JB Chemicals’ sharp focus on its domestic market supported by improving field-force productivity and its emphasis on other key markets (South Africa, US) impel us to expect 12%/20% revenue/PAT CAGRs over FY18-21. We initiate coverage with a ‘buy’ and a Rs 416 target price based on 14x FY21e earnings. Ranked 35th in the Indian pharmaceutical industry, the company’s four brands bring 80% sales to its domestic business. Its brands (Rantac, Cilacar, Metrogyl) each have Rs 100-crore-plus revenues.
Newer brands, including Nicardia, are also growing in double digits with already having a market share of 80% in represented market category. With improving field-force productivity pan India, we expect the domestic business revenue CAGR of 15% over FY18-21. The company has 6-7 active products in the US, with 11 approved ANDAs filings and five pending approval. The US market revenue was Rs 107 crore and, following launches, we expect a 19% revenue CAGR over FY18-21. In South Africa, it operates through a subsidiary, which had Rs 140 crore revenue in FY18. We expect a 15% revenue CAGR over FY18-21 in this region. With its focus on the US and South Africa and its operations in other markets such as Russia, Australia and Southeast Asia, we expect a 14% revenue CAGR over FY18-21 in exports.
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We expect return ratios and operating margins to improve further, coupled with positive cashflows and debt-free status, rendering valuations attractive as the stock currently trades at a discount to its peers. Risks: More products under the NLEM, currency fluctuations and changing regulatory environment. Four of its brands feature in the top-200 by volume. Metrogyl, Rantac, Nicardia and Cilacar are the most prescribed brands in their respective category. Of its sales, 44% stems from the domestic market. The acute and chronic sub-segments contribute 45% and 55%, respectively.