JB Chemicals & Pharmaceuticals' (JBCP) hosted an investor/analyst meet for the first time after KKR took the controlling stake in the company. The focus of the management was clear on maintaining strong growth momentum coupled with profitability improvement. India business would remain key priority with an expectation of 12-14% improvement in MR productivity. R&D initiatives would enhance to support increased filings in US and strengthening of product portfolio across the businesses. We remain positive considering ~45% of total revenues and ~60% of EBITDA contribution is from domestic formulations with strong growth visibility coupled with focus on improving productivity, portfolio expansion and cost optimisation. Reiterate BUY.
- India business to remain key priority: India remains key focus area and would remain as the key growth driver in our view. Key highlights during the meet include 1) confident of outpacing industry growth and continued strong growth momentum in existing large products (Cilacar, Nicardia, Metrogyl, etc.), 2) launch products in new therapeutic categories like diabetes, pediatrics, respiratory, etc. 3) targeting 8-10 sizeable products across 4-5 therapies in medium term, 4) no intention to add MRs in the near term but work towards growing productivity by 12-14% annually from current base of Rs0.45mn/month, 5) open to look at acquiring brands or small companies.
- Focused approach across businesses in exports: The management has charted out business specific approach for exports without any major capex plans and growth would be driven from existing capacities. The key highlights were 1) R&D initiatives to increase in gradual manner but no aggressive plans for complex generics, 2) file 4-5 ANDAs per year (vs current 1-2) with focus on limited competition opportunities and Rising Pharma to remain as their marketing partner, 3) Russia and South Africa are like home markets with strong growth trajectory and more OTC launches would be targeted, 4) aggressively looking to expand CMO business in both lozenges and oral formulations, company has enough capacity, 5) currently JBCP has decent 4-5 products (diclofenac being the largest) in the API segment and it would look to add 4-5 more products over next 12-18 months with captive use to be the priority.
- Other highlights: EBITDA margin is higher in FY21 led by certain cost savings due to COVID-19 which is expected to reverse and may affect margin in FY22E. However, productivity improvement and cost efficiencies would support margins. There is no major capex requirement in near term and maintenance capex would be ~Rs700mn. The company would be looking to reinvest cash generation for augmenting growth and dividend payout may change depending upon reinvestment.
- Valuations and risks: We expect 11.7% revenue and 22.3% PAT CAGR over FY20-FY23E led by a healthy 13.1% CAGR in India business. We maintain BUY rating with a target price of Rs1,456/share based on 22xFY23E EPS. Key downside risks: Slowdown in India growth, pricing pressure and currency volatility.
Shares of J.B.CHEMICALS & PHARMACEUTICALS LTD. was last trading in BSE at Rs.1202.45 as compared to the previous close of Rs. 1202.5. The total number of shares traded during the day was 16999 in over 1378 trades.
The stock hit an intraday high of Rs. 1247.4 and intraday low of 1186.05. The net turnover during the day was Rs. 20739421.