Stock To Buy: This Multibagger Small Cap Pharma Stock Gets 'Buy' Rating For 17% Gains

Prabhudas Lilladher, a renowned brokerage firm has recently published a report on JB Chemicals and Pharmaceuticals Ltd and has given a 'buy' rating to the stock of the company for a target price of Rs 1950/share. JB Chemicals and Pharmaceuticals Ltd. is small-cap pharma stock. It is one of India's fastest-growing pharmaceutical companies with more than four decades of strong existence in the industry.

Stock Outlook

The Current Market Price (CMP) of the company is Rs 1672/share. The stock hit the 52-week low last month on 16 at Rs 1,342.20/share. Its 52 week high is Rs 1,985/share recorded on 28 September 2021. The ROE of the stock is18.055. It is a small cap pharma stock with a market capitalisation of Rs 12,908.82 crore.

The shares of the company in the past 1 week gained 3.13% and 13.5% in the last 1 month, respectively. It has given negative returns of 10.67% in the past 1 year. However, the stock in the past 3 years has given multibagger returns of 350.29%, and 415.14% in past 5 years.

As per the CMP of JB Chemicals & Pharmaceuticals and the brokerage's estimated Target price of Rs 1950/share, the stock could jump nearly 17% in 12 months.

Domestic business on strong footing

JB Chemicals & Pharmaceuticals' domestic formulation biz (including contrast media) contributes ~50% to its total revenues. The company is well placed to outperform IPM (India Pharma Market) led by 1) focus on core chronic therapies, 2) leveraging of existing field force (2100 MRs) to expand and launch new therapies and 3) top 3-4 brands becoming larger post distribution reach going beyond Tier 1 & 2 cities (that contribute majority of revenues).

Currently, JB Chemicals & Pharmaceuticals' top brands Metrogyl, Nicarida and Rantac are under price control. Rantac has taken a price hike of 50% in 70% of its SKUs, effective from Q4FY22. (NPPA has allowed a one time price hike of 50%).

Company's recent Sanzyme acquisition in high growth probiotics and reproductive health segment has marked its entry into fast-growing probiotics segment. Currently probiotic segment is growing annually by 12-14%, besides the acquisition is expected to create new synergies with strong prescriber base in gastroenterology and nephrology segments. Additionally, the Azmarda acquisition too is expected to strengthen JBCP's presence in India's Cardiology segment and consolidate a position in IPM.

JB Chemicals & Pharmaceuticals being cash rich with strong financial backing of existing promoters, is expected to generate net cash of Rs4bn by FY24 end after factoring in Azmarda and product acquisition from DRRD (Dr. Reddy's Laboratories). JBCP can continue to look for niche acquisitions to plug product portfolio gaps.

Diversified export segments

Exports contribute 50% to JB Chemicals & Pharmaceuticals' total revenue. We are positive on long term growth drivers in exports segment led by 1) consolidation of business through deeper presence in existing markets 2) focus on high-margin CMO business 3) expansion of OTC presence and launch of new products in Russia-CIS markets 4) portfolio augmentation in private and public markets of South Africa and 5) increased focus on ANDA filings in US and selective backward integration for US business. We estimate these initiatives will drive ~12% revenue CAGR in export segment over FY22-24E.

Strong FCF generation

With annual capex requirement of just Rs500-600mn, we estimate JB Chemicals & Pharmaceuticals to generate Rs5.3bn of FCF over FY22-24E after factoring in recent acquisitions. This will give an opportunity to explore inorganic opportunities, which can add new growth engines and compliment existing portfolio. Further JBCP's balance sheet continues to remain healthy, even with recent acquisition of Sanzyme, Azmarda brand and DRRD's four products.

Brokerage firm recommends buy for a target price of Rs 1,950 per share

JB Chemicals and Pharmaceuticals is one of India's fastest growing midsized Indian pharma company having superior return ratios such as ROCE 26% and ROIC 30% by FY24E.

The company has shown sustainable growth momentum driven by:

1) Geographical expansion of legacy brands - Cilacar, Rantac, Nicardia and Metrogyl
2) Improvement in MR productivity.
3) Sanzyme and Azmarda acquisition.
4) Launch of new products and therapies.
5) Scaling up contact manufacturing business .(expected ~13% revenue CAGR in CMO biz over FY22-24E).
6) Improvement in FCF generation (~Rs6bn FCF over FY22-24E).

JB Chemicals & Pharmaceuticals' strong positioning in domestic markets and focus on scaling emerging opportunities in exports segment, places it in an advantageous position to ride on near term growth prospects.

The broekrage firm said, "We expect 22% EPS CAGR over FY22-24E aided by 1) Sanzyme consolidation, 2) price hike in Rantac portfolio, 3) increasing high margin CMO business and 4) continued volume growth in base India portfolio. At CMP, the stock is trading at 19.3x FY24E P/E adjusted for ESOP and amortization charges (30- 40% discount to MNC-focused Indian companies) also is in-line with some of peers like Ipca, Ajanta and Alkem. Initiate 'BUY' at Target Price of Rs.1,950 (23x FY24E EPS adjusted for ESOP and amortization charges)."

About - JB Chemicals and Pharmaceuticals Limited

JB Chemicals and Pharmaceuticals Limited is one of India's fastest growing pharmaceutical companies with more than four decades of strong existence in the industry. It exports to over 30 countries, including key markets such as South Africa, Russia, CIS followed by USA (who contribute ~ 50-55% of its overall revenue). It has 7 State-of-the-art manufacturing units in Gujarat, India producing wide range of dosage forms i.e. Tablets, Capsules, Liquids, Iv Infusions, Ampoules, Vials, Ointments, Cold Rubs, Lozenges & Sips. Is a leading player in hypertension segment and has five brands among top 300 brands with more than 30% market share that contribute over 70-74% of domestic formulations revenues. It ranks among top 5 manufacturers globally in medicated and herbal lozenges.

Disclaimer

The stock has been picked from the brokerage report of Prabhudas Lilladher. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.