JB Chemicals & Pharma: Small in size, but big enough to create a difference

10 Apr 2024 , 12:08 PM

Analysts of IIFL Securities recently hosted JB Pharma’s CEO for an NDR in the US. Mgmt reiterated its focus on improving the revenue contribution of its high-margin, high-returns India and CMO business to 75-80% of overall revenue vs 67% currently, both of which analysts of IIFL Securities believe are 35- 40% Ebitda margin segments for JB. Mgmt expects its India business to consistently outperform IPM growth by 300-400bps led by ramp-up in chronic therapies such as Cardiac & Ophthal, further scale-up in acquired brands, and improving MR productivity. JB has guided for organic Revenue and Ebitda growth of 12-14% and 16- 18% resp. for FY25, which will be further augmented by the Ophthal acquisition. Despite investing ~Rs14bn into acquisitions over CY22-23, JB is almost nearing zero net debt, given its healthy FCF generation of Rs7-7.5bn p.a. Analysts of IIFL Securities value JB at ~32x FY26 EPS (vs ~35x for Mankind) to arrive at their TP of Rs1,950 (15% upside).

JB’s India business is expected to sustain its 300-400bps outperformance vs IPM growth, driven by strong growth in its Chronic portfolio, especially the Cardiac segment which contributes ~45% to JB’s India revenue. Cardiac market in India is growing at 12-14%, while JB’s Cardiac portfolio is growing at 16-18% driven by better-than-market volume growth which is enabling JB to outperform domestic market growth. Although price increases for the NLEM portfolio will be flat for FY25 owing to flattish WPI, only 12% of JB’s India revenue is under NLEM vs 20-30% for a few peers and hence, JB is relatively better-placed than other players to continue driving 5-6% overall price increases for its India portfolio.

JB targets to double CMO revenue from USD50mn to USD100mn over the next 3-5 years, driven by geographic expansion, onboarding new clients, and adding new lifecycle products. While JB's CMO manufacturing capacity is 2bn lozenges, its current utilisation is only ~50- 60% and hence, JB is targeting to add new clients in EU, SA and Brazil, apart from existing clients of J&J, P&G, Reckitt, iNova, Adcock, etc. JB intends to start supplying lozenges for the US market to an existing client.

JB intends to improve its Ophthal market coverage in India, by launching its own dry-eye product and improving the acquired Novartis portfolio through lifecycle mgmt of brands & launch of line extensions. JB’s execution track record in past acquisitions of Sanzyme, Azmarda & Razel provides us comfort on mgmt’s target to accelerate the growth of the acquired Ophthal portfolio to a mid-teens rate vs 8% Cagr over the past 2 years.