Broker's call: JB Chemicals (Buy)

CMP: ₹304.9

Target: ₹416

Ranked 35th in the Indian pharmaceutical industry, the company’s four brands brings 80 per cent sales to its domestic business. Its brands (Rantac, Cilacar, Metrogyl) each have ₹100 crore-plus revenues. Whereas the newer brands including Nicardia are growing in double digits with Nicardia already having a market share of 80 per cent in represented market category. With improving field force productivity pan India, we expect the domestic business revenue CAGR of 15 per cent over FY18-21.

The company has 6-7 active products in the US, with 11 approved ANDAs filings and five pending approval. The US market revenue was ₹07 crore and, following launches, we expect a 19 per cent revenue CAGR over FY18-21. In South Africa the company operates through a subsidiary, which had ₹140 billion revenue in FY18. We expect a 15 per cent revenue CAGR over FY18-21 in this region. With its focus on the US and South Africa and its operations in other markets such as Russia, Australia and South-east Asia, we expect a 14 per cent revenue CAGR over FY18-21 in exports.

Valuation: We expect return ratios and operating margins to improve further, coupled with positive cash flows and debt-free status, rendering valuations attractive as the stock currently trades at a discount to its peers. We initiate coverage on it, and recommend a ‘Buy’, with a target of ₹416 based on 14x FY21e earnings.

Risks: More products under the NLEM, currency fluctuations and changing regulatory environment.

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