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Buy JB Chemicals; target of Rs 333: CD Equisearch

Brokerage house CD Equisearch is bullish on JB Chemicals and Pharmaceuticals and has recommended buy rating on the stock with a target price of Rs 333 in its research report dated July 20, 2015.

July 20, 2015 / 03:20 PM IST
 
 
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    CD Equisearch's Research Report on JB Chemicals and Pharmaceuticals

JBCPL’s wide geographical presence in international markets and strong product portfolio with high growth brands and strong marketing capability gives a positive outlook for overall business of the company. The company has crossed the iconic milestone of Rs 1000 cr sales mark in FY14. The company has embarked on to the next phase of journey in July 2011, post sale of the Russia-CIS OTC business, and the company has made a comeback in just three years by effectively focusing on growth markets internationally. The supply agreement with Cilag GmbH International (‘Cilag’), a wholly owned subsidiary of Johnson & Johnson, has been functioning smoothly.


The increase in per capita income, and in turn the increase in per capita consumption of drugs, improved healthcare access and increasing health awareness are expected to continue to aid growth opportunity in domestic formulations business. As successful penetration into new markets will accelerate the next level of growth, the company believes that its well established brands will be the strong pillar around which the company will grow.


The international business poses challenges, such as increased competition, rapidly changing regulatory environment and increasing span of price controls in some markets. However, the company is optimistic about its good growth prospects.


The R&D division of the company continues to play an important role in the company’s growth. Its R&D is currently focused on the new formulations development and ANDAs filings. The company has enhanced its focus on US market and plans to file new ANDAs and is also considering backward manufacturing of APIs used in these ANDAs to make the business more profitable. JBCPL has envisaged capex of Rs140 crs to be spent in next 12-18 months. This capex is progressing as per schedule.  The consolidated income from operation in FY15 registered a growth of 12% YoY. The political situation in Russia and Ukraine and depreciation of rouble against US dollar also impacted the business. The situation has improved in these markets after April, but the company is cautiously watching the developments in these markets. The company has around Rs 568 crs (Cash + Investments) as on FY15. The company does not plan to invest this money in haste and will invest it when the right opportunity emerges.


"The company has a consistent, strong free cash flow annually, with a low debt-equity of 0.1x. With the commencement of the sales and distribution of products from its wholly owned subsidiary in Dubai, we expect revenues and profit to grow at a CAGR of 13.5% & 20.0%, respectively over 2015-17.  The stock at the price of Rs 270 trades at 17.4x FY16e earnings and 13.8x FY17e earnings. Strong traction in domestic business & expansion of capacities will drive future growth. Therefore, we recommend BUY on the stock with target of Rs 333 based on 17x FY17e earnings, (PEG Ratio 0.85), over the next 9-12 months", says CD Equisearch report.

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first published: Jul 20, 2015 12:46 pm

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