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Contents of this Note :

New Management Structure of Jubilant Industries Ltd. w.e.f. 1 st Feb. 2012

Page 2-3

In-principle Approval from Allahabad High Court for Retail Business Merger

Page 4-4

Q3FY12 as well as 9'Month'FY12 Result Highlights

Page 4-5

Revision in FY12e Numbers of Jubilant Industries Ltd.

Page 5-7

Operational Hypermarkets in Bangalore of all Major Retail Chains

Page 7-7

Conclusion ( JIL on verge of a Significant Rerating )

Page 8-8

Link to our 18-page detailed Research Note on Jubilant Industries Ltd. dated 26 th September 2011 :

Link to our 5-page detailed Q2FY12 Update on Jubilant Industries Ltd. dated 10 th November 2011 :

Link to our 14-page Event Update (Retail Business Merger Approval) on Jubilant Industries Ltd. dated 12 th December 2011 :

Three significant events occured w.r.t. Jubilant Industries Ltd. [ NSE – JUBLINDS ; BSE – 533320 ] in the span of last fortnight :

  • (a) announcement of

Q3FY12 (9'Months'FY12) Results

which were far ahead of expectations,

  • (b) in-principle Approval from Allahabad High Court

for Merger of Retail Business,

  • (c) significant Management Overhaul

with induction of key persons at Board & Senior level.

We will start with the last event first as for any company to be successful, the first and foremost ingredient is the competent management team at the top which can scale-up fast as also handle the increased scale efficiently.

Management Overhaul

The New Management Structure of

Jubilant Industries Ltd.

w.e.f. 1 st February 2012

Three significant events occured w.r.t. Jubilant Industries Ltd. [ NSE – JUBLINDS ; BSE – 533320

In run-up to the merger of retail business finally taking shape, the promoters have done significant

changes at Board, Senior- as well as Mid- Management levels to prepare the company for a smooth and exponential scale-up. We will highlight here the key Board as well as Senior-level Management inductions.

At Board level :

  • (a) Mr. Shamit Bhartia, the key brain behind Jubilant Bhartia group's two retail ventures, viz., Dominos Pizza (under Jubilant Foodworks) and Total Mall-cum-Hypermarkets (to-be-merged with Jubilant Industries) has been inducted into the board.

  • (b) Dr. Ashok Misra, Head of Intellectual Ventures as well as an Advisor to Aditya Birla PE who is also on board of Reliance Industries Ltd. has been inducted into the board.

At Senior Management level :

  • (a) Mr. Videh Jaipuriar, ex. Vice President Food Business of MNC Bunge India as well as ex. Vice President of VIP Industries is inducted as CEO of listed Jubilant Industries.

  • (b) Mr. Raman Mangalorkar, ex. Head Consumer and Retail Practice, Asia Pacific at AT Kearney, the renowned global management consulting firm, who has over 15 years of industry and consulting experience with international corporations in the Retail, Consumer Products and Sports & Entertainment industries and whose areas of expertise include designing growth strategy, transforming supply chain and managing large scale program in Retail and Consumer industries has been inducted as Head Retail Division. It is worthwhile to note here that, in his career, Mr. Mangalorkar has co-authored many key retail- industry publications including

“Retail in India – Getting Organised to Drive Growth”,

“Making

Procurement a Priority”, Consumer”.

“Can Department Stores Stage a Comeback”

and

“The New Sports

The key thing to watch for in the corporate structure depicted above is the fact that not a single division is ignored with each division rested in able hands who can enable the scale-up and growth of respective division. The most difficult cash-consuming division, viz., Retail is crowned to one of the most experienced person from the industry who himself has authored many publications of the industry and has been a consultant/advisor to many Retail firms' top management advising them on scale-up & profitability issues.

Appointment of ex. V.P. Bunge India & VIP, Mr. Jaipuriar, who has expertise in handling multiple strategic business units and turning each Unit into a separate profit-centre, as CEO of the main listed entity, Jubilant Industries, signifies the will of the management to see each division of the company reach formidable scale and profitability in future. Both these appointments (of Mr. Jaipuriar & Mr. Mangalorkar) will help the company create its credible brand-identity in the marketplace pretty fast as each one is expert in his own sense as far as branding goes.

