India and CMO drive momentum, Retain Buy
JB Chemicals (JBCP) Q2FY25 performance was largely in line with our estimates on all fronts. Higher-than-expected revenue from the formulations business and lower finance cost resulted in improved overall profitability. Revenue witnessed growth of 13.5% YoY/ flat QoQ to Rs 10 Bn. The YoY increase was mainly driven by a significant growth in the formulations business, domestic formulations grew by 22% YoY and export formulations grew by 14% YoY. Gross margins were flat YoY and QoQ to 66.2% on favourable product mix, cost optimization efforts and price growth. The pick-up in export formulations business and healthy order book of CDMO for seasonally strong H2, we expect overall exports growth to accelerate for FY25E. We have introduced our FY27E estimates and strongly believe that JBCP’s domestic business is likely to register 15% CAGR over FY24-27E, on the account of market share gain and Rx increase in the acquired portfolio and improving MR productivity. We anticipate an EPS CAGR of 22% over FY24- FY27E aided by 1) strong growth from domestic business expansion and diversification into new therapies, 2) increased contribution from new acquisitions, 3) scaling up of high margin CDMO business and 4) robust FCF generation. We maintain our Buy rating on the stock with similar target price to Rs 2,217, valuing the company at 36x Sept’26E EPS.
Domestic formulations business – The domestic business grew 22% YoY, while excl. the ophthalmology portfolio it has registered growth of 12% YoY vs 9% (SMIFS estimates). JBCP continue to outperform the IPM and remain one of the fastest growing companies. It had reported growth of 11% YoY vs IPM growth of 7.6% in Q2FY25. Each of the major brands Cilacar, Cilacar-T, Rantac, Nicardia, Metrogyl and Sporlac have gained ranking as per IQVIA MAT Sept’24 data. Razel franchise recorded growth of 28% to Rs 930 Mn sales MAT Sept’24. Ophthalmology revenue remains on target for FY25E. We expect domestic formulations business revenue to deliver CAGR growth of 15% from FY24 to FY27E.
Export formulations and CDMO – Exports formulations business bounced back strongly with growth of 14% YoY and 3.4% QoQ basis to Rs.3 Bn in Q2FY25. South Africa and US business registered double digit growth while Russia and branded generics export market recorded high single digit growth. CDMO business declined by 18% YoY and 11% QoQ. Muted CDMO business due to seasonality impacted due to material availability challenges. Despite muted H1, annual growth remains healthy with seasonally strong H2FY25E for CDMO business aiming to expand in new categories like motion sickness, pain mgt., sleep disorder etc. We expect the company to deliver revenue growth of 13.8% over FY24-FY27E in export formulations business and 14.2% CAGR growth over FY24‐27E in CDMO business.
EBITDA Margins- EBITDA came in at Rs 2,705 Mn up 11% YoY with OPM of 27%, contracted by 59bps YoY mainly on elevated freight cost related to exports. We expect EBITDA margins for FY25 and FY27 to see a sharp pick up from 25.7% in FY24 to 28%-29%. This improvement will be driven by improved gross margin, continuous cost optimization efforts, and a stronger product mix from domestic and exports business.
Valuation: JBCP is well-positioned to capitalize on immediate growth opportunities. We expect 29% EPS CAGR over FY24-26E aided by 1) Strong growth from domestic business (CAGR of 15% FY24-FY27E), 2) ~30% growth over FY24-FY26E from acquired portfolios, 3) scaling up of high margin CDMO business on the back of new therapy launches and 4) robust FCF generation. We maintain our Buy rating on the stock with similar target price to Rs 2,217, valuing the company at 36x Sept’26E EPS.
J.B. Chemicals and Pharmaceuticals Ltd – Q2FY25 Result Update – SMIFS Institutional Research
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