JBCPL : BUY

JB CHEMICALS & PHARMACEUTICALS

Dual Bonanza: Reigniting Domestic business and Russian business continues to blossom continually

Company Background

JB Chemical and Pharmaceutical (JBCPL) is an export oriented company (with over 50% revenues from exports) equipped with strong brands such as Nicardia, Rantac, Dicloran amongst others.

Investment Argument

ü  Enhanced focus to reignite previously languishing domestic business: Despite having strong brands; JBCPL was under-performing in the domestic market with revenue growth lower than industry average.

ü  With renewed focus; increase in Medical Representative (MR) strength from 550 in FY10 to 2,000 in FY12E; new product extensions and aggressive marketing; JBCPL is expected to pump in new life in this sagging business. Management is targeting to double its revenues over next 3 years. We believe, with the renewed zest, domestic business will flourish and deliver better than industry average growth over next 3 years.

ü  Russia/CIS region will continue to reap rich dividends- JBCPL will continue to consolidate its position in this region. Strong and successful brands and focused marketing approach will aid consistent growth for JBCPL. Moreover, Russia/CIS pharmaceutical region is expected to grow at double digits over medium term. High receivable days are not a concern for the company as quality of receivables is very high.

ü  JBCPL on the verge of explosive growth via Rest of World (ROW):- ROW although currently a smaller contributor to overall growth; is expected to register stellar growth in the medium term especially led by robust growth from South Africa, US/Canada and others. Moreover, equipped with state of art facilities with regulatory approvals from the likes of US FDA, MHRA UK and others, niche lozenges expertise and available capacity; JBCPL is expected to further make inroads in this high margin CRAMS segment.

ü  Triple Treat: De-leveraged Balance Sheet, low capex plans and increasing CFO: A virtually debt free company with steadily increasing cash from operations coupled with low capex plans for next 2 years; JBCPL is expected to built a cash war-chest in the medium term. This will support its plans for venturing into newer territories and also pursue inorganic growth going forward. Average ROCE and RONW are regaining from the slump of last 2 year.

Valuation

BUY on JBCPL with a target price of Rs 175.5 by assigning a P/E of 10x FY2012 EPS of Rs 17.55; which provides a potential upside of 16.2% over a period of 12-15 months.