Appointment of Mr. Shamit Bhartia & Dr. Ashok Misra at board level will provide the much needed guidance to the able senior level management team and will ensure that the management doesn't chart into wrong direction at any particular point of time.

In-principle Approval from Allahabad High Court for Merger of Retail Business

Allahabad High Court, wide its order dated 16 th January, 2012 has given an in-principle approval for

the Scheme of Arrangement between Jubilant Industries, Jubilant Agri & Enpro Oil. Under the scheme of

arrangement, Agri & Consumer Products segments (Jivanjor & Ramban brands) are to be demerged from

the company and get transferred to a wholly owned subsidiary of the company viz., Jubilant Agri &

Consumer Products Ltd.(JACPL). In consideration of such demerger, the listed entity will receive preference

and other shares worth Rs. 164 cr. of JACPL because of which JACPL will become 100 % owned subsidiary of

the listed company Jubilant Industries Ltd. (JIL). In JACPL, the retail business of the group will be merged for

which a consideration of 0.3835 cr. shares of listed entity JIL will be issued to the promoters. Post this entire

scheme of arrangement, equity capital of the company (JIL) will expand by Rs. 3.83 cr, to stand at Rs. 11.84

cr. (1.184 cr. shares of FV 10) while promoters' stake will go up to 64.5 % from current 47.5 %.

As a result of the scheme, listed company JIL, on a standalone basis, will be present in Food Polymer

and Latex businesses which are collectively referred to as 'Industrial Products (IP)' while JIL's 100 % owned

subsidiary will have three brands, two of which are Jivanjor (Consumer Products) and Ramban (Agri-Inputs)

which are collectively referred to as 'Agri and Consumer Products (ACP)' and the third brand being Total

(Mall-cum-Hypermarkets) which is referred to as 'Retail'.

Receipt of final court-approval as well as court-order and filing of such order with respective

authorities will take atleast 25 days to a month and therefore the final merger will be through in the month

of February, 2012.

Q3FY12 (9'Months'FY12) Results' Highlights

On 14 th January 2012, Jubilant Industries Ltd. announced its results for Q3FY12 (9'Month'FY12). The

results surpassed our estimates by quite a wide margin. Given below are the highlights of the results :

(1) Consolidated Revenues (excluding Retail business) for Q3FY12 grew by 28.3 % YoY to stand at Rs.

178.22

cr ..

For 9'Month'FY12, consolidated revenues (excluding Retail business) grew by 8.3 % YoY

to stand at Rs. 482.85 cr

..

It is worthwhile to note here that this 8.3 % YoY growth on 9'Monthly

basis has came inspite of non-inclusion of subsidy income for opening stock of SSP fertilizer and raw

materials due to DOF's Office Memorandum dated 11 th July 2011 which is being contested by the

industry. In absence of such directive, revenue would have been higher by Rs. 13.58 cr. for

9'Month'FY12 to stand at Rs. 496.43 cr.

(2) Consolidated EBITDA (excluding Retail business) for Q3FY12 grew by 113.8 % YoY to stand at Rs.

23.82

cr ..

For 9'Month'FY12, consolidated EBITDA (excluding Retail business) grew by 20.8 % to

stand at Rs. 52.38 cr

..

It is worthwhile to note here that this 20.8 % YoY growth on 9'Monthly basis

has came inspite of the non-inclusion of subsidy income for opening stock of SSP fertilizer and raw

materials due to DOF's Office Memorandum dated 11 th July 2011 which is being contested by the

industry. In absence of such directive, EBITDA would have been higher by ~Rs. 9 cr. for

9'Month'FY12 to stand at ~Rs. 61.38 cr.

(3) The key highlight for the quarter was the strong performance of company's Agri segment which

grew its revenues by 42 % YoY & 23.7 % QoQ. Key offering of the company, viz., SSP fertilizer

(Brand – Ramban) seems to have fared exceedingly well in Q3FY12 mainly because of

unprecedented price rise of other alternatives like DAP and MOP. With urea price-rise round the

corner and no immediate significant respite seen from high-prices of DAP & MOP, SSP demand is

projected to rise exponentially to touch 5.9 mn. MT from current 3.6 mn. MT. by 2017

(source – Fitch Fertilizer Sector Report dated 27 th Jan. 2012). It is worthwhile to note here that this

projected 64 % rise in SSP demand over a 5-year time period, is the highest amongst entire fertilizer

pack and this puts Jubilant Industries into a very sweet spot as its SSP brand Ramban is currently

the fourth largest SSP fertilizer brand of India.

