J B Chemicals and Pharmaceuticals Target Price Increased Rs. 353

Company Brief
JBCPL, one of India’s leading pharmaceutical companies, manufactures
and 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.

Quarterly Highlights

JBCPL reported income from operations of 570.99 crores during
H1FY16, growth of 5.2% (YoY). It reported a growth of mere 2.3%
(YoY) in Q2FY16, of Rs.286.78 crores. Sales growth was not
impressive due to weak demand in international market which is
the currently main cause of worry for most Indian pharmaceutical
industries. Exports, which constitute almost 50% of the company’s
revenue, grew by just 5% (YoY), domestic formulation business by
6% (YoY) and API business fell by 12% (YoY) in H1FY16.

The Company’s EBITDA margin shot up by 669 bps at 26.3% in
Q2FY16 as compared to a year ago period, reason being, higher
other income on the back of sale of investments. However, we do
not expect it to sustain going forward and it will settle around 18%-
21% in coming financial years. It reported an operating margin of
17% in Q2FY16, down around 70 bps as compared to Q2FY15.
EBITDA grew by 22.5% in H1FY16 as compared to a year ago
period.

Net Profit grew substantially by 53.6% in Q2FY16 as compared to
Q2FY15 backed by huge bump in other income, which also resulted
in higher net profit margin of 17.1% in Q2FY16 up by 570 basis
points as compared to Q2FY15. Net profit grew by 30.7% in H1FY16
as compared to H1FY15.

The stock currently trades at 19.8x FY16e EPS of Rs.14.04 and 18.1x
FY17e EPS of Rs.15.35. Given, strong sales growth in domestic
formulations market, sturdy rise in operating margins and healthy
liquidity position, we retain our buy rating on the stock for the
target price of Rs 353 (previous target of Rs 333) implying 23x FY17e
earnings (peg ratio of 2), over the next 9-12 months. For more
information, please refer to our earlier report dated July 20, 2015.