JB Chemicals shares hit record high as Jefferies values stock at 15% premium over Torrent Pharma

Shares of JB Chemicals on Tuesday hit a record high of Rs 2,440.05 on BSE, as foreign brokerage said the drug maker should emerge among the fastest growing mid-sized company due to its India and CMO focus. Jefferies initiated coverage on the stock with a 'Buy' rating and a share price target of Rs 2,680, which suggests 10 per cent potential upside over the record high level.

JB Chemicals is the fastest growing domestic pharma company with therapy dominance in cardiac and gastro. Life cycle management of key brands, synergistic acquisitions and targeted new launches should allow JB Chemicals to outperform industry growth, Jefferies said.

"Export growth will be led by contract manufacturing of Lozenges where it has strong customer relationship and technology," it said.

Like Torrent Pharma, Jefferies values JB Chemicals on EV-Ebitda basis as the drug maker's financials have contribution of acquired brands which inflates depreciation and amortisation.

"Our target Ebitda adjusts for the non-cash ESOP charge of Rs 40 crore in FY25. Our target price is based on 20 times June 2025 Ebitda, which is at a 15 per cent premium to Torrent Pharma due to JB Chemicals' superior Ebitda growth and ROIC profile," it said. 

Over FY23-26, Jefferies expects JB Chemicals to witness 12 per cent growth in revenue, 17 per cent growth in Ebitda and 20 per cent growth in profit after tax compounded annually. Jefferies sees ROIC for JB Chemicals to expand by 700 basis points to 30 per cent.

"JB Chemicals ranks amongst the top 5 global manufacturers of medicated and herbal lozenges and works with marquee pharma/ consumer client base. Majority of the business is through own IP and not toll manufacturing. With current utilisation at 50 per cent, JB Chemicals can take more contracts from existing customers, enter new geographies and launch new products in the immunity, digestion areas which should allow 12 per cent revenue CAGR over FY23-26E to Rs 570 crore," Jefferies said.

JB Chemicals' India business is focused on four therapies of cardiac (44 per cent), gastro (30 per cent), antibiotic (10 per cent) and gyanec (5 per cent).JB's strategy is to have deeper penetration in focus therapies vs a broad approach, Jefferies said.

"JB has targeted life cycle management of key brands which make those bigger (six of JBs brands feature in top 300 brands in India), synergistic acquisitions like Azmarda for heart failure and Razel, a lipid lowering drug, and targeted new launches, which improves field force productivity. With this approach, we expect JB's India revenue to witness 13 per cent CAGR to Rs 2,370 crore over FY23-26E, which is 3 per cent ahead of industry growth," Jefferies said.

 

Also read: HDFC AMC shares jump 9% amid block deals; Abrdn Investment Management likely seller

Also read: Timken India shares plunge 11% amid block deals; promoter Timken Singapore likely seller