India and CDMO to drive momentum, retain Buy
JB Chemicals’ (JBCP) Q1FY25 revenue growth was largely in line with our estimates. Slightly higher than-expected revenue from the domestic business and improved gross margins resulted in expansion of EBITDA margins. Revenue witnessed growth of 12% YoY and 17% QoQ to ~Rs10Bn. The YoY increase was mainly driven by 22% YoY growth in the domestic formulations business whereas flat growth witnessed in the overall export business. Despite limited margin on ophthalmology portfolio, gross margin improved by 76bps YoY and 102bps QoQ to 66.2% on continuous cost optimization efforts, favourable product mix and realization growth. We expect that with the pick-up in export business and healthy CDMO order book in H2FY25 will lead to accelerated growth in FY25. We strongly believe that JBCP’s domestic business is likely to register 18% CAGR over FY24-26E, on the account of market share gain and Rx increase in the acquired portfolio, successful lifecycle management of key brands and improvement in MR productivity. We anticipate an EPS CAGR of 30% over FY24-FY26E 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 upgraded target price of Rs 2,215, valuing the company at 25x FY26E EV/EBITDA.
Domestic formulations business – The domestic business grew 22% YoY, while excl. the ophthalmology portfolio it has registered growth of 13% YoY. JBCP continued to outperform the IPM and reported growth of 12% YoY vs IPM growth of 9% in Q1FY25. Each of the major brands have witnessed market beating growth with improved ranking. Sporlac franchise crossed MAT of Rs 1bn sales in June’24 and grew at 3- year CAGR of 32%. Razel franchise also recorded strong double-digit growth of 29% to Rs 890 Mn. We expect domestic formulations business revenue to deliver CAGR growth of 18% from FY24 to FY26E.
Export formulations and CDMO – Exports formulations business witnessed growth of 5.5% YoY and 8.6% on QoQ basis to Rs. 2,900 Mn in Q1FY25. Excluding South Africa business, export formulations grew by 9% YoY led by strong growth from Russia and ROW business. CDMO business declined by 11% YoY. Muted CDMO business due to seasonality and strategic choices made for South Africa impacted the growth of international business. International business including CDMO is expected to pick-up in the H2FY25. We expect the company to deliver revenue growth of 14% over FY24-FY26E in the overall export business. CDMO business with promising growth outlook, backed by the healthy order book, aim to expand in new categories like motion sickness, pain mgt., sleep disorder etc. and management guidance for CDMO business to become 20% of sales in coming years. We expect a 15% CAGR over FY24‐26E.
EBITDA Margins – EBITDA came in at Rs 2,804 Mn up 21% YoY with OPM of 27.9%, up 201bps YoY much ahead of our estimates. We expect EBITDA margins for FY25 and FY26 to see a sharp pick up from 25.7% in FY24 to 27%-29%. This improvement will be driven by improved gross margin, continuous cost optimization efforts, and a stronger product mix from domestic as well as exports business.
Valuation: JBCP is well-positioned to capitalize on immediate growth opportunities. We expect 30% EPS CAGR over FY24-26E aided by 1) Strong growth from domestic business (CAGR of 18% in FY24-FY26E), 2) 35% 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 but raise target price to Rs 2,215, valuing the company at 25x FY26E EV/EBITDA (earlier 24x FY25E).
J.B. Chemicals and Pharmaceuticals Ltd – Q1FY25 Result Update – SMIFS Institutional Research
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