Recommendation From Pharmaceuticals Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.
 

J B CHEMICALS AND PHARMACEUTICALS :  FIT AND FINE

HERE IS WHY
☛Healthy financial performance
☛Good growth prospects
☛Improving return ratio

J B Chemicals and Pharmaceuticals is engaged in the business of manufacturing and marketing of a diverse range of pharmaceutical formulations, herbal remedies and APIs. It exports to several countries worldwide with presence in the US, Europe, Australia, South Africa, other developing countries, Russia and CIS. The company caters