(4) The growth in 'Performance Polymers' segment (which includes Consumer Products-Jivanjor Brand ,

Food Polymer-SPVA and Latex) continues with a 35.3 % YoY rise in Q3FY12 and a 34.4 % YoY rise in

9'Month'FY12 revenues. Apart from growth in revenues, the more heartening thing about the

segment's performance is an exceptional rise in EBITDA which has grown by 71.2 % YoY in

Q3FY12 and by 53.1 % YoY on a 9'Month'FY12 basis. EBITDA margins of the segment have

touched a historical high figure of 13.94 % --- a sequential QoQ 209 basis points expansion and

YoY 292 basis points expansion.

(5) The growth in 'Performance Polymers' segment can be largely attributed to better capacity

utilisation of the expanded capacities, healthy order-flow in Food Polymer segment as well as

successful new product launches in Consumer Products segment. It is worthwhile to note here that

company enjoys a strong market-leadership position in each of its operational segment with its

Consumer Products segment brand 'Jivanjor' standing second after Pidilite; its Food Polymer

segment being the third largest in the world; and, its VP Latex brand being No.1 brand in India.

(6) Company has not given Q3FY12 as well as 9'Month'FY12 numbers of Retail business that is to be

merged with the company because of pending court approval and the matter being subjudice.

Rivision in FY12e Numbers

The exceptional performance of Agri-segment in Q3FY12 as well as better-than-expected EBITDA

margins of both, Agri & Performance Polymers segments reported in Q3FY12, have necessitated a

revision in our FY12e numbers that were given alongwith Q2FY12 Update Report on the company.

While revising our FY12e numbers, we have also thought it prudent to take into consideration the

possibility of pressure on margins in Retail segment of the company as our ground-checks suggest that

company has gone for an aggressive promotional-campaign (most aggresive in Bangalore as compared to

competition) as well as offered an equally aggressive discounts on varied products to counter the possible

slowdown impact as well as raise the scale of operations fast.

The revised FY12e numbers are provided below :

( fig. in ` cr. )

Revised FY'12e

Previous FY'12e

     

Revenue

   

Agri & Consumer Products (ACP)

   

( Ramban & Jivanjor Brands )

426

426

Industrial Products (IP)

195

195

( Food Polymer & Latex )

   

Retail

410

410

( Total Mall cum Hypermarkets )

     

Total Revenue

1031

1031

     

EBITDA

   

Agri & Consumer Products (ACP)

41.2

36.2

( Ramban & Jivanjor Brands )

Industrial Products (IP)

22.5

21.4

( Food Polymer & Latex )

Retail

(- 32.8)

(- 24.5)

( Total Mall cum Hypermarkets )

     

Total EBITDA

30.9

33.1

In our above given estimates for current fiscal FY12, by taking a conservative approach, we have

kept our revenue projections for each of the segment intact. We have only factored in better-than-

previously-anticipated EBITDA margins for IP & ACP businesses as also possibility of lower-than-previously-

anticipated EBITDA margins for Retail business because of the cost-pressures on account of promotional

expenses.

It is worthwhile to note here that we have assumed only Rs. 11.32 cr. EBITDA to come from

current core businesses (IP & ACP) of JIL in Q4FY12 as against Rs. 13.73 cr., Rs. 14.83 cr. & Rs. 23.82 cr.

EBITDA reported by the current core businesses (IP & ACP) in Q1FY12, Q2FY12 & Q3FY12 respectively.

This is because, we have thought it prudent to factor in any adversities that might arise in Agri segment in

the last leg of Rabi season which is not turning out well so far. However, while arriving at these projections,

we have not factored in any positive outcome on contested subsidy issue (on opening stock) and if

it turns out in favour of the industry, either fully or partially (which is the most likely outcome), then it will

straightaway add ~Rs. 6-9 cr. to FY12e EBITDA.

