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Nirmal Bang Report
JB Chemicals’ (JB Chem) 4QFY23 performance was in-line with NBIE estimates on the operational front, although they missed on the profitability front due to higher-than expected financial cost and amortization related to the acquired brands. Revenue grew by 22.1% YoY to Rs7.6bn on the back of consolidation of inorganic opportunities in India besides robust growth in export formulations and the CMO segment. India Formulations segment grew by 29.3% YoY to Rs3.8bn (NBIE est: Rs4.0bn); organic growth was in low double digit in 4QFY23 and mid-teen in FY23. The CMO segment continued to deliver strong performance, growing by 17.6% YoY, mainly driven by strong demand from customers and new launches. EBITDA margin improved by 146bps YoY to 21.5% on the back of cost optimization initiatives and improved productivity.
The company has raised its EBITDA margin guidance (ex-ESOPs) from 24-26% to 25-27%. Net profit grew by 3.3% YoY to Rs876mn in 4QFY23. India+CMO contributed ~65% to overall sales in FY23. The management expects the domestic business to continue to outpace industry growth by 300-400bps and the CMO business to grow in low to mid-teens in FY24. JB Chem remains our preferred pick, mainly underpinned by aggressive growth focus in the domestic market, high return ratios, lean B/S and healthy FCF despite acquisitions. In the domestic market, the company continuous to outpace industry growth with life cycle management of legacy brands and new launches.
Also, strong performance from inorganic opportunities is boosting overall domestic growth. Growth in margin-accretive CMO business is also expected to remain strong on the back of geographical expansion, entry into new Chronic segments and addition of new clients. We maintain a BUY recommendation on JB Chem with a revised target price (TP) of Rs2,461, valuing it at 18x FY25E EV/EBITDA.
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