income

In FY22, the company’s total income increased by 41% to Rs. 623 crore from Rs. 440 crore in FY21.

Total Expenses
The total expenses of the company rose by 41% in FY22, reaching Rs. 565 crore compared to Rs. 399 crore in FY21.

Profit Before Tax
The company’s profit before tax experienced a 39% increase in FY22, amounting to Rs. 57 crore, compared to Rs. 41 crore in FY21.

Profit After Tax
FY22 saw a significant rise in the company’s profit after tax, with a 53% increase to Rs. 43 crore from Rs. 28 crore in FY21.

Total Assets
The company’s total assets grew to Rs. 264 crore in FY22, showcasing an increase from Rs. 209 crore in FY21.

Total Equity and Liabilities
Similarly, the total equity and liabilities of the company also rose to Rs. 264 crore in FY22 compared to Rs. 209 crore in FY21.

Net Cash Generated from Operating Activities
FY22 saw a positive shift in the company’s net cash generated from operating activities, amounting to Rs. 6 crore. This was in contrast to the net cash used of Rs. 7 crore in FY21.

Net Cash Used in Investing Activities
In FY22, the company’s net cash used in investing activities remained unchanged at Rs. 5 crore, consistent with the previous year (FY21).

Net Cash Used in Financial Activities
The net cash used in financial activities in FY22 was Rs. 1.90 million, contrasting the cash generated of Rs. 16 crore in FY21.

Total Cash and Cash Equivalents
At the end of FY22, the company had a total of Rs. 5 crore in cash and cash equivalents, showing a slight increase from Rs. 4 crore in FY21.