JB Chemicals And Pharmaceuticals

JB. Chemicals and Pharmaceuticals Limited (JBCPL) has evolved into a rapidly growing pharmaceutical company, specialising in hypertension treatments. While the majority of its revenue is generated in India, the company has successfully expanded its presence in key markets like Russia and South Africa. With six brands among the top 300 IPM brands in India, JBCPL has a global footprint, exporting formulations to over 40 countries, including the USA.[EasyDNNnews:PaidContentStart]

Renowned for its expertise in medicated lozenges, JBCPL ranks among the top five manufacturers globally in both medicated and herbal lozenges. The company operates eight cutting-edge manufacturing facilities in India, maintaining stringent quality standards certified by global regulatory authorities.

Internationally, the company has a diverse operational model, with a direct presence in Russia and South Africa, distributor relationships in the U.S., and a leading position in the contract manufacturing market. With over 40 global regulatory accreditations, JBCPL ensures quality across its 10+ dosage forms. In terms of capital expenditure, the company invested approximately ₹93 crore in H1FY24, primarily for expanding the lozenges manufacturing facility. The estimated capex for the fiscal year is ₹145 crore, reflecting a commitment to continuous growth. 

Revenue Break-Up for Q2FY24 and H1FY24

Moreover, JBCPL’s strategic move into the ophthalmology segment was marked by a trademark license agreement withNovartis Innovative Therapies AG and an exclusive promotion and distribution agreement with Novartis Healthcare Private Limited, signalling a new venture set to commence in January 2027 with a financial commitment of approximately ₹125 crore.

Sector Overview
In FY23, the Indian pharmaceuticals market sustained growth, albeit at a slower pace, influenced by the pandemic’s base effect. The industry’s growth rate for FY22-23 stood at 8 per cent, compared to the previous financial year’s 18 per cent, primarily driven by price considerations. Notably, the chronic therapy market demonstrated robust growth at 11 per cent, outperforming the acute market, which experienced 6 per cent growth. The overall performance of the acute therapy segment also had an impact on the industry’s growth.

According to IQVIA MAT March 2023 data, domestic formulations’ sales reached ₹2,00,507 crore, marking an 8 per cent increase in value, while volumes experienced a slight decline of 0.4 per cent. The market returned to normalcy with no significant corona virus waves during the year. Antineoplast and immunomodulator emerged as the fastest-growing therapies in the Indian pharmaceutical market, expanding by 23 per cent. Internationally, a global inflationary environment prevailed, and despite resurgence in demand, pharmaceutical companies faced pressure on operating margins.

Logistics costs approached near-normal levels during the review period, providing relief to companies serving the export markets. Nevertheless, geopolitical and economic developments in certain regions remained a cause for concern, impacting the overall demand. The Indian economy appears to be thriving and has been relatively resilient against global challenges. The Indian pharmaceuticals market is anticipated to maintain a higher growth trajectory in the upcoming financial year. J.B. Chemicals and Pharmaceuticals is committed to sustaining its growth momentum by outpacing market growth, implementing its strategy of introducing new products, and enhancing the prominence of existing brands.

On the international front, the global macro environment remains challenging, with a persistent moderated inflationary environment expected in the current year. The company’s focus is on sustaining growth through the launch of new products, commercialising abbreviated new drug application (ANDA), and expanding into new geographies and customer bases. These growth initiatives are designed to alleviate challenges stemming from currency volatility, geopolitical issues, and fluctuations in the cough and cold season.

Financial Overview
JBCPL boasts a market capitalisation of ₹25,189 crore. The promoters currently hold about 53.86 per cent of the shares, while FIIs and DIIs possess around 10.05 per cent and 18.58 per cent of the shares, respectively. The free float of the company is at 17.50 per cent. Looking at the quarterly financial performance of J.B. Chemicals and Pharmaceuticals, on a consolidated basis, in Q2FY24 the company reported revenue of ₹882 crore which grew by 9 per cent as compared to ₹809 crore in Q2FY23, while the EBITDA of the company also surged by 32 per cent and stood at ₹244 crore as against ₹185 crore in Q2FY23. 

