Sector Outlook: Positive
Domestic formulation business continues to deliver strong growth
JB Chemicals and Pharmaceuticals reported revenue growth of 12.1% on yearly basis and 16.6% sequentially to Rs. 10,044 million. Top brands continued to gain market share which helped domestic formulation businesses outperform the IPM. International business was flat YoY as performance in CDMO was muted due to seasonality and strategic choices made in international business, especially in South Africa. EBITDA increased 20.8% YoY / up 41.5% QoQ to Rs. 2,804 million, while EBITDA margin stood at 27.9%, led by an expansion in gross margins by 76 bps YoY to 66.2%. The focus on improving the business mix and cost management strategies also helped international businesses improve overall gross margins. Profit after Tax stood at Rs 1,768 million up 24.2% YoY in Q1FY25. As per IQVIA, JB Chemicals recorded 12% YoY growth in Q1FY25 vs IPM growth of 9%. While the company has largely limited its marketing and branding efforts to scale up its core therapies, it has established a rising presence in these therapies, especially in the cardiac segment.
Key Concall Highlights
Domestic Business Outlook:
JB Chemicals will continue to pursue growth in the domestic market, led by its chronic strategy. The company’s domestic business is expected to consistently outperform market growth, driven by key brands. The company also plans to launch products in paediatrics, GI and probiotics. It plans to launch 1-2 products every month.
Ophthalmology Portfolio:
The ophthalmology segment registered strong growth after a smooth transition. The company is excited about the recent ophthalmology foray, which has brought some of the biggest brands. As of Q1FY25, the MR strength in the Ophthalmology business has increased to 105 from 70. The annual run-rate of the portfolio this year is around Rs. 1.8 bn compared to Rs. 1.6 bn last year.
Cost Optimization Initiatives:
The Company expects to deliver operating margins of 26-28% despite inflationary pressure and external market uncertainties. Cost optimization efforts and a favourable product mix enhanced margin.
MR Productivity:
PCPM has nearly doubled over four years with a marginal addition of field force in the organic business. The MR count has not significantly changed except for the ophthalmology team. There are currently seven focused therapy divisions, with a total strength of more than 2,300 MR working for JB Chemicals.
CMO Business:
The CMO and domestic formulation businesses account for 75-80% of total sales in Q1FY25. Given the product portfolio and new product pipeline, the company’s CDMO business will maintain growth momentum aided by new launches, new partners, and expansion to newer geographies. The company plans to launch melatonin-based lozenges this year-end in the Middle Eastern market. The company has also expanded its presence into four European countries; more European markets will be added by the end of FY25.
Azmarda:
Over the past four months, JB’s monthly volumes have been increasing from 110k units to 120k units. According to JB, demand has reached a steady state of 120-125k units. JB expects double-digit volume growth hereon. JB expects to continue its dominance in this category. It is among the top three players in this market.
Other Highlights:
- In the mid-term, India and CDMO business should constitute around 75-80% of total revenue.
- Management guided mid-teens growth for the domestic formulations segment, primarily led by volume growth.
- The company aims to repay all debt in FY25.
- The company is focusing on working capital management and improving RoCE.
Valuation and Outlook
JB Chemicals and Pharmaceuticals continued to record healthy revenue growth in Q1FY25, aided by growth in the domestic formulation business due to market share gain in top brands and continued traction in the chronic segment. The international formulation business grew annually, led by Russia and ROW, and the business delivered strong performance. However, the South African tender business declined due to a deliberate strategy of improving the mix and margin profile. The CDMO business was impacted by muted cough and cold season across the globe. However, the order book looks healthy and should see improved traction in H2FY25. Overall, we expect JB Chemicals to continue its growth momentum, driven by geographical expansion of legacy brands, sustained growth momentum in international business, improvement in MR productivity, scaling up of contract manufacturing business, smooth transition of ophthalmology portfolio and new product launches across markets.
