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A bottom up investor primarily focused on small and mid caps listed on Indian stock markets. Following a growth at a reasonable price philosophy.

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JB Chemicals: Business Analysis

J.B. Chemicals and Pharmaceuticals Limited (JBCPL), established in 1976, is one of the fastest growing pharmaceutical companies in India and a leading player in the hypertension segment. The company has a strong presence in India while Russia and South Africa are the other key markets for the company.


J.B. Chemicals and Pharmaceuticals Limited (JBCPL), established in 1976, is one of the fastest growing pharmaceutical companies in India and a leading player in the hypertension segment. The company has a strong presence in India while Russia and South Africa are the other key markets for the company.

In India, the company has five brands among the top 300 IPM brands in the country. The company exports its finished formulations to over 40 countries including the USA. Besides supplying branded generic formulations to several countries, it is also a leader in the manufacturing of medicated lozenges. The company ranks among the top 5 manufacturers globally in medicated and herbal lozenges. It has seven state-of-the-art manufacturing facilities in India including a dedicated manufacturing facility for lozenges. The manufacturing facilities are certified by leading regulators across the world.

Besides having a strong presence in formulations through its legacy products, JBCPL also has a strong presence in contrast media in India selling a range of contrast media products such as X-Ray, MRI etc. It has a distribution network of 100+ distributors and 20 C&Fs across India. 

During 2020, private equity firm KKR acquired the majority stake in the company and is currently classified as the promoter with 54% stake in the company.

Therapeutic Areas

The major therapeutic areas for JBCPL include gastroenterology, hypertension, and dermatology. The company has also entered newer therapeutic categories like nephrology, respiratory, virology, diabetes, and NRT.

Gastroenterology - It is one of the five largest therapeutic categories in the Indian pharmaceutical industry. JBCPL is one of the pioneers in this segment and has a diverse and comprehensive portfolio which includes proton pump inhibitors, prokinetics, antacids, laxatives and molecules for hepatobiliary disorders in various dosage forms.

Anti-Infectives – The company offers a range of anti-infectives in various formulations viz, topical, oral, injectables, and in various segments: antiparasitic, anti-bacterial and anti-viral.

Wound Care - Offering includes molecules as anti-infectives, pain management drugs, and proteolytic enzymes for comprehensive wound care. Cadexomer iodine is one of the leading products of the company in this segment which aids healing in a range of acute and chronic wounds.

Gynecology – The company offers multivitamins, pain-alleviating molecules, iron supplements, anti-infectives and supplements for bone health.

Hypertension – JBCPL offers a wide range of anti-hypertensive products alongside with kidney care. The company is the leader in the Calcium Channel Blockers (CCB) segment, with its brand Cilacar being the #1 CCB brand in the Indian market. The brand Nicardia is the go-to brand for resistant blood pressure management. It also offers β-Blockers, Fixed Dose Combinations (FDCs) of CCB and Angiotensin Receptor Blockers, FDCs of CCB and Diuretics, Statins, Anti-platelets etc.

Medicated Lozenges – The company is the 3rd largest manufacturer of medicated lozenges in the world and offers lozenges in myriad shapes, flavors and forms in both medicated and herbal forms. It produces hard-candy lozenges, soft-center lozenges and powder-filled lozenges for varied medical needs.

Diabetes – JBCPL has a comprehensive product portfolio including Dipeptidyl peptidase-4 (DPP-4) inhibitor, FDCs of DPP-4 inhibitor + Metformin & Sodium-glucose Co-transporter-2 (SGLT2) inhibitor, and FDCs of SGLT2 inhibitor + Metformin.

International Presence

Russia – The company entered the Russian market in 1994. Its presence spans across therapeutic areas such as Gastroenterology, Pulmonology, Gynecology etc. It developed brands like brands like Doktor Mom and Rinza which were sold later to J&J. Currently, it is focusing on prescription dugs and expanding product portfolio.

South Africa – JBCPL entered the South African market in 2007 via a strategic investment in Biotech Laboratories Ltd. Today the company is a subsidiary of JBCPL and has prescription, OTC, and veterinary products under its offerings. The company is focusing on addition of more branded generic products in the existing portfolio through portfolio augmentation.

US and RoW – JBCPL has a presence in 40+ regulated and semi regulated markets across the world. Its US business is currently focusing on delayed release OSD form. It has several ANDAs approved in the USA which are sold through marketing partners.

Key Brands

Cilacar, Rantac, Metrogyl and Nicardia are the key brands of JBCPL which account for more than 85% of the domestic formulations sale of the company.

Brand

Rank in IPM

Therapy

Segment

Market Share

Sales Value (in Cr)

Rantac

45

Gastro

Anti pepticulcerant

41%

289

Cilacar

52

Cardio

CCB

51%

273

Metrogyl

194

Gastro

Amoebicide

79%

128

Cilacar-T

203

Cardio

CCB

38%

126

Nicardia

240

Cardio

CCB

89%

116

Other Segments

Contract Manufacturing - JBCPL is amongst the top 5 contract manufacturers of lozenges globally. It has been manufacturing lozenges for over 2 decades and exports state-of-the-art lozenges to 30 countries for leading MNCs. The company's lozenges plant in Daman is fully automated, with state-of-the-art machines from Germany, GMP compliant and has EU (Hungary), TGA (Australia), and MCC (South Africa) accreditations. JBCPL is currently focused on building capabilities beyond the cough & cold segment to wellness and immunity segments. Contract manufacturing contributed to 10% of JBCPL's sales in FY22. 

