Jubilant Industries Ltd. [ NSE JUBLINDS ; BSE 533320 ] last week announced its results for Q2FY12 (H1FY12).

). The results surpassed our estimates and we maintain our outlook for the stock as 'Grossly Undervalued' which is on the verge of getting significantly rerated once Retail business merger is approved by court in Q3FY12. Given below are the highlights of the results and our view post Q2 numbers. Also included are management's estimates for FY12 and FY13 for each of the operational segment as also our own estimates for current and next fiscal vis-a-vis management's estimates : (1) Consolidated Revenues (excluding Retail business) for Q2FY12 grew by 16.5 % YoY to stand at Rs. 161.25 cr.. For H1FY12, consolidated revenues (excluding Retail business) degrew by 0.8 % YoY to stand at Rs. 304.63 cr. mainly because 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, revenue would have been higher by Rs. 13.58 cr. for H1FY12 to stand at Rs. 318.21 cr. (2) Consolidated EBITDA (excluding Retail business) for Q2FY12 grew by 10.6 % YoY to stand at Rs. 14.83 cr.. For H1FY12, consolidated EBITDA (excluding Retail business) degrew by 11.3 % to stand at Rs. 28.56 cr. mainly because 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 H1FY12 to stand at ~Rs. 37.56 cr. (3) The key highlight for the quarter as well as 1 stHalf'FY12 was the exceptional performance of 'Performance Polymers' segment which includes Consumer Products (Jivanjor Brand) , Food Polymer (SPVA) and Latex. The segment grew its YoY revenues by 95.9 % in Q2FY12 and by 34 % in H1FY12. EBITDA of the segment also saw healthy growth by growing 43 % YoY in Q2FY12 and by 44.3 % YoY in H1FY12. (4) 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 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. (5) Agri-Inputs segment of the company grew by 6.6 % YoY in Q2FY12 and degrew by 14.4 % YoY in H1FY12 mainly because 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, revenues of Agri segment would have been higher by 10.2 % for H1FY12. (6) Company has not given Q2FY12 as well as H1FY12 numbers of Retail business that is to be merged with the company because of pending court approval and the matter being subjudice. However, post FY11 results, management had estimated its Retail business to gross a revenue of Rs. 584 cr. for current FY12 (over FY11's Rs. 315 cr.). This estimate was given when economy was not so turbulent as is right now and we feel that this estimate will need to be revisited once the merger is complete. We will touch upon the management's estimates for each of the operational segment for FY12 and FY13 as well as our estimates for the two fiscals later in this note. (7) Company has already filed an application with Allahabad High Court for merger of retail business and a court directed meeting of shareholders of the company is to be held on 2nd December 2011 for approval of the scheme of arrangement with that regard. The court approval should be received

by 31st December 2011 and we feel from Q3FY12 onwards Retail business numbers will start reflecting in company's financials. Equity capital of the company will expand by Rs. 3.83 cr, to stand at Rs. 11.84 cr. (1.184 cr. shares of FV 10) because of the merger of Retail business and promoters' stake will go up to 65.5 % from current 47.5 % because of the merger. (8) We feel Retail business merger will be extremely positive for the company in the long run, as, in the near term it will provide exponential Revenue growth while in the medium-to-long term it will enable robust cash generation for the company. (9) Under the scheme of arrangement for merger of Retail business, 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. (10) Hence, 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'. (11) FY12 & FY13 estimates by the management for financials of each of the operational segment post scheme of arrangement becoming effective are provided below :

FY'12

FY'13

Revenue

Agri & Consumer Products (ACP) ( Ramban & Jivanjor Brands ) Industrial Products (IP) ( Food Polymer & Latex ) Retail ( Total Mall cum Hypermarkets )

522.3 204.1 584.6

558.3 243.8 982.6

Total Revenue

1311

1784.7

EBITDA

Agri & Consumer Products (ACP)

59.7

68.5

( Ramban & Jivanjor Brands )

Industrial Products (IP) ( Food Polymer & Latex ) Retail ( Total Mall cum Hypermarkets )

