JB Chemicals & Pharmaceuticals Ltd - Research Report

 

Private Client Research

Rating

Buy

Sector

Healthcare

Company

JB Chemicals & Pharmaceuticals Ltd

Reco Price
Rs. 141
Price Target (12 Months)
Rs. 225
Upside
59.57%

Date

17 April 2014
Sensex
22628.84
CNX Nifty
6779.4

Exchange

Code

NSE
JBCHEPHARM
BSE
506943

Exited Russian OTC business in past and skillful plan for utilizing the surplus liquidity will drive the future earnings.

Past efforts in Domestic Market paying off:
Improving on its R&D strength, the management has been laying importance on expanding the therapy basket from the acute segment to the faster growing segments. While it’s an alarming force in the GI, Pain and CV therapies, it made a foray in the dental and gynaecology segments during FY’12. During FY’13, it launches each in the derma, anti-infective and antacid segments. Apart from entering into high growth therapies, the second growth prong is entering into Tier-II cities and rural markets for giving its legacy brands like Metrogyl, Rantac and Nicardia a fresh lease of life and enhancing productivity with an attractive bonus scheme. Company has also increased to around 1500 from 850 in FY 2011.

Strong Player in GI Segment:
It’s a strong player in the GI segment with a significant presence in the Pain and cardio segments. In the GI space, it has targeted the antacid, diarrhea, colic, amoebiasis and dehydration segments targeting specific ailments with single medication or in combination. It has recognized specific niches and built good brands around them. Besides it has cashed on the brand equity of larger brands like Rantac and Metrogyl by launching line extensions.

Contrast Media – Strong growth driver:
It’s among the top three in India in this domain. It manufactures and markets these products under its own brand name in India and internationally. In India, it has a field force of 30 which calls on hospitals and radiologists. With the objective of enhancing brand equity, it has also been acquiring technology and in-licensing products for critical unmet needs. Apart from enhancing focus on tenders, it plans to get into backward integration to check the hike in RM cost due to currency fluctuations.

Focus shifts to US and ROW from CIS:
Exports are as critical a component as domestic sales for the company. Prior to the exit in FY’12, sale of OTC products in the CIS market was a key growth driver. Though highly profitable, it consisted sizable expenditure and was working capital intensive. Taking the long term into consideration, it decided to shift focus to the ethical markets of US and rest of the world. The transition has been smooth as ROW sales (ex CIS) grew by 36% to Rs 221 crores during FY’13. US sales grew by 44% in dollar terms to $10mn, while that in other markets like Australia, RSA, Asia and Middle East also fared well. Apart from generics, site transfer (for MNCs), OTC and lozenges were the other segments that posted a good growth.

Expanding ANDA’S portfolio:
It manufactures APIs like Atenolol USP, Clinidipine, Diclofenac acid (US DMF) and its salts Nifedipine USP (US DMF) and Gadopentatic acid. This clearly shows the harmony it has with the core business (primarily domestic dosages, radioactive biz and ROW exports). It filed three ANDAs during FY’13 and intended to file six ANDAs during FY’14. During October 2013, it got approval for Tinidazole tabs 250mg and 500mg. This product is expected to be launched during Q4FY’14. The company expects more approvals during the year. The four products in the market during FY’12 viz., Atenolol, Cetrizine, Ciprofloxacin and Diclofenac DR tabs (all strengths of 25mg, 50mg and 75mg) achieved sales of $7mn. In the same year, it signed a site transfer contract with a leading South African company for the supply of a range of drops/injectables. It plans to scale up a few more products (primarily import substitutes) for sale and captive use.

Enhancing Margins:
Sales in Russia-CIS stood at Rs 100 crores during FY13. It’s making investments to recover the earlier base prior to sale of the OTC biz. This includes identifying new products to fill therapy gaps. It plans to scale up the supply biz with Cilag GmbH and is expecting other biz opportunities from the tie-up. Meanwhile, new formulations are being developed for angina and cholesterol reduction for the Asian markets. For the South African markets, it has a JV. The venture recently acquired 50 dossiers and the veterinary biz of a leading Canadian pharma company. These steps will drive growth and margins for the company as most of these products would be outsourced to J.B.Chemicals.

Diversified Players:
A mid-sized player in the domestic dosages industry with a rank of 36. Rantac, Rantac D, Metrogyl, Nor Metrogyl and Nicardia Retard feature in the top 300 brands sold unit-wise. It has a multi pronged strategy for driving growth. During FY’12, only Rantac and Nicardia featured in the top 300, indicating the focus on the GI segment among the legacy therapies. Expertise in lozenges manufacture gives it an edge in the International markets, especially in the OTC segment of EMs. While it sold the OTC biz of Russia in 2011, it still supplies the dosages to the buyer and has been focusing on the prescription based business.