With regards to Retail business, as said before, our ground-check suggests that the company has

gone for an aggressive push of its rechristened brand “Total Superstore” and is currently one of the most

aggressive campaigners in local Bangalore as compared to competition. To snatch the market-share from

competition as well as to attract more footfalls, company has also gone for an aggressive discount offerings

across most of its products. Both these factors combine are expected to put pressure on margins but will

help the company wither the slowdown impact quite comfortably. In fact, we feel that the projected Rs.

410 cr. topline for Retail business is on a conservative side and the company is expected to beat this figure

quite easily in FY12. However, as a matter of prudence, in our estimate for Retail business for FY12, we

have not factored in any positive impact that could arise from aggressive promotional moves of the company.

As we are discussing the Retail business of JIL here, it is worth to have a look at company's

positioning in Bangalore market vis-a-vis its competition. The best way to judge the positioning is to have a

look at total operational Hypermarkets of all major Retail chains in Bangalore :

Hypermarket Brand

Hypermarkets Under Operation in Bangalore

(as on 15 th January 2012)

   

Big Bazaar

14

 

(Pantaloons)

Total

5

 

(Jubilant)

Star Bazaar

4

 

(Trent)

Spar

3

 

(Max)

Spencer Hyper

2

 

(CESC)

Hypercity

2

 

(Shoppers Stop)

More

2

 

(Aditya Birla)

Easyday Market

1

 

(Bharti)

Reliance Mart

1

 

(Reliance)

From above, its evident that JIL enjoys 2 nd largest positioning in one of the fastest growing retail

market, viz., Bangalore and the local expansion will enable it to achieve profitability much quicker than its

competition. To add, the mall-cum-hypermarket format which JIL is adopting for its retail venture is one of

the most derisked one as other retail chains are mostly dependent on mall-owners for opening of their

hypermarkets as well as attracting footfalls there, whereas, JIL, being the entire mall-lesse itself, has good

hold on opening of its hypermarkets as well selecting right tenant-mix as per locality flavours and its own

product-mix so as to attract more footfalls to its hypermarkets.

Conclusion :

Exceptional Q3FY12 Results as well as significant senior-level management changes call for an

immediate rerating of JIL. The only factors which are holding-up such significant rerating are :

pending Retail business Merger,

lack of Clarity on Retail Division financials,

low IR-initiatives by the company because of subjudice merger matter,

silent-period for management before final merger is through and therefore lack of clarity on future-

direction of each of the business division

Having known these above factors, can the investment decision in favour of JIL be held-back by a

prudent investor ?

--- The answer is a clear NO

as these are the only factors which provide an ample

opportunity for a prudent investor to invest in a promising company like JIL and with in-principle court

approval received for Retail business merger and the final formalities likely to get completed in the month

of February 2012, its just a matter of time before which actual significant rerating would start and take JIL to

tade at a resonable level irrespective of the market conditions ;

And what is this reasonable level ?

--- As explained in detail in our first IC Report on JIL, any of the way we look at it, whether

from core businesses point-of-view or post-merger consolidated entity point-of-view, Rs. 325 is the

minimum rate JIL needs to trade at below which it will look undervalued to any prudent long-term

investor.

To conclude, we maintain our earlier view that Jubilant Industries Ltd. is a rare Investment

Opportunity (undergoing a Special Situation) wherein all the ingredients are present like :

credible and most efficient management,

presence in lucrative and growing operational segments,

established leadership position in each of the operational segment with No.1 or No.2

positioning,

scalable business model,

strong visibility of exponential future growth in financials

and, inspite of presence of above ingredients, the company is available at a valuation which

can only be termed as mouth-watering. Company is on verge of a significant rerating and the rerating

process should start sooner rather than later.

Link to our 18-page detailed Research Note on Jubilant Industries Ltd. dated 26 th September 2011 :

Link to our 5-page detailed Q2FY12 Update on Jubilant Industries Ltd. dated 10 th November 2011 :

Link to our 14-page Event Update (Retail Business Merger Approval) on Jubilant Industries Ltd. dated 12 th December 2011 :