JGChemicals Ltd Q3 FY2026 Concall Summary

Key Takeaways

• Record quarter, broad-based demand: Highest-ever quarterly sales, EBITDA and PAT, driven by 19% YoY revenue growth from higher realization, better capacity utilization and a richer product mix.
• GST cut unlocked tyre demand: The September GST reduction materially improved affordability and sentiment across OEM and replacement tyre markets, a tailwind that management says is sustaining into the current quarter.
• Margin accretion is delayed, not lost: Gross margin dipped YoY on a 3-to-4-month inventory lag effect, but management expects that accretion to flow through in Q4, with core EBITDA margin targeted at 13–14% over the next 2–3 years.
• Capacity build is racing ahead of customer demand: Dahej Phase 1 is on track for H1 FY27 commissioning, and Naidupeta brownfield expansion is underway, both timed to be ready before tyre customers' large capex cycles start delivering volume from 2027–2028.
• What to watch next quarter: Whether the promised Q4 margin accretion actually materializes, the pace of zinc sulphate demand recovery as pent-up farmer buying returns, and any progress on extending the duty removal to zinc dross.

Demand Environment

• Tyre industry tailwind: GST reduction from September 2025 improved affordability and customer sentiment, directly lifting demand across the automobile and tyre segments. Good monsoons revived the rural economy, supporting two-wheeler and agriculture tyre demand in Tier 2 and Tier 3 markets.
• International markets strong: Demand for radial commercial vehicles, off-highway tyres and passenger vehicle segments remains robust internationally, with India emerging as a credible global sourcing base. Trade agreements with the EU and US are expected to significantly grow export opportunities for customers, reviving production levels that had become subdued.
• Non-rubber traction building: Encouraging traction in pharmaceutical, ceramics, specialty chemicals and agriculture segments, with product customization and customer-specific solutions strengthening partnerships.
• Zinc sulphate softness is temporary: Demand did not grow double-digit because high zinc and sulphuric acid prices made farmers, who are price-sensitive, push away micronutrient use. Management views this as pent-up demand that will return when farmers eventually resume application.
• Tyre capex provides multi-year visibility: Tyre industry capex plans of over INR12,000 crores over the next 2–3 years give strong visibility on long-term volume growth, with incremental demand from tyre companies expected to start trickling in large numbers from 2027–2028 onwards.

Anuj Jhunjhunwala: "we always believe that our capacity expansions and our projects should get commissioned before our customers start commencing their new projects."

Margin Dynamics & Pricing

• Gross margin dip is a timing issue: Gross margins declined YoY due to a lag effect of materials flowing in, with imports causing a 3-to-4-month difference between contract and consumption. Management advises looking at EBITDA or PBT for a holistic view rather than standalone gross margin.
• Inventory gains to land in Q4: Zinc prices rose in Q3 but inventory gains were not much accrued in the quarter; they will flow in bit by bit in Q4, and margin accretion is expected to accrue then as the lag effect unwinds.
• Pricing mechanism is LME-linked and agnostic: The company is agnostic to zinc prices because products are priced on LME and raw materials are also based on the same LME, using an M-minus-1 model: raw materials bought at January LME, product sold in February based on January LME, so there is no difference or lag in the pricing mechanism itself.
• Responsible pricing philosophy: Any cost pressure on the company is passed on and absorbed by customers, who in turn try to pass it on to their OEMs, a dynamic management says holds whether demand is muted or buoyant.
• Core EBITDA margin ambition: Target is 13% to 14% minimum in the next 2 to 3 years, up from the current core aspiration of 10.5% to 11%, driven by increased specialized products and operating leverage.

Anirudh Jhunjhunwala: "See, as we have maintained before also, as a company, generally, we are agnostic to zinc prices. Whether zinc prices go up or go down does not really affect our margin profile on the core business."

Capacity Expansion & Projects

• Dahej greenfield on track: Civil construction is currently underway and machinery installation is expected to commence over the next couple of months. Phase 1 of zinc oxide production is expected to commission in the first half of FY27 itself, with an internal target of Q2 FY27.
• Naidupeta brownfield expansion: Undertaken to support future demand, with capacity to be increased in calendar year 2026.
• Dahej Phase 2 sequenced for later: After Phase 1 reaches reasonable utilization, estimated at 2 to 2.5 years, Phase 2 expansion will start. Common infrastructure is already planned for both phases.
• Recycled rubber project advancing: Pilot-scale trials have commenced with very encouraging initial results. This would be a specialized product that increases content per tyre from the house of JG, with further details to be shared at an opportune time.
• Solar power commissioned: A new solar power energy generation project was commissioned at Naidupeta (Phase 1) with an investment of INR2.5 crores, expected to commence this month. Incremental profitability is estimated at INR60 to INR70 lakhs per year over the next four years, each year.

Product Mix & Revenue Evolution

• Revenue mix shifting toward non-rubber: The mix of rubber will reduce going forward, not because of lesser growth in rubber, but because of increased products and more application areas being focused on. The target is to change the rubber-to-non-rubber mix to about 70:30 in the next 2 to 3 years.
• Zinc oxide volume growth: Double-digit volume growth was registered in the zinc oxide business in the current period, though exact volume numbers are not disclosed as a matter of company policy due to confidentiality reasons.
• Zinc sulphate prior-year context: The zinc sulphate market was not good in prior years; last financial year was better and the company had just started then so could take advantage. Current year volumes did not grow as expected due to farmer price sensitivity.
• Export share stable: Exports will remain in the range of 10% to 15% and are not expected to become 25% to 30% in the near future.

Regulatory & Cost Tailwinds

• Duty removal on zinc scrap, but not dross: The Budget removed duty on zinc scrap but not on zinc dross. The company is working with the government to extend the removal to zinc dross, which would be beneficial as raw material cost goes down.
• Renewable power target: Share of renewable power is targeted at 55% to 60% in four years' time, with phased investments over the next three to four years. Future expansion of solar power generation is planned at both Naidupeta and Dahej.

Anirudh Jhunjhunwala: "So ideally duty should be removed when the Honorable Finance Minister has announced that zinc scrap should no longer attract duty import; it should automatically be extended to zinc dross also."

Guidance & Commitments

Key Metrics