Blue Jet
IPO Size: Rs. 840 cr
- Entirely offer for sale (OFS) by the promoter (100% stake to drop to 86%)
Price band: Rs. 329-346 per share
M cap: Rs. 6,002 cr, implying 14% dilution
IPO Date: Wed 25th Oct to Fri 27th Oct 2023, Listing Mon 6th Nov 2023
Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.
Speciality Pharma Intermediates Company
Blue Jet Health operates under three product segments:
- Contrast Media Intermediates (70% of revenue mix): Contrast media is used in body imaging such as X-ray, CT scan, MRI scan, to enhance visibility of body tissues. Global contrast media market is concentrated in hands of 4 players (accounting for 70%) and company supplies to 3 of the top 4 players.
- High-intensity Sweeteners (24% of revenue mix): With 3-4,000 MT capacity, Blue Jet enjoys ~10% volume share of global saccharin market, used in oral care, beverages, food etc.
- Pharma intermediates and active pharmaceutical ingredients (APIs): accounts for balance revenue.
48% Capacity Increase over 18 months
Blue Jet’s current manufacturing capacity, located in Maharashtra (included US-FDA compliant facility) stands at 1,021 KL, which is being increased by 48% through greenfield and brownfield expansion, to 1,514 KL, by FY25-end. This provides healthy financial outlook from H2FY25 onwards. Despite 75% revenue from Europe and 5% for USA, global slowdown may not impact the company adversely, as end-product is used by final consumer for non-discretionary medical purpose.
High Margin Business
On FY23 revenue of Rs. 721 cr, company clocked 32% EBITDA margin and 22% PAT margin as volatile raw material prices impacted margins by nearly 300 bps points, leading to an EPS of Rs. 9.23. But in Q1FY24, revenue rose 24% YoY to Rs. 180 cr, with EBITDA margin expanding to 35% and PAT to 25%. Thus, Q1FY24 EPS jumped to Rs. 2.54, from Rs. 1.61 in Q1FY23 and from Rs. 9.23 in FY23.
Blue Jet clocks a healthy RoE of 26.6%, due to the high fixed asset turnover of nearly 5.6x. This is commendable also in the backdrop of (i) B2B nature of operations (ii) outstanding receivables as high as 4 months (iii) on Rs. 726 cr net worth (as of 31.3.23), cash and equivalents stood at Rs. 281 cr, with company being debt-free since FY21.
Attractive Valuation
On FY25E EPS of approximately Rs.13, shares are being offered at a one year forward PE multiple of 26.6x which is seen attractive, for presence in niche categories with high barriers to entry, which enable company clock 25% net margin and an equivalent RoE. Ongoing capacity expansion maintains the optimistic growth outlook. Company does not have exact comparable listed peers, but specialty chemical stocks are ruling at similar or higher PE multiples, some with lower growth outlook or dwindling industry prospects. Thus, Blue Jet’s IPO pricing is seen attractive.
Also noteworthy is 100% promoter holding so far, having built the business without any equity dilution, while company is also self-sufficient to meet present and future capex requirements.
26th Oct 2023 at 08:19 am
25th Oct 2023 at 11:12 am