API - JBCPL is one of India’s largest manufacturers of Diclofenac Sodium and supplies to leading global research-based and generic pharmaceutical companies. Its API manufacturing facility confirms to USFDA specifications and it is EU GMP approved facility as well for Diclofenac Sodium, Nifedipine, and Atenolol. JBCPL has product registrations in over 80 countries. Its contribution to sales was 4% as of FY22. 

Contrast Media - JBCPL is 2nd largest contrast media manufacturer in India with more than 3 decades of experience in manufacturing contrast media products. The company offers a complete range of contrast media products including X-Ray, MRI, and Ultrasound in India as well as internationally. 

Growth Drivers

 

i)                 Increasing contribution of chronic therapies – The company is focusing on increasing the contribution of chronic therapies in comparison to acute therapies. It has expanded presence in prevention/management of Heart Failure, Diabetes & Nephrology by launching several products in last few years. The share of chronic therapies has increased from 40% in FY18 to 50% in FY22. Post the acquisition of Azmarda, the share of chronic therapies will be ~54%.

ii)               New Product Launches – The company is focusing on new product launches to diversify revenue base. During FY22, it launched 17 new products in comparison to 5 new launches in FY21. The contribution of new launches in total sales increased from 1.4% in FY21 to 4% in FY22. Some of the new launches in FY22 include Nintabid (Respiratory), DAPACOSE – M (Diabetes), JBTOR (Diuretics/CKD/CHF) and Metrogyl-O (Antibiotic).

iii)             Acquisition of Brands – In order to diversify across different therapeutic areas, JBCPL has acquired:

a)     Brands across probiotics portfolio and reproductive health segment of Sanzyme – In Jan 2022, JBCPL acquired a range of probiotic, therapeutic nutraceutical and reproductive health products brands such as Sporlac, Lobun, Oxalo, Pubergen, Nano-Leo and Gynogen for a consideration of 628 crores. The acquisition offers potential for revenue synergies through geographic and distribution expansion, along with prescriber overlaps.

b)     Acquisition of Azmarda brand from Novartis – JBCPL has acquired Azmarda brand from Novartis for 246 crores. Azmarda is a brand indicated for heart failure patients with reduced ejection fraction. Azmarda is in the top 300 IPM brands. Complementary to JBCPL’s Cardiac portfolio, Azmarda expands the company’s presence from Hypertension to Heart Failure management.

iv)             Contract Manufacturing (CMO) - CMO business is a priority area for the company with focus on ROCE and good operating margins. It is looking to leverage its dominant position in Lozenges along with experience of working with global MNCs to drive future growth. Deeper penetration with existing customers and new opportunities in more geographies will drive growth in this vertical.

Strategic Priorities in Domestic Business

 

Current Position

Target

IPM Position

Ranking 25th in IPM

Ranked in IPM Top 20 companies

Contribution from Chronic Therapies

50% of Domestic sales

60% of Domestic sales

Portfolio of Top Brands

5 brands in top 300 IPM

8 to 10 brands in Top 300, across 5 therapies

New Launches

17 products launched in FY22

10-12 launches annually

Prescriber Relationships

Enhanced ~2,000+ Rxbers across specialties i.e., Cardio, Diabeto, Chest Physicians, Pedia etc

Specialist relationships e.g. Cardiologist / Nephrologist

Productivity

Incremental productivity of INR 1.2L achieved

Annual productivity growth of ~12-14% from current levels

 

Manufacturing Facilities

Location Product Capacity
Panoli, Gujarat Tablets & Capsules/IV InfusionsLiquids/Topicals 3bn/20mn/60mn/100mn
Panoli, Gujarat Ampoules & Vials/IV Infusions/Tablets 52mn/60mn/2bn
Panoli, Gujarat Bulk Drugs 550mt
Ankleshwar, Gujarat Tablets/Liquids 1.4bn/11mn
Kadaiya, Daman Lozenges/Tablets/Sachets 1.4bn/1.2mn/50mn

Financials

JBCPL has consistently delivered superior financial performance with sales growing at a CAGR of 12%/13% for the last 10/5 years. During the same period its PAT has grown at a CAGR of 18%/19% respectively. During this period the company has consistently delivered double digit ROCE and ROEs. 

The company has historically delivered good cash conversion with near 100% PAT to CFO conversion in most of the year. However, the conversion ratio has deteriorated in the last 2 years with CFO/PAT falling to as low as 44% in FY22. This was mainly driven by increase in receivable days which led to cash being stuck in working capital. 

Receivable Days 72 78 68 71 70 84

JBCPL's receivable days has usually been in the range of 70 days however it increased to 84 days in FY22 leading to poor cash flow conversion. Its inventory days has consistently deteriorated with current number standing at 178 days as of FY22 which used to be in 130-140 days range till FY18.

The company took long term borrowings for the first time in last 10 years due to acqusitions. As of Sept-22, it had total borrowings of ~350cr and debt/equity ratio of 0.16x. 

Valuation

JBCPL has run up 15% in last 1 year and its multiple has rerated sharply. As against a 5 year median P/E multiple of ~25, the stock is currently trading at 39x its TTM earnings. This is clearly not a point where one would like to initiate a position at but owing to its superior performance the company deserves some bit of the premium multiple it gets.

 

Disclosure:

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure:

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Stocx Research Club). I have no business relationship with any company whose stock is mentioned in this article.

Disclosure legality:

I am not a SEBI Registered individual/entity and the above research article is only for educational purpose and is never intended as trading/investment advice.

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