PL Stock Report: J.B. Chemicals & Pharmaceuticals (JBCP IN) - Q1FY24 Result Update - Strong quarter; margins to sustain - BUY

J.B. Chemicals & Pharmaceuticals (JBCP IN) - Param Desai - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs2,711 | TP: Rs3,000

Q1FY24 Result Update - Strong quarter; margins to sustain

Quick Pointers:

♦ Acquired portfolios such as Sanzyme, Azmarda and Razel continue to scale up.

♦ Adj for ESOP (Rs 110mn), OPM came in at 27.1%.

J.B. Chemicals & Pharmaceuticals (JBCP) Q1FY24 EBITDA growth of 34% YoY was 15% above our estimate aided by higher margins. Revenue growth across domestic formulation (+17% YoY) and contract manufacturing business (+19% YoY) continue to remain healthy. We believe JBCP will continue with its growth momentum driven by 1) geographical expansion of legacy brands 2) improvement in MR productivity 3) scale up in Sanzyme, Azmarda and Razel franchise 4) launch of new products & therapies 5) scaling up contract manufacturing business and 6) improvement in FCF generation. Our FY24/25E EPS stands marginally increased by ~3%. We expect EPS CAGR of 33% over FY23-25E. At CMP, the stock is trading at 27x FY25E P/E adjusted for ESOP and amortization charges. We maintain our ‘BUY’ rating with revised TP of Rs3,000/share (Rs2,450 earlier), valuing at 30x (25x earlier) FY25E EPS adjusted for ESOP and amortization charges.

♦ Acquired brands gain traction, revenues up 14% YoY: JBCP revenues grew by 14% YoY to Rs8.9bn, against our estimates of Rs8.8bn. Domestic formulation sales showed a significant jump of 17% YoY to Rs4.9bn, growth was commendable despite weak acute season led by scale up in acquired portfolio and chronic brands. Export formulations posted decent growth of 11% YoY at Rs 4.1bn. Momentum continued in CMO space which grew by 19% YoY to Rs 1.2bn. API sales were weak with 38% YoY decline.

♦ EBITDA 15% above our estimates; adjusted for ESOP margins was 27%: EBITDA came in at Rs 2.3bn up 34.4% YoY, 15% beat to our estimates. Margins came at 25.9%. Adjusted for ESOP (Rs110mn), EBITDA was Rs2.43bn with OPM of 27.1%; up 300 bps YoY. GM came in at 65.4%; increased by 270 bps YoY and up 150 bps QoQ. Better sourcing abilities and improved mix aided such performance. PAT came in at Rs1.4bn up 35.5%YoY, vs our est. of Rs1.2bn. EPS was Rs 18.4 in Q1FY24. Adj for ESOP and amortization charges, EPS came in at Rs 20.5/share for Q1FY24.

♦ Key concall takeaways: (1) Domestic formulations: Excluding sales from the acquired brands, growth was double digit for quarter and mid-teens in FY23. New product contributed 2-3%, price growth was 5-6% while volume growth was in high single digit in Q1FY24. The acquired portfolio of Razel franchise has started showing good momentum and clocking in Rs67mn/month vs Rss50-55m pre acquisition. Azmarda- Currently enjoying 16-18% market share. Sees industry volume to grow up sharply over next 2-3 years. Sporlac – continued to grow at healthy double digit and clocking in at Rs900mn/sales. CMO business – continued to witness strong growth. Will look to add new therapies and geographies. Rantac – Post product coming out from price control; volume prescription has been stable. GMs have improved aided by softening of input prices and better product mix. Guided for 65-66% gross margin in FY24. Decline in API business was due to postponement of some orders with one of their key customers.

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