Domestic formulation and CMO business continue to accelerate growth

Result Highlights

JB Chemicals and Pharmaceuticals Ltd. reported revenue growth of 14.2% YoY / up 17.6% QoQ to Rs. 8,962 mn and was above market expectations of Rs. 8,730 mn. The domestic formulation business reported robust double-digit growth of 17.0% YoY and continued its growth trajectory through strong momentum in the chronic portfolio and acquired brands. The international Formulation Business saw healthy gains amidst a challenging business environment and clocked 12.2% annual growth during the quarter. The CDMO business continues to perform well and recorded sales of Rs. 1,190 mn in Q1FY24 and grew at 19.0% YoY. Further, the company outpaced the IPM growth by growing 12.5% YoY vs IPM growth of 8.5% in Q1FY24 as per IQVIA. The outperformance was mainly driven by six major brands gaining ranks: Rantac gained 6 ranks to stand at No.35; Cilacar gained 9 ranks to Rank No.40; Metrogyl gained 20 ranks to Rank at No.145; Nicardia gained 58 ranks to rank at No.162; Cilacar-T combination of Cilnidipine and Telmisartan gained 12 ranks to No.178 and Azmarda now rank at No.270. EBITDA increased 34.4% YoY / up 41.8% QoQ to Rs. 2,321 mn, while EBITDA margin stood at 25.9% (up 389bps YoY / up 443bps QoQ) in Q1FY24, led by an expansion in gross margins by 272bps YoY to 65.4%. Profit after Tax stood at Rs. 1,423 mn (up 35.3% YoY / up 62.4% QoQ) in Q1FY24, while the PAT margin rose to 15.9% versus 11.5% in the previous quarter.

Key Concall Highlights

• Domestic Business Outlook: Domestic Formulation Business recorded healthy annual revenue growth during the quarter due to impressive growth in the acquired and chronic portfolio, where most of these brands have been completed annually as a part of the JB portfolio.
• Chronic Portfolio: On the Chronic side, JB chemicals continue to outpace the chronic IPM by a wide margin. The big brands, especially in the Chronic segment, continue to outpace the market and have reached new milestones. We expect the company to strengthen its chronic footprint going ahead.
• Azmarda Brand: Among the brands the company acquired, Azmarda has emerged among the top 300 brands in IPM as per IQVIA MAT June 2023, and now ranks at the No. 270 as per IQVIA MAT March data. Azmarda has seen a ramp-up in volume and enjoyed an 18% market share during the quarter. Further, JB Chemicals expect the brand to grow sharply over the next 2-3 years.
• Prescriptions: JB Chemicals grew at a market-beating pace on the basis of prescriptions. Total
• prescriptions for JB grew at 12% as per MAT Jun’23 vs MAT Jun’22. Rantac and Metrogyl are among the Top 10 most prescribed brands in the IPM. 
• MR Productivity: There are currently seven focused therapy divisions with a total strength of more than 2,000 MR working for JB Chemicals. Its MR productivity has improved tomonthly revenue of Rs 6.2 lakhs/MR as of Q1FY24 and planning to improve further to Rs 7 lakhs/MR.
• CMO Business: The CMO business, along with the domestic formulation business, accounts for 68% of total sales in Q1FY24. The increasing acceptance and continued demand for lozenges was the key driver for this gain. The company has introduced several products in industrial markets in lozenges with marquee partners and look to add new therapies and geographies to expand growth visibility in the coming years.

Valuation and Outlook:

JB Chemicals and Pharmaceuticals continued to record healthy revenue growth in Q1FY24, aided by growth in the domestic formulation business (~55% of sales) due to significant demand acceleration in the acquired portfolio and chronic brands, despite the weak acute season. The international formulation business saw healthy gains amidst a challenging business environment and clocked mid-teens growth for the quarter. CDMO business scaled further during the quarter and the healthy momentum continues. Further, JB Chemicals continues to witness increased interest from existing and new clients in the CMO business, especially in the lozenges segment. Overall, we expect JB Chemicals to continue its growth momentum, driven by the geographical expansion of legacy brands, scale-up in Sanzyme, Azmarda, and Razel franchises, improvement in MR productivity, scaling up of contract manufacturing business, and new product launches across markets which would gain traction in the coming year.