Stock Data

CMP (Rs)
139.1
Face value (Rs)
2
52 Week Range (Rs)
143.80 - 72.30
Market cap (Rs Crores)
1178.17
Price To Book Value (x)
1.10
P/E Ratio (x)
15.03
EV/EBIDTA (x)
10.09

One Year indexed Stock Performance

JB ChemicalsSensex
JB Chemicals & Pharmaceuticals Ltd
Performance (%)
1m
3m
1year
Absolute
8.67
47.82
73.98
Sensex
3.65
10.84
20.81

Shareholders

(in %)
31-Mar
Promoter
55.85
FII
2.86
DII
2.17
Others
39.12
Total
100

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research@stockaxis.com

 

Industry

The domestic formulations industry at sales of over Rs 61,000 crores, for 12 months period ended March 2013, grew at 10% (ORG IMS). The growth of Indian formulations industry continues to remain robust and volumes and new introductions from existing molecules remained key contributors to growth. The recent ruling on patentability by the Supreme Court in Glivec’s case has provided much needed clarity on patentability under the Indian law and would help growth of generics business in the long run. Clearly with a view to participate in growth potential of domestic pharmaceutical market, the market continues to show intense competition with increased number of brands and new combination being launched in the market. This has put pressure on prices and calls for product differentiation and innovative strategies for growth.

The domestic formulations industry has been consistently growing well for last several years. The future outlook for the industry and growth expectations remains positive. The per capita consumption of drugs is on increase due to spurt in chronic diseases coupled with increase in literacy rate, increase in per capita income, improved health care access, increasing market penetration and increasing health awareness. All these are expected to provide growth opportunity in coming years.

Profile

JBCPL, one of India’s leading pharmaceutical companies, manufactures & markets a diverse range of pharmaceutical formulations, herbal remedies and APIs. JBCPL exports to many countries worldwide with a strong presence in Russia, Ukraine, CIS countries and South Africa. The Company continues to invest in growing its share in the regulated markets in USA, Europe and Australia. JBCPL has a strong R & D and regulatory set-up for development of new drug delivery system and formulation, fi ling of DMFs and ANDAs. Its State-of-the-Art manufacturing facilities are approved by health authorities of regulated markets.

Company’s niche product portfolio with brands such as Metrogyl, Rantac and Nicardia, endeavour to differentiate in the crowded market place and systematic and scientifc product promotion, hence it will to help exploit opportunities offered by the growing domestic market.

The company is ranked 36th in the Industry (ORG-IMS) with the company’s 5 brands viz. Rantac (anti-peptic ulcerant), Rantac D (anti-peptic ulcerant), Metrogyl (amoebicides), Nor-Metrogyl (anti-diarrhoeal) and Nicardia Retard (calcium channel blocker) featuring among top 300 brands sold unitwise.

Profit & Loss Statement:- (Consolidated)
(Rs Crores)
Particulars
FY 2012
FY 2013
FY 2014
FY 2015E
FY 2016E
Income:-
  • Sales
  • Total Expenditure
  • EBIDTA
  • EBIDTA Margin (%)
  • Other Income
  • Operating Profit
  • Interest
  • Profit Before Depreciation & Tax
  • Depreciation
  • Exceptional item
  • Profit Before Tax
  • Tax
  • PAT
  • Adjusted (EPS)
  • 801.87
  • 701.55
  • 100.32
  • 12.51
  • 28.98
  • 129.30
  • 24.03
  • 105.27
  • 22.42
  • 760.59
  • 843.44
  • 165.53
  • 677.91
  • 80.03
  • 866.13
  • 760.48
  • 105.65
  • 12.20
  • 27.87
  • 133.52
  • 5.28
  • 128.24
  • 24.66
  • -
  • 103.58
  • 24.13
  • 79.45
  • 9.38
  • 990.50
  • 824.00
  • 166.50
  • 16.81
  • 31.80
  • 198.30
  • 7.00
  • 191.30
  • 27.90
  • -64.50
  • 98.90
  • 19.78
  • 79.12
  • 9.34
  • 1175.30
  • 971.25
  • 204.05
  • 17.36
  • 20.20
  • 224.25
  • 7.00
  • 217.25
  • 29.5
  • -
  • 187.75
  • 37.55
  • 150.20
  • 17.73
  • 1413.35
  • 1140.00
  • 273.35
  • 19.34
  • 24.00
  • 297.35
  • 5.20
  • 292.15
  • 32.1
  • -
  • 260.05
  • 52.01
  • 208.04
  • 24.56
Source: Stockaxis Research, Company Data

Valuation

The management took a smart decision to exit the Russian OTC biz. Though it was flush with cash, people were doubtful if it could deliver under the new dynamic`s. Two years down the line, it’s clear that the management has beaten even the biggest optimist’s hope and reported good growth in the domestic market and API sales apart from gaining traction in US generic sales and exports to ROW. This has had a positive impact on margins. While the growth prospects remain good, a skillful plan for utilizing the surplus liquidity could make good returns from the stock.

Hence we assign P/E of 9.16x to FY 2016E which indicates the target price of Rs 225 for long term indicating fair valuation for the stock considering its turnaround story.

 
 

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