J B Chemicals & Pharmaceuticals Ltd Management Discussions

INDUSTRY DEVELOPMENTS

The Indian Pharmaceuticals market clocked growth of 8% in FY24 majorly on the back of price increase. As per IQVIA MAT March24 data, chronic segment continued to outperform, growing at 10% vs acute segment growth of 6%. Muted acute season was the primary cause behind slow IPM growth. Domestic industry sales for the year stood at INR 21,609,173 lakhs vs INR 20,083,849 lakhs in FY23 (IQVIA MAT March24 data). Volumes dropped by 3.5% during the year.

Overall international business environment witnessed inflationary pressure. Pricing pressure continued to prevail, however, it softened during the second half of the year. Logistics were impacted by geopolitical uncertainties and affected overall costs especially in H2. The Company remains vigilant of the geopolitical and economic developments and will continue to alter its approach accordingly.

Domestic Business:

The Company is engaged in only one segment viz. pharmaceuticals.

JB Pharma continued to outperform the industry growing at 10% vs IPM growth of 8% (as per IQVIA MAT March24 vs MAT March23 data). Excluding ophthalmology portfolio, the Company grew 11%. JB Pharma was one of the fastest growing companies amongst the top 25 in the Indian Pharmaceuticals Market.

For the year under review, the domestic formulations business registered growth of 16% to Rs. 189,791 lakhs. While the acute business was muted throughout the year, the chronic portfolio registered strong growth. The 5 big brands of the Company now rank amongst the top 150 brands in the Indian Pharmaceuticals Market (IQVIA MAT March24 data).

Throughout the year, the Companys comprehensive four- pillared strategy yielded positive outcomes

1. Realigned Go-To-Market (GTM) model to drive productivity

The Company is focused on improving productivity, enhancing prescriber connect and building strong brand franchises. JB Pharma gained 2 ranks in the industry and now ranks 22 as per IQVIA MAT March24 data. It ranks as 16^th most prescribed Company in the IPM and has built strong relations with prescribers. Rantac and Metrogyl rank amongst top 10 most prescribed brands in the industry.

Per capita sales per month (PCPM) further improved to INR 6.8 lakhs for FY24 vs INR 6.2 lakhs in FY23. Excluding ophthalmology portfolio, PCPM was INR 7 lakhs.

Sporlac franchise registered growth of 21% to INR 12,237 lakhs as per IQVIA MAT March24 data and continues to grow strong on the back of new launches.

2. Increasing contribution from chronic Therapies

The Company continues to focus on growing its chronic portfolio which now accounts for 48% of the total business (excluding ophthalmology portfolio) as per IQVIA MAT March24 data vs 47% in the previous year. Chronic portfolio of the Company grew 14% in the year as against industry chronic segment growth of 10% (as per IQVIA).

JB Pharma ranks amongst the top 20 companies in the chronic segment and outpaced it growing 14% vs overall chronic segment growth of 10%. The Company ranks amongst the top 10 in the cardiology segment and 3 of the largest brands of the Company namely CIlacar, Cilacar-T and Nicardia now rank amongst the top 20 brands in the cardiology segment.

Cilacar franchise delivered strong performance and recorded volume growth of 11% vs 3% volume growth in the overall cardiac therapy segment. The franchise grew 22% in value terms vs overall cardiac growth of 10%.

3. Making big brands bigger and building Strong Franchise

The 5 big brands of the Company now rank amongst the top 150 brands in the IPM as per IQVIA MAT March24 data. Rank improvement was observed in 4 of these brands while Rantac maintained its #35 position. Cilacar grew 20% and gained 8 ranks to #32, Metrogyl grew 8% and gained 28 ranks to #114, Cilacar-T registered growth of 25% and gained 47 ranks to #147 and Nicardia grew 18% and gained 22 ranks to # 150.

Cilacar franchise clocked growth of 22% to now become an INR 60,000 lakh plus franchise (IQVIA MAT March24 sales of INR 64,067 lakhs). Metrogyl franchise crossed INR 30,000 lakh mark as per IQVIA MAT March24 data. Sporlac franchise grew 21% to clock INR 12,237 lakhs while Razel franchise also recorded stellar growth of 24% to INR 8,337 lakhs.

4. Acquisition-led growth, via strong brand franchises

The Company always had a strategy of investing in progressive and value-accretive portfolios to fuel domestic business growth.

Following this approach, JB Pharma invested in Novartis ophthalmology portfolio and executed trademark license agreement with Novartis Innovative Therapies AG, Switzerland which is perpetual in nature for a consideration of $116 million payable on or before December 31, 2026. The Company also executed promotion and distribution agreement with Novartis Healthcare Private Limited for the same ophthalmology portfolio for a period of three years starting December 2023. JB Pharma paid INR 12,500 lakhs for this exclusive promotion and distribution agreement.

The portfolio consists of 10 brands - Simbrinza, Travatan, Travacom, Azopt, Azarga, Vigamox, Vigadexa, Nevanac, Illevro and Pataday. 5 of these brands have leadership positions in their respective covered molecule market space.

International Business:

The Company operates distinct models across various international markets. It maintains a direct presence in Russia and South Africa, along with distributor relationships in the U.S. and numerous markets throughout Asia, Africa, and Latin America.

The Company also marks its presence amongst the top 5 manufacturers of medicated and herbal lozenges and operates as contract development and manufacturing (CDMO) partner for some of the largest consumer healthcare/ FMCG companies in the world. The CDMO business has strong growth prospects and remains one of the focus verticals for the organization.

During the year, the Company took strategic decision of diluting focus in low margin tender business and improving presence in the private markets in South Africa. Though this decision impacted revenue growth of the international business, it improved the overall margin profile of the segment.

New products introduction in the home markets and other branded generics markets, enhanced focus on private markets in South Africa and introduction of new concepts in the CDMO business remain key growth drivers for the international business of the Company.

During the year under review, the Companys international business recorded revenue growth of 5% to Rs. 158,627 lakhs vs Rs. 150,963 lakhs in FY23. Excluding South Africa business, revenue registered YoY growth of 12%. International formulations business registered growth of 6% to Rs. 106,854 lakhs; CDMO business was Rs. 43,185 lakhs, and the API business was Rs. 8,588 lakhs.

OUTLOOK

The Indian economy is in a healthy state and is likely to remain largely insulated from the global headwinds. The Indian Pharmaceuticals Market should grow better in the upcoming years led by strong growth in the chronic segment. FY24 was marked by a muted acute season which should bounce back in upcoming years and further fuel growth.

JB Pharma will strive to better the industry and will continue to focus on its strategies of building bigger brand franchises, enhancing its chronic portfolio and improving productivity.

The international business environment will continue to be impacted by the ever-changing geopolitical scenario. JB Pharmas endeavor shall be to continue to grow on the back of new launches in the branded generics markets, expansion into newer areas in the CDMO business, an improved pipeline of the ANDA filings and deeper penetration with anchor customers.

Despite all the challenging conditions we remain optimistic about the next financial year.

RiSKS AND cONcERNS

The Company does not perceive any risks or concerns other than those that are common to the industry such as regulatory risks, exchange risk, cyber risks and other commercial and business-related risks.

The Company has deployed a strong risk mitigation plan which is reviewed regularly even for the above areas.

INTERNAL CONTROLS SYSTEMS AND THEIR ADEQUACY

The Company maintains an effective internal control system to safeguard its assets from loss or unauthorized use and to ensure that business operations adhere to established procedures. These controls also guarantee that transactions are executed with proper authorization and are recorded and reported in accordance with generally accepted accounting principles.

Furthermore, the Company conducts regular internal audits, overseen by competent professionals retained by the Company. The internal audit program is endorsed by the Audit Committee, and the findings of internal audits are regularly presented to both the Audit Committee and the Board.

Given the size and nature of the Companys business, the internal control systems are deemed adequate to address the specific needs and requirements of its operations.

FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

Consolidated financial performance of the Company with respect to operational performance for the financial year ended on March 31,2024 is as under:

During the year under review, the Company registered revenue growth of 11%. While domestic business grew 16% international business recorded growth of 5%. The reported EBITDA witnessed an improvement of 29% to INR 89,689 lakhs vs INR 69,575 lakhs in FY23. The Operating EBITDA (excluding ESOP costs) increased by 26% to INR 93,886 lakhs.

Standalone financial performance of the Company for the financial year ended on March 31,2024, is as under:

HUMAN RESOURCES

There has been no material development on human resources and industrial relations front. The relationship with employees and workers continued to be cordial at all levels. As on March 2024, permanent employees strength and temporary employees strength was 5,311 and 2,079 respectively.

KEY FINANCIAL RATIOS

The key financial ratio for 2023-24 and changes therein as compared to the immediately preceding financial year along with detailed explanation in cases where the change is 25% or more is as under:

a) Debtors Turnover ratio: Net Sales/Average account receivables

This ratio for the year was 5.52 (times) as against 5.57 (times) in the previous year.

b) Inventory Turnover ratio: Cost of Goods sold/Average inventory

This ratio for the year was 2.53 (times) as against 2.78 (times) in the previous year.

c) Debt service coverage ratio: Earnings Available for Debt Services /(Finance Cost + Current borrowings including lease liabilities)

This ratio for the year was 1.91 (times)* as against 2.97 (times) in the previous year.

*(Decrease due to repayment of debt during the year)

d) Current Ratio: Current assets/Current liabilities

This ratio for the year was 2.10 (times) as against 2.65 (times) in the previous year.

e) Debt-Equity ratio: Borrowings/Total Shareholders

Equity

This ratio for the year was 0.129:1 (times)^A as against 0.231:1 (times) in the previous year.

A(Mainly driven by term loan taken for acquisition of brands)

f) Operating Profit Margin : EBITDA(excl ESOP charge)/ Sales Operating profit margin for the year was 26.95% as against 24.29% in the previous year.

g) Net Profit Margin: Net Profit/Net Sales

Net profit margin for the year was 15.86% as against 13.02% in the previous year.

The ratio for the previous year has been re-stated wherever necessary to make it comparable to current year calculation.

RETURN ON EQUITY

Return on Equity during the year was 18.92% as against 16.53% in the previous year. The ROE was impacted due to ESOP charges, lower treasury income, higher depreciation and financial costs with respect to acquisitions.