JB Chemicals & Pharmaceuticals (JBCPL) remains our top pick in the mid-cap pharma space. We are positive on the company, considering 40% of total revenue and ~55% of Ebitda contribution is by domestic formulations with high visibility of strong growth. Further, exports would scale up with growth in the US and ROW businesses. Recent secondary sales data (AIOCD) suggest growth pick-up with significant traction in key brands. We believe the stock is significantly undervalued at current valuation of 12.3xFY20E and 10.6x FY21E earnings, considering a 19.3% earnings CAGR over FY19-21, >15% of market cap being net cash balance on books and an estimated >55% Ebitda contribution from high growth in India business. We maintain our ‘buy’ rating with a target price of `440 per share.
The India business grew 13.7% year-on-year in 9MFY19 vs industry growth of 10-11%. Recent AIOCD data suggest a further pick-up in growth momentum reaching high double digits backed by Cilacar franchise. We believe this is being driven by improving MR productivity and traction in new products (line extensions of strong brands). We expect JBCPL to continue to outperform industry growth and witness a 14.5% revenue CAGR over FY18-21 in the India business.
Exports revenue has seen a strong 31.7% growth in 9MFY19 on the back of favourable currency, traction in the US & ROW businesses. We believe a large part of this growth is sustainable, considering that the new launches in the US and South Africa have driven the growth. The company has started working on new products for Russia & CIS which would drive additional growth in this geography over medium term. We expect exports revenue to grow at 11.6%
CAGR over FY18-21.