JB Chemical: Progressive Stock Brokers, Nirmal Bang and Credit Suisse explain why this stock is a value pick

A strong growth outlook, good track record of management and recent acquisitions are the key triggers amid which several brokerages are bullish on shares of JB Chemicals and Pharmaceuticals Limited. They see a potential growth of up to 19 per cent in the stock price with a long-term view. 

The overall pharma sector to report flattish March quarter earnings, however, a few companies to benefit from the US market, Nirmal Bang said in its preview report, also estimated a flattish quarter for JB Chemicals owing to a weak quarter for domestic sales. 

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The stock of JB Chemical on Friday gained over 3 per cent to Rs 1698.7 per share on the BSE as compared to over a 1 per cent fall in the S&P BSE Sensex. 

Progressive Stock Brokers 

Several initiatives including the re-aligned Go-To-Market model, diversification into complementary therapies, and new launches have helped the company sustain its growth momentum in India leading to market share gains and rank improvement.  

The management has indicated working aggressively on expanding offerings in the international market by reorienting R&D and aggressively pursuing business development opportunities.  

The priority will be to further optimize the cost structure and continue to build on the revenue momentum in line with the strategic plans. Maintaining a Positive view, we feel that the company is gradually inching towards its chalked target price of Rs 2016 apiece (around 19 per cent upside). 

Nirmal Bang 

JB Chemicals is one of the fastest-growing top 30 domestic branded formulations companies in India. The domestic brand business comprises four mega brands (Cilacar, Nicardia, Rantac and Metrogyl), which contribute 80 per cent to domestic brand sales.  

There is large headroom for the company to scale up in western geographies considering the small base there. Contract Manufacturing of pharmaceutical Lozenges, wherein the company is among the top 5 globally, is 10 per cent of revenue and capacities are only 50 per cent utilized.  

The rest of the revenue pie is the API segment, which is partly used in backward integration while the remaining is sold domestically or exported to regulated markets. We initiate coverage with a Buy rating and a target price of Rs1,974 per share (16 per cent upside) based on 25x FY24E EPS.  

Credit Suisse 

JB’s India business expected to grow faster than peers at 15 per cent CAGR (Compound Annual Growth Rate) over FY22-25. India is 60 per cent of FY22E EBITDA but it must rise to 70 per cent by FY25E. Its new management team has a good track record and high-performance incentives. 

The company has started diversifying into new therapies and recently made two acquisitions. Margin expansion (synergy benefits, productivity enhancement) should drive RoCE (Return on Capital Employed) to over 40 per cent (pretax) over the next four years.  

Free cash-flow generation is high at 50%+ of EBITDA (FY24E FCF: Rs4.5bn+) and should help JB to grow faster in India. Our target price of Rs 2,020 per share, implying 27x FY24E P/E. The target price implies an upside of 19 per cent from the current market price.