23.7 (- 11.2)

31.5 + 18.1

Total EBITDA

72.2

118.1

(12) Above estimates were made by the management when domestic economy as well as global environment was not so turbulent as is right now. Hence, we feel that these estimates need to be revisted once the entire scheme of arrangement is complete and Retail business merger is through. However, one thing needs to be mentioned here that management has kept its words of opening two mall-cum-hypermarkets in current FY12 with one already getting operational in June'2011 and the other one likely to be opened soon. (13) Our conservative FY12 & FY13 estimates for each of the operational segment of JIL (post scheme of arrangement becoming effective) while factoring in all the negatives as on date are given below. We have kept enough room for the management to beat our estimates :

FY'12

FY'13

Revenue

Agri & Consumer Products (ACP) ( Ramban & Jivanjor Brands ) Industrial Products (IP) ( Food Polymer & Latex ) Retail ( Total Mall cum Hypermarkets )

426 195 410

510 228 630

Total Revenue

1031

1368

EBITDA

Agri & Consumer Products (ACP) ( Ramban & Jivanjor Brands ) Industrial Products (IP) ( Food Polymer & Latex ) Retail ( Total Mall cum Hypermarkets )

36.2 21.4 (- 24.5)

48.5 26.2 (- 18.9)

Total EBITDA

33.1

55.8

In our above given estimates for current fiscal FY12, we have assumed only Rs. 317 cr. revenues from current core businesses (IP & ACP) of JIL in H2FY12 as against Rs. 304 cr. achieved by the company in H1FY12. Also, with regards to EBITDA, we have assumed that it will gross an EBITDA of Rs. 29.04 cr. in H2FY12 as against Rs. 28.56 cr. EBITDA reported by the company in H1FY12. Such low estimates are given inspite of the fact that Q3 and Q4 are normally very healthy quarters for company's Consumer Products and Agri segments, so as to factor in any adverse impact of turbulent economic environment that we are witnessing right now. With regards to Retail business, the two new mall-cum-hypermarkets that are opened in current fiscal will aid in a healthy revenue growth this fiscal. In FY13, 3 more mall-cum-hypermarkets are planned to be launched. However, contrary to management's estimates of grossing Rs. 584 cr. revenues in current FY12 and Rs. 982 cr. revenues in FY13 from retail business, we have thought it proper to let the new stores stabilise and factor in any possible adversities, in our estimates. This is the reason why we have estimated only 30 % YoY growth in Retail business in FY12 which will easily get scaled up to 53 % growth in FY13. However, we feel that retail business' EBITDA-level break-even, as estimated by management to be achieved in FY13, will take one more year and will happen only in FY14 when all the 10 mall-cumhypermarkets of the company will be operational. Any positive development with regards to Retail business of the company asto quicker revenue growth or better profitability than our estimates will call for an unexpected significant rerating of the company on the bourses. However, even if we assume that company will not surpass our estimates and will perform on expected lines of our conservative estimate of Rs. 1031 cr. consolidated revenues in FY12 and Rs. 1368 cr. consolidated revenues in FY13 with a consolidated EBITDA of Rs. 33.1 cr. and Rs. 55.8 cr. respectively, then also, on an expanded equity capital of Rs. 11.84 (post merger of retail business), Jubilant Industries Ltd. is currently trading at 0.24x FY12e sales and 0.18x FY13e sales with an EBITDA-multiple of just 7.7x FY12e EBITDA and 4.6x FY13e EBITDA which signifies a gross undervaluation of the company on the bourses and therefore calls for a significant rerating of the stock. We believe rerating will commence and gather momentum once Retail business merger is approved by the court in December'2011. To conclude, we maintain our view that Jubilant Industries Ltd. is a rare Investment Opportunity 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 mainly because of pending court approval for retail business merger as also thanks to current uncertain financial markets environment. With court recently giving go ahead to call a shareholders meeting under its chairmanship on 2 nd December 2011, the approval can be expected well before 31st December 2011 which means the company is on verge of a significant rerating and the rerating process should start sooner rather than later.