JB CHEMICALS -- value buy

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Notes from JB Chemicals AR for FY 21-22 -

  1. JBC was the fastest growing Pharma company among top 30 companies in the Indian Pharma market in FY 21-22. Company has 07 manufacturing facilities in India. 05 of its power brands feature in India’s top 300 brands. These are -

Rantac ( to treat heartburn, indigestion ), Rank- 45
Cilacar ( to treat high BP ), Rank- 52
Cilacar-T ( to treat high BP ), Rank - 203
Metrogyl ( to treat bacterial infections ), Rank- 194
Nicardia ( to treat high BP ), Rank - 240

  1. Key growth initiatives during the year -
    (a) New go to market model focusing on increasing MR productivity and renewed focus on domestic business
    (b) Increased focus on chronic segments. Acquired Azmarda ( Scaubitril + Valsartan ) from Novartis - used to treat heart failure, a fast growing category.
    (c) Launched 15 products in domestic market. Contribution from new launches stands at 4pc, up from 1.4 pc last yr.
    (d) Acquired 06 brands from Sanzyme. These are -

Sporlac ( probiotic used to treat gas and diarrhoea )
Lobun ( prebiotic used to treat chronic kidney disease)
Oxalo ( probiotic to treat constipation, diarrhoea )
Nano-Leo ( capsules to improve male sexual health )
Pubergen ( Injectable hormone to support pregnancy )
Gynogen ( Injection to treat infertility )

(e) Beyond India, SA and Russia are company’s strong markets. JBC was the fastest growing company in SA last yr. Company is ranked 15 in SA. Russian demand remains stable despite geo-political headwinds.
(f) In US, company to focus on low volume, high value products with own APIs as backward integration.
(g) Company’s CMO business, specially Lozenges represents an area of excellence with company being among top 5 companies globally. Aims to maintain the same. Also aims to focus on immunity based products here, beyond cold and cough products to improve growth rates.

  1. Last 5 yr data -

Sales - 1413, 1643, 1775, 2043, 2424 cr
EBITDA - 217, 305,378, 560,543 cr
EBITDA margins - 15pc, 19pc, 21pc, 27pc, 22pc

Disc: invested, biased

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Q1results. Robust growth across all segments.

Disc: invested, biased.

PAT is down 12% YoY what is robust about the results? :slight_smile:

PAT is down because of ESOP cost and higher amortisation costs due to the acquisitions made by the company last year.

On the operating front, the business is showing very good momentum with robust sales and EBITDA ( adjusted for ESOP) growth.

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If you remove whatever costs that go up you will obviously create an imaginary EBITDA which will always grow.

ESOP cost is part of employee cost. If the high profile employees did not get ESOP they would not have joined the company and they would not have put the effort to grow sales in the first place.

If you did not acquire companies the growth would have been lower. If you remove the amortization then you should remove the acquired companies sales contribution also.

Most experienced investors will see through this, but this is highly misleading to newbies!

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Amortisation is not like Depreciation. Hard assets are depreciated over their useful life time. Post that the value of asset becomes zero. And rightly so.

In case of Amortisation, the value of acquired asset… instead of depreciating, actually appreciates over its life time.

So when amortisation is charged from P&L account, the company gets a tax break and the value of acquired asset or brands keeps growing. So, its a win win for the company.

On ESOP, I believe it would be charged only for Q1. So from Q2 onwards, the company should get the full benefit of operating leverage on the increased sales.

Regards,
Ranvir Dehal

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This sounds like a catastrophic news for domestic branded generic players. Requesting views from senior Valuepickrs…

Regards,
Ranvir Dehal

This is proposed many times in the past, but not implemented. This time also it may be the same case. I pesonally dont think such a thing will be possible in near future. I may be wrong.

Drs have first hand information on how effective the medicine was on the patient. So they have a choice and knowledge of knowing which brand works better. Secondly, if generic name is prescribed the patient will be at the mercy of chemist on what is to be given to patient. Which may not be right. So in my view, it may not happen in near future.

Pharma companies promote their product through Drs using various means like gifting, education, training, event sponsorship, etc. They will resort to same policy with chemist, so if the intent is to eradicate this practice, the objective will not be met.

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