Target price: Rs. 189
Recommendation: Buy
CMP: Rs. 128
Post the sale of OTC business in Russia and CIS to Cilag, Sharekhan temporarily dropped its coverage on J.B. Chemicals and Pharmaceuticals (JBCPL”) considering the fact that there were no immediate triggers while remaining business needed time to re-organize and rejuvenate. Since then, stock price corrected by near 64% to reach a low of Rs. 59. However, after two years of the sale of OTC business in Russia and CIS, J.B. Chemicals has re-established itself in exports market, while retaining the key positions in domestic branded formulation market. While a major chunk of sale proceeds stays in balance sheet, operating performance of the company has seen an improvement in recent quarters. Sharekhan is re-initiating its coverage on J B Chemicals and Pharmaceuticals with a price target of Rs189. Sharekhan recommend buy rating on the stock.
Key investments rationale:
1. Focus on US market to add momentum
2. Strong brand equity in domestic formulation market to beat impact of DPCO 2013.
3. Strong balance sheet; prospects of cash deployments to reduce valuation discounts
Sharekhan recommends Buy with price target of Rs. 189: The stock is currently trading at 9.1x FY2015E EPS. Sharekhan values the stock at Rs. 189 per share which includes core business valuation of Rs. 124 (10x FY2015E EPS) and value of cash at Rs65. Thus Sharekhan recommends Buy on the stock.
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