Q4FY23 Review: JB Chemicals & Pharma: Higher GMs drive guidance upgrade for FY24

26 May 2023 , 10:32 AM

JB’s India Formulations business is expected to sustain its organic mid-teens growth trajectory over the next few years, driven by the scale-up in company’s Chronic portfolio led by its strong positioning in Cardiac segment, sustained volume growth of 7-8% in existing portfolio, and price hike contribution of 6-7%. CMO business will also benefit from new launches across product segments/markets, and is likely to grow low-double-digits to mid-teens in FY24. With GMs expected to improve from 63% in FY23 (64% in Q4) to 65% in FY24 driven by RM moderation and lower Azmarda sales, mgmt has upgraded its Ebitda margin guidance (ex-ESOP) by 100bps to 25-27% for FY24.

Organic India business expected to grow in mid-teens: JB’s organic India business grew 15% in FY23, and 20% Cagr over FY20-23 driven by volume growth of 8% and 5% contribution from new products. With 20- 24% sales Cagr in key brands of Cilacar, Rantac & Metrogyl over past 2 years, JB’s India PCPM has improved from Rs4.4 lakhs in FY21 to Rs6.2 lakhs in FY23, despite the impact of recent acquisitions. Analysts of IIFL Capital Services expect JB’s India business to grow at 15% Cagr over FY23-26, driven by 20% growth in Chronic portfolio (53% of India sales) and 8-10% growth in Acute portfolio.

Execution in acquired India portfolio has also been robust, with Azmarda & Sporlac growing 40-45% in FY23. While JB’s Azmarda volumes have increased 25% in Apr’23 vs pre-generic volumes, Azmarda’s monthly sales is sustaining at 75% of pre-generic levels with JB’s value MS being 15% currently. In-sourcing of Azmarda manufacturing will help JB to improve GM profile in FY24. Also, geographic expansion and prescriber overlap has aided JB to expand Sporlac’s MS from 7% to 10%.

CMO order book remains healthy and the segment is likely to grow in low-double-digits to mid-teens in FY24, on top of 60% growth seen in FY23. CMO lozenges business will benefit from new launches in Sleep disorders, Anti-inflammatory & Immunity segments in Q4FY24 and also from new market entries in South Africa (by Q2FY24) and later in India.

Analysts of IIFL Capital Services were already building-in 26% operating Ebitda margins and they largely maintain their estimate of 14/19% revenue/Ebitda Cagr over FY23-26. JB (TP Rs2,400) remains their preferred pick among Domestic Formulation companies, given its strong FCF generation of Rs6-8bn p.a. (FCF yield of 4.5%) over FY23-26 and RoIC (post-tax) expected to improve from 18% in FY23 to 25-30% in FY25/26.