Understanding Business, Financials, Valuation and Risks in Blue Jet IPO

1. Business of Blue Jet IPO

Blue Jet is a company that specializes in manufacturing chemicals that enhance contrast. These chemicals are primarily used to produce clearer images in diagnostic imaging modalities such as X-Ray, MRI, and Ultrasound. In essence, they play a crucial role in the field of diagnostic imaging.

2. Market Analysis of Contrast Agent

a) Diagnostic Imaging Contrast Agents
– Market Size: Approximately $6 Billion or INR 50,000 Cr.
– Usage by Modality: X-Ray (74%), MRI (24%), Ultrasound (2%)

b) Geographical Distribution
  – United States: ~30%
  – China: ~24%
  – European Union: ~23%
  – Japan: ~6%
  – South-East Asia: ~3%
  – Rest of the World: ~15%

c) Market Players and Blue Jet’s Positioning

In the global market, there are four main players that control approximately 75% of the contrast media sector, namely Bayer, Bracco, GE Healthcare, and Guerbet. Over the past decade, these companies have managed to capture nearly 70% of the market share.

These four players are either forward-integrated, meaning they manufacture MRI, X-Ray, and Ultrasound machines themselves, or they have long-standing relationships with companies that produce these machines.

The aforementioned key players in contrast media formulations are headquartered in developed markets, specifically in the United States and the European Union. These companies typically source their intermediaries from selected vendors located in India and China.

Blue Jet serves as one such intermediary, providing its products to GE Healthcare AS, Guerbet Group, and Bracco Imaging S.p.A. 74% revenue of Blue Jet comes from Contrast media.

3. Saccharine-based Sweeteners ( Second Product )

High-intensity sweetener used in various products like tabletop sweeteners, oral care products, beverages, and pharmaceuticals. The revenue contribution from this product is ~25% in FY23.

4. Business Model and Competitive Positioning

a) Blue Jet has long-standing relationships with leading companies in the contrast agent industry, securing a stable demand.
b) Geographical Revenue Stream: Europe (74%), India (14%), USA (5%), Others (7%)
c) High entry barriers in the contrast agent intermediary market protect Blue Jet from new competition.

5. Financial Performance

a) A period of stagnation between 2014 and 2019: INR 25 Cr in 2014 to INR 21 Cr in 2019.
b) Significant revenue surge from INR 538 Cr in 2020 to INR 720 Cr in FY23, mainly due to the development and commercialization of a new contrast media intermediate.
c) Generated cash of ~INR 416 Cr from operations over the last three years.
d)  CapEx was ~INR 110 Cr, leaving a free cash of ~INR 300 Cr.
e) The company is debt-free.

6. Risk Factors

a) Market Concentration: Heavy reliance on the European market.
b) Credit Period: Offers a 30 to 180-day credit period to customers, although this hasn’t significantly impacted cash flows.

7. Valuation and IPO

a) The IPO is pure OFS. That means the money will go to the sellers.
b) Market Capitalization: Planned IPO valuation at ~INR 6000 Cr.
c) P/E Ratio: With a PAT of INR 160 Cr for FY23, the P/E ratio is calculated to be 37x.

8. Recommendations and Conclusions

Blue Jet presents an attractive investment opportunity, especially given its strong market positioning and recent revenue growth, largely attributable to its new product. However, investors should closely examine the sustainability of this growth and the company’s dependency on the European market. The valuation seems to be reasonable as there is no listed player in the segment.

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