JGChemicals Ltd Q2 FY2026 Concall Summary

Key Takeaways

• Steady H1, Q3 demand picking up: Revenue grew 6% YoY in H1 to ₹438 crores, and after a flat Q2 impacted by GST implementation, management reports good demand in the current Q3.
• Margins temporarily pinched by inventory timing: A marginal 0.7% EBITDA decline in Q2 was driven by consumption of higher-cost inventory from prior shipping delays, a factor management calls temporary with logistics now stabilizing.
• Dahej greenfield is the multi-year growth anchor: The 40,000 MT zinc chemical facility is on track for Phase-1 commissioning in H1 FY27, carrying a stabilized revenue potential of over ₹900 crores across both phases.
• A new recycled rubber product enters trials: A jointly-developed recycled rubber product targeting ~15% usage in tyres begins trials in Q4, with management positioning it as a future significant business, not an ancillary.
• What to watch next quarter: Whether the Q3 demand uptick converts to volume growth, the pace of margin recovery as higher zinc prices flow through, and initial signals from the recycled rubber trials.

Dahej Expansion: The Next Growth Platform

• Phase-1 on schedule: Construction began in August 2025 after Board approval, with Phase-1 commissioning expected in H1 FY27, and revenue contribution starting in H2 FY27.
• Phase-2 timeline: Expected approximately 2 to 2.5 years after Phase-1 commissioning.
• Revenue potential: Once both phases stabilize, the plant can generate revenues over ₹900 crores, with sufficient land available for further expansion into areas like recycled rubber in Western India.
• Strategic location: The Dahej site was chosen for proximity to the ceramics market, specialty chemicals, and the Gujarat tyre market, where the company currently holds less than 1% share in ceramics due to lack of regional presence.
• Market diversification: The plant will serve ceramics, pharma, and specialty chemicals in addition to tyre, with approval processes in ceramics and specialty chemicals described as fairly short.
• Capacity bridge: Spare capacity at the existing Naidupeta facility remains adequate to service anticipated demand until Dahej becomes operational, with current utilization at ~70% and a target of 85% next year.

Anirudh Jhunjhunwala: "This 40,000 metric tons per annum zinc chemical facility at Dahej is progressing as planned. Phase-1 of the facility is expected to be commissioned in H1 of FY '27. And once stabilized, the plant has the potential to generate revenues over 900 crores."

Margin Trajectory: Temporary Drag, Structural Upside

• Q2 margin dip explained: The 0.7% EBITDA margin decline was driven by consumption of higher-cost inventory arising from shipping delays in the previous period, not by any structural cost pressure.
• Zinc price tailwind building: Zinc prices rallied sharply only in the last month of the quarter; in Q1, prices had actually dropped. High-cost material landed in Q2 due to shipping lags, muting H1 EBITDA. Benefits of the sharp recovery over the last 3-4 weeks will accrue going forward.
• Long-term margin target: EBITDA margins currently in the 10%-11% range are expected to inch up to 13%-14% over the next 2 to 3 years, driven by increasing the share of non-rubber applications from the current 15% to about 30%.
• Timeline to target: The full 15%-to-30% non-rubber shift and associated margin improvement will take approximately 3 to 4 years.
• Zinc price sensitivity: A very sharp drop of more than \$700 over about two months can impact margins, but the same quantum spread over a longer period has little effect. Low zinc prices sustained over a broad range also do not significantly affect margins.
• Management declined to comment on whether margins will improve quarter after quarter as raw material prices move up, stating "the market can decipher for itself."

Anuj Jhunjhunwala: "As I mentioned, the EBITDA margins are currently in the 10%-11% range, and we expect these to inch up to the 13%-14% range in the next 2 to 3 years when the share of non-rubber applications increases from where it is to where we intend to take it to about 30%."

Recycled Rubber: A New Product, A Strategic Bet

• Product profile: The company is developing a new recycled rubber product targeting ~15% usage content per tyre, far above the 3%-4% maximum achievable with standard reclaim rubber available in the market for decades.
• Trials timeline: Trials expected to begin in Q4 FY26, with approvals for this specific project estimated at six to nine months, versus the typical four-to-five-year tyre company approval cycle.
• Joint development model: The product is being developed alongside tyre companies as a collaboration, not merely offered as a supplier. Management says this distinction matters significantly for adoption.
• Strategic ambition: Management envisions this becoming a significant business for JG in years to come, not just an ancillary product, supported by regulatory mandates pushing higher recyclable content in both green tyres and current tyres.
• Raw material sourcing: Will be a mix of domestic tyre scraps and international imports, depending on availability and price.
• Pricing and margin specifics: Management declined to provide pricing competitiveness versus reclaim rubber or expected margins for the venture, calling it too early.

Anirudh Jhunjhunwala: "It is not that it is a product that we are trying to offer to them. It is a product which we are working together. So, that makes a lot of difference whether you are just as a supplier or you are more as a collaborator with them."

Competitive Moat: Technology, Relationships, Certifications

• Proprietary zinc scrap technology: The process for converting zinc scrap is 100% internally developed IP, built over two decades of trials, errors, learning, and continuous R&D. Zinc scrap comes in varied forms, sizes, and impurity profiles, making it difficult for newcomers or inexperienced plants to replicate.
• Scrap sourcing relationships: International scrap sourcing is relationship-based, built over 15-20+ years. The company has honored commitments through financial crises, COVID, price crashes, and facility closures, earning trust from suppliers in Europe and the US. These sales happen on credibility, not merely on pricing.
• Certification leadership: The Naidupeta facility is the only IATF-certified zinc oxide plant globally, and also holds WHO GMP, IP, BP, and European Pharma certifications, creating a barrier for competitors targeting blue-chip customers.
• Pricing power: When servicing blue-chip clients up the value chain, the company sees no reason to discount against smaller competitors, given the IP it has developed.

Anirudh Jhunjhunwala: "As far as the technology for processing scrap is concerned, this is 100% an internally developed technology. It is an IP that is internally owned. And this has been done over the last two decades of trials, errors, learning, and continuous R&D."

Demand & End-Market Diversification

• Tyre industry backdrop: The tyre industry is projected to grow 7%-8% in the next couple of years per independent bodies, with GST reductions in September supporting a pickup in automobile activity that will help the tyre segment.
• Non-rubber traction: Steady traction across pharmaceuticals, cosmetics, ceramics, specialty chemicals, and other special applications, with the company aiming to increase non-rubber share from 15% to over 30% in four to five years.
• Zinc Sulphate growth: Revenues recorded YoY increase, with over 20% growth on a half-year basis. Demand is gradually increasing across animal feed, micronutrients, and fertilizer applications, helping the de-risking strategy of increasing agri-segment contribution.
• Zinc oxide volumes: Volume growth on the zinc oxide segment was close to 6%-7% in H1.
• Export push: Export contribution for H1 stands at about 12%. The company is consistently pushing for newer export markets, with immediate targets being clients who have a long-term presence in India and operations abroad.
• Emerging applications: New applications for zinc oxide are emerging in healthcare, personal care, battery segment, specialty chemicals, and electronic industries.
• EV tyres: There is no change in zinc oxide usage for EV tyres versus regular tyres; the product is ESG-compliant and made mostly from scrap, helping tyre companies meet recycled content mandates.

Guidance & Commitments

Key Metrics