JB Chemicals & Pharmaceuticals – Domestic formulation business deliver market-beating Growth

Sector Outlook – Positive

JB Chemicals and Pharmaceuticals Ltd. reported a 6.5% year-on-year revenue growth, exceeding market expectations. The domestic formulation business saw robust double-digit growth of 14.0% year-on-year, driven by recovery in acute brands and strong momentum in chronic brands. 

However, the international formulation business declined 1% year-on-year, primarily due to a decrease in the South African tender business. The company’s CDMO business also had a muted performance, with sales growing at 7.0% year-on-year. JB Chemicals recorded a 27.7% year-on-year increase in EBITDA, with a margin of 26.4%, aided by cost optimization and a favourable product mix. 

Profit after Tax increased by 25.9% year-on-year, with a PAT margin of 15.8%. The company’s chronic cluster outpaced the IPM growth, growing 13% year-on-year compared to IPM chronic portfolio growth of 8.0% in Q3FY24. The company expects domestic revenue to increase in the mid-teen digits, driven by new launches, line extensions, and improved MR productivity.

Concall Highlights

Domestic Business Outlook

JB Chemicals will keep focusing on growth in the Indian market, particularly through its strategy for chronic illnesses. They anticipate that their business in India will continue to grow faster than the overall market, as their larger brands get even bigger and they concentrate on the recently acquired portfolio.

Chronic Portfolio

JB Chemicals is performing well in the chronic illness segment, surpassing the growth rate of the overall chronic market with its key brands. By increasing the proportion of chronic medications in its product mix, the company has been able to improve its profit margins in the domestic market. They aim to continue this trend by focusing on increasing the share of chronic medications to 60% in the future, which they believe will help them maintain strong growth in India.

Sporlac Franchise

The Sporlac franchise has nearly doubled in size over the past two years, according to IQVIA. Management mentioned that they have launched new products, including a paediatric version of Sporlac, in the fourth quarter of FY24.

Foray into Ophthalmology

The company is enthusiastic about its recent entry into the ophthalmology segment, which has introduced some of its most significant brands. They believe that the ophthalmology market has excellent potential, expecting it to grow in the mid-teens and consistently outperform the overall pharmaceutical market growth.

Continuous push on cost optimization initiatives

JB Chemicals anticipates maintaining operating margins between 25% and 27% despite facing inflationary pressures and uncertainties in the external market in the future.

MR Productivity

There are currently seven focused therapy divisions, with a total strength of more than 2,200 MR working for JB Chemicals

CMO Business

In Q3FY24, 75% of total sales came from the CMO business and the domestic formulation business. The company expects its CDMO segment to bounce back starting FY 25, thanks to its strong order book. The growing popularity and ongoing demand for lozenges will play a crucial role in driving this growth.

Valuation and Outlook

JB Chemicals and Pharmaceuticals saw strong revenue growth in Q3FY24, mainly driven by its domestic formulation business, which accounts for about 55% of its sales. The growth was fueled by increased demand for its acquired portfolio and continued success in the chronic segment, along with a recovery in the acute business. 

However, the international formulation business faced challenges, particularly in the South African tender business. The CDMO business also experienced a slight decline due to the comparison with the previous year’s Q3. 

Looking ahead, JB Chemicals plans to focus on expanding its CDMO offerings and strengthening its presence in other markets. Overall, the company expects to maintain its growth momentum through geographical expansion, new product launches, and improvements in operational efficiency.