Similarly, the net profit of the company jumped 36 per cent to ₹151 crore as compared to ₹111 crore in Q2FY23. With a combination of good product mix and execution of strategy, the EBITDA margins rose strongly by 350 bps to 28.5 per cent in Q2FY24 as compared to 25 per cent in Q2FY23. Looking at the half-yearly financial performance, on a consolidated basis, in H1FY24 the revenue of the company stood at ₹1,778 crore which surged by 12 per cent as compared to ₹1,594 crore in H1FY23, while the EBITDA of the company surged by 33 per cent and reached ₹476 crore as against ₹357 crore in H1FY23. 

Similarly, the net profit of the company jumped 36 per cent to ₹293 crore as compared to ₹216 crore in H1FY23. Upon analysing the company’s financial stability in terms of liquidity and solvency, it becomes apparent that the interest coverage ratio stands at 15.9 times while the current ratio is 2.74 times and the debt-to-equity ratio is 0.16 times, indicating minimal debt. These metrics collectively portray a strong position in terms of liquidity and solvency. This assessment is further supported by notable performance indicators, including a robust return on equity (ROE) at 17.6 per cent and a return on capital employed (ROCE) at 22.4 per cent.

In addition, when evaluating the key valuation metrics, the company’s price to earnings (PE) ratio is 51.8 times, significantly surpassing its five-year historical median PE of 28.8 times. Similarly, the current PE multiple of 51.8 times also moderately exceeds the industry average PE multiple of 35.2 times. Furthermore, the EV/EBITDA ratio stands at 30.6, which is well above its five-year historical EV/EBITDA median of 18.2, which overall indicate a slight overvaluation.

Outlook

In reviewing J.B. Chemicals and Pharmaceutical’s performance during Q2 and the first half of the year, it becomes clear that the company has showcased commendable progress. During Q2FY24, there was a balanced growth in both domestic and international businesses. The strategic focus on cost containment translated into higher operating EBITDA margins at 28.5 per cent, a notable improvement from the previous year’s 25 per cent.

Domestically, chronic therapies and the acquired portfolio fuelled a substantial 11 per cent year-on-year growth, amounting to ₹481 crore in the same period. The company was recognised as the fastest-growing company in the top 25 within the Indian pharmaceuticals market, boasting an 18 per cent growth versus the industry growth of 10 per cent. The company’s big brands, particularly in the Cilacar, Rantac and Metrogyl franchises, performed exceptionally well.

In the international arena, Q2FY24 recorded revenues of ₹401 crore, contributing to a total of ₹808 crore in H1FY24. Excluding South Africa, the international business achieved double-digit growth in Q2 and mid-teens in H1, with the contract developing and manufacturing segment sustaining momentum. The financial highlights for the first half of the year indicated a 12 per cent growth in revenue to ₹1,778 crore, driven by a favourable product mix and the acquired portfolio. The company demonstrated robust operating cash flow and a reduction in gross debt, indicating financial resilience.

Looking ahead, the company aims to focus on executing its strategy for domestic business growth, particularly in chronic therapies and contract developing and manufacturing. The combination of sales in the Indian pharmaceutical market and contract developing and manufacturing space is expected to contribute significantly to overall sales in the mid to long term. The company will continue to invest in expanding its big brands and navigating growth in selected categories in the domestic market. 

Internationally, the focus will be on expanding offerings in the contract developing and manufacturing space and enhancing its presence in the identified markets. Despite challenges in the operating environment, the company remains committed to cost control, ensuring flexibility to respond and readjust. In conclusion, the outlook for the company emphasises superior execution of its stated strategy, sustained growth in chosen categories, and a proactive approach to challenges. Hence, we recommend HOLD.

[EasyDNNnews:PaidContentEnd] [EasyDNNnews:UnPaidContentStart]

[EasyDNNnews:UnPaidContentEnd]