IDEA2WIN - Buy: J. B. Chemicals & Pharmaceuticals

Buy - JBCHEPHARM

CMP (NSE) 15:55, 29 Nov

1,637.05 -23.4-1.41%

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Pharmaceuticals & Drugs

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Reco. Price

1,735

Period

12-Months

Target Price

2,074

upside

%

Stop Loss

0

Last updated on

07 Sep, 2021

J. B. Chemicals & Pharmaceuticals Ltd (JBCP) is a 40-year-old pharma company, with several well-established brands in the domestic market and a wide geographical presence in export markets with focus on both regulated and semi-regulated territories. The company is ranked 34th by sales value and 19th by number of prescriptions in the India pharma market (IPM). Focused strategy around brand building has aided JBCP to consistently outperform IPM growth by 300-350bps p.a. during the past few years. Cardiac and Gastro are the major therapies for JBCP accounting for 90% of company’s India revenue. Company's key export markets include Russia/CIS, South-Africa and the US. Healthy cash generation and minimal capex spends has allowed JBCP to remain a net cash company for the past 10 years.

Investment Rationale
Resilience of India business stems from a robust 8-10% volume growth
: Strong positioning in cardiac brands and low pricing for its legacy acute products (Rantac and Metrogyl cost only Rs1-1.2/tablet) have enabled JBCP to consistently deliver 8-10% volume CAGR for its India business over FY18-21 vs. 1-3% IPM volume CAGR over the same period. JBCP’s volume growth has been the highest in our pharma coverage universe, substantially ahead of the 5-7% volume growth for peers like IPCA, GNP, ALKEM & CIPLA. In fact, JBCP’s absolute India unit volumes are higher than that of some larger peers like GNP, BOOT, ALPM & ERIS.

Outlook & Valuation:
JBCP’s FY21 AR lays emphasis on five key strategic priorities for the India business, including strengthening company’s position in core chronic segments such as cardio-metabolics and driving increased penetration in new therapies. We believe patent expiries over FY23-25 in the cardio-diabetes segment in India will benefit emerging players such as JBCP, while company’s strong volume-led growth and Rantac price-hike will drive ~19% CAGR in JBCP’s domestic formulation sales over FY21-24ii. We expect contribution of the high-margin India & CMO business to increase, from 75% of EBITDA in FY21 to 80% in FY23ii, which will continue driving strong margins & industry-leading return ratios (RoIC post-tax of 40% in FY23ii). With 20% EPS CAGR over FY21-24ii, JBCP remains our top-pick among India-focused pharma players. Thus, we initiate a Buy with a Target price of ₹2,074.

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