UK NDR: Poised to deliver strong earnings growth
We hosted JB’s CEO, Nikhil Chopra, for a roadshow in the UK. The company remains optimistic on its growth prospects across India, CMO, Russia and South Africa. With the current management team keen on running the business, the company does not expect any change in its business plan even if there is any ownership change. Having primarily grown organically until FY2022 and later on aided by benefits from acquired brands, JB has handsomely outperformed the IPM in the past decade by ~600 bps and currently ranks 21 in the IPM. Backed by improved MR productivity in India amid a healthy CMO order book and steady exports traction, we expect strong 19%/22% EBITDA/PAT CAGRs over FY2024-27E for JB. Retain our BUY rating with an unchanged FV of Rs2,255.
JB expects organic India volume growth of ~6% yoy, much higher than IPM
JB expects to organically grow at 12-14% yoy in India in FY2025E. Within this, volume contribution is expected to be ~600 bps. 65% of JB’s domestic portfolio (used to be ~35% pre-KKR) is in segments, which are outpacing IPM growth. While JB is the 21st ranked company in the IPM by sales, it is the 15th largest in terms of prescriptions. The company aspires to be the 12th largest company by prescriptions in the next few years and then eventually enter the Top 10. Rather than just banking on scaling up new launches quickly, the management has focused on growing the existing power brands and in-licensing/acquiring brands. Accordingly, its base portfolio has been reporting a robust sales CAGR of ~17% over FY2015-24, with leading brand families posting 10-30% CAGRs over FY2015-21. The recent acquisitions would propel the topline growth further, and accordingly we bake in robust ~16% and ~14% overall and organic domestic sales CAGRs, respectively, over FY2024-27E.
With healthy traction across clients and markets, JB stays bullish on CMO
The company highlighted continued healthy traction across multiple clients, markets and dosage forms in the CMO segment. Led by improved traction from 2HFY25, as well a healthy order book and enhanced capacity, we expect the high-margin CMO vertical to report a ~14% CAGR, over FY2024-27E. Overall, we forecast 14% and 19% sales and EBITDA CAGRs, respectively, for JB over FY2024-27E. We expect a 310 bps expansion in JB’s EBITDA margins over FY2024-27E, driven by higher domestic productivity and higher branded/CMO mix, despite factoring in compression due to the Novartis deal. In the absence of any meaningful capex, we expect JB to generate cumulative FCF of Rs13.9 bn over FY2024-27E, with healthy 21.9% RoAE and 25.0% RoIC in FY2027E
A potent fusion; reiterate BUY with FV of Rs2,255
JB offers a healthy cocktail of a robust domestic franchise, niche CMO presence and measured exports strategy, aided by peerless execution. We keep our estimates and FV unchanged. Retain BUY. Key risks to our rating are any senior management exits, resurfacing of NDMA-related concerns for Rantac, high India business sales concentration and aggressive amortization policy of the acquired brands.
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