JB Chem is the preferred pick due to aggressive growth focus & high return ratios: Nirmal Bang

CMP: Rs2,973 | Target Price (TP): Rs3,450 | Upside: 16%

CDMO business on growth trajectory

Key Points

► We recently visited JB Chemicals and Pharmaceuticals Ltd’s (JB Pharma) Lozenges, Tablet and Oral Powder Manufacturing facility (Sachet) at Daman, Gujarat and interacted with the Operation and Production head to understand the CDMO business’ future growth outlook and manufacturing capabilities.

► JB Pharma remains sanguine about future growth prospects in the CDMO space which will be led by geographical expansion, new client additions and growth in business from existing partners. The company has already initiated the debottlenecking process by acquiring an adjacent land parcel for new Lozenges Packaging lines.

► JB Pharma remains our preferred pick, mainly underpinned by aggressive growth focus in the Domestic+CDMO business, high return ratios, lean B/S and healthy FCF (despite acquisitions). In the domestic market, it continues to outpace industry growth with life cycle management of legacy brands and new launches. Also, strong performance from inorganic opportunities is boosting overall domestic growth. Growth in margin accretive CDMO business is also expected to remain strong on the back of geographical expansion and entry into new Chronic segments. We maintain BUY on JB Pharma with a rolled over revised target price (TP) of Rs3,450, valuing it at 23x Sept’25E EV/EBITDA.

Facilities overview

► The Daman facility is ~21,000 sq.mt in size and is equipped with 2 manufacturing lines, 9 packaging lines and 1 R&D line. The facility has an annual manufacturing capacity of ~2bn lozenges and ~1bn tablets.

► The company has secured approvals from 18 organizations (including MHRA, SA regulatory authority, WHO etc.) except for the USFDA.

Lozenges portfolio

► The company manufactures and exports ~50 different types of lozenges, including center filed lozenges in the areas of cough & cold, wellness and sleep disorder. Additionally, tablets Cilacar (including brand extensions) and Rantac are manufactured from this facility.

► For Lozenges, ~70-80% of the products are packed in blister strips, which imparts better aesthetic appeal compared to traditional strip packaging.

► Developed products contribute 40% to sales while the rest of the sales are from pure manufacturing.

► Till now, the company had not applied for USFDA approval, but it can apply for the same with minor modifications in plant whenever it requires.

► The company caters to a diverse set of marquee consumer healthcare brands globally, with the top 5 customers contributing ~80% to the CDMO business.