Q3FY24 Review: JB Chemicals & Pharma: Dual support of India growth & margin tailwinds

8 Feb 2024 , 12:40 PM

JB Pharma continues to outperform IPM growth by 300-400bps, with its India business growing 12% YoY (ex-Razel) and 14% YoY (reported; Razel contribution offset by decline in Azmarda) in Q3, vs IPM growth of 8.5% during the quarter. With chronic-led growth in India business driven by the cardiac portfolio, scale-up in the CMO business, RM cost moderation and rationalisation of lowmargin exports, JB’s Gross/Ebitda margins have improved ~380/330bps in M9FY24, thereby translating into 25% Ebitda growth for M9FY24. Analysts of IIFL Capital Services expect most of these growth levers and margin tailwinds to sustain over the next few years, with overall revenue/Ebitda/EPS growth of 15/19/25% Cagr over FY24-27. Mgmt has also guided for organic revenue and Ebitda growth of 12- 14% and 16-18% resp. for FY25, which will be further supplemented by recent Ophthal acquisition. 

Analysts of IIFL Capital Services value JB at 33x FY26 EPS (vs 35x for Mankind) to arrive at their TP of ₹2,050 (14% upside). JB, Mankind & Torrent are their preferred domestic picks. They expect JB’s overall/organic India business to grow at 17/14% Cagr over FY24-27, with JB’s organic India business expected to outperform market growth by 200-300bps driven by the chronic segment. Recent Ophthal acquisition (report) will add 10 leading brands to JB’s portfolio and will likely contribute Rs1.9bn sales/8% to JB’s India business in FY25. With existing strong positioning in cardiac and recent forays into heart-failure, probiotics, pediatrics and ophthal segments, mgmt indicated that JB’s CVM in India is growing at 12% and JB’s India portfolio grew 16% in CY23. Over CY20-23 also, JB has outperformed with India value/volume growth of 20/9% Cagr vs IPM value/volume growth of 11/3% Cagr. 

CMO business will likely revert to mid-teens growth after a muted FY24: 

JB’s CMO business will likely grow only 3% in FY24 on the high base of last year (>60% growth in FY23). But with JB expanding its monthly capacities from 130-140m units to 180m currently, mgmt is hopeful of adding new geographies, new products, and new clients beginning from H2FY25. Analysts of IIFL Capital Services expect JB’s CMO business to clock 16% Cagr over FY24-27 to reach USD80m sales in FY27 (vs mgmt’s guidance of USD100m sales in 3-5 years). 

Higher chronic revenue share and mid-teens growth in India/CMO will continue to provide margin tailwinds. Analysts of IIFL Capital Services expect Ebitda margins (ex-ESOP) to improve ~250bps from ~27.5% in FY24 to ~30% in FY27. Ophthal acquisition will likely limit margin expansion to ~50bps in FY25.