PL Stock Report: J.B. Chemicals & Pharmaceuticals (JBCP IN) - Q2FY24 Result Update – Margin surprise - BUY

J.B. Chemicals & Pharmaceuticals (JBCP IN) - Param Desai - Research Analyst, Prabhudas Lilladher Pvt Ltd.

Rating: BUY | CMP: Rs1,462 | TP: Rs1,675

Q2FY24 Result Update – Margin surprise

Quick Pointers:

♦ Reiterate CDMO revenue guidance of $100mn over next 3-4 years.

♦ Adj for ESOP (Rs 77mn), OPM came in at 28.5%.

J.B. Chemicals & Pharmaceuticals (JBCP) Q2FY24 EBITDA growth of 32% YoY was 6% above our estimate aided by higher margins. Revenue growth across domestic formulation (+11% YoY) and contract manufacturing business (+5% YoY) continue to remain healthy. We believe JBCP will continue with its growth momentum driven by 1) geographical expansion of legacy brands 2) improvement in MR productivity 3) scale up in Sanzyme, Azmarda and Razel franchise 4) launch of new products & therapies 5) scaling up contract manufacturing business and 6) improvement in FCF generation. Our FY24/25E EPS stands broadly remains unchanged. We expect EPS CAGR of 29% over FY23-26E. At CMP, the stock is trading at 27x FY25E P/E adjusted for ESOP and amortization charges. We maintain our ‘BUY’ rating with revised TP of Rs1,675/share (Rs1,500 earlier), valuing at 30x Sept 2025E EPS adjusted for ESOP and amortization charges.

♦ In line revenues: JBCP revenues grew by 9% YoY to Rs8.82bn, against our estimates of Rs8.92bn. Domestic formulation sales continued to show double digit growth of 11% YoY, led by scale up in acquired portfolio and chronic brands despite softer demand from acute portfolio. Export formulations delivered growth of 9% YoY at Rs 2.63bn. It witnessed moderate growth of 5% YoY in CMO space to Rs 1.2bn. API sales were flat YoY.

♦ EBITDA 6% above our estimate; margins at 28.5% adj for ESOP: EBITDA came in at Rs 2.43bn up 32% YoY & 5% QoQ, 6.4% beat to our estimate. Margins came at 27.6%. Adjusted for ESOP (Rs77mn), EBITDA was Rs2.51bn with OPM of 28.5%; up 380 bps YoY. GM came in at 66.2%; improved 340 bps YoY and up 80 bps QoQ. High chronic share and increased realization from acquire portfolio aided such performance. PAT came in at Rs1.5bn up 35.5%YoY, vs our est. of Rs1.4bn. EPS was Rs 9.7 in Q2FY24. Adj for ESOP and amortization charges, EPS came in at Rs 10.5/share for Q2FY24.

♦ Key concall takeaways: Domestic: Overall good performance from its top 3 franchises – Cilacar, Rantac & Metrogyl. The life cycle management will continue to aid growth of flagship products. Volume growth was 5-6% I Q2. Q3 will see better growth for domestic formulation given low base. Therapy mix contribution stands at 53%/47% between Chronic/Acute. Sporlac brand is now+Rs1bnfranchise. Company has done restructuring in SouthAfrica market related to its tender business which will result in Rs1.2bn of revenue loss in FY24. Intend to focus more on private market which is slightly better margin in nature. CDMO segment is likely to remain soft in H2; reiterated its overall guidance of $100mn.over next 3-4 years. Initiated capacity expansion for lozenges facility in Daman. Have bought adjacent land in Daman for Rs500mn. Guided earlier for margins 25-27% and should achieve at higher end of band. Net debt stands at Rs180mn vs Rs2.7bn as of FY23 end. (Click on the Link for Detailed Report)