JB Chemical: Progressive Stock Brokers, Nirmal Bang and Credit Suisse explain why this stock is a value pick
Strong growth prospects, good management track record and recent acquisitions are the main triggers amid which several brokerages are bullish on JB Chemicals and Pharmaceuticals Limited shares. They see potential for growth of up to 19% in the share price with a long-term view.
The pharmaceutical sector as a whole will report lackluster results for the March quarter, however, a few companies will benefit from the US market, Nirmal Bang said in its preliminary report, also estimated a lackluster quarter for JB Chemicals due to a weak quarter. for domestic sales.
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On Friday, JB Chemical stock gained more than 3% to Rs 1698.7 per share on the BSE, against a drop of more than 1% on the S&P BSE Sensex.
Progressive Stock Brokers
Several initiatives, including the realigned Go-To-Market model, diversification into complementary therapies and new launches, have helped the company maintain its growth momentum in India, resulting in market share gains and improved of the rank.
Management said it is working aggressively to expand offerings in the international market by refocusing R&D and aggressively pursuing business development opportunities.
The priority will be to continue to optimize the cost structure and pursue the sales dynamic in line with the strategic plans. Keeping a positive view, we estimate that the company is gradually approaching its target price of Rs 2016 each (around 19% upside).
JB Chemicals is one of the top 30 fastest growing domestic branded formulations companies in India. The national brand business includes four mega-brands (Cilacar, Nicardia, Rantac and Metrogyl), which contribute 80% of national brand sales.
There is a lot of leeway for the business to expand into western geographies given the small base there. Contract manufacturing of pharmaceutical pellets, in which the company is among the top 5 in the world, accounts for 10% of revenue and capacity is only 50% utilized.
The rest of the revenue pie is the API segment, which is partly used in backward integration while the rest is sold domestically or exported to regulated markets. We are initiating a hedge with a buy rating and a target price of Rs 1,974 per share (up 16%) based on 25x FY24E EPS.
JB’s Indian business is expected to grow faster than its peers at a CAGR (compound annual growth rate) of 15% in FY22-25. India accounts for 60% of FY22E EBITDA, but is expected to reach 70% by FY25E. Its new management team has a strong track record and high performance incentives.
The company has begun to diversify into new therapies and recently made two acquisitions. Margin expansion (synergy benefits, improved productivity) is expected to drive RoCE (Return on Capital Employed) to more than 40% (pre-tax) over the next four years.
Free cash flow generation is high at 50%+ of EBITDA (FY24E FCF: Rs4.5bn+) and should help JB grow faster in India. Our target price of Rs 2,020 per share, which implies 27x FY24E P/E. The target price implies a 19% upside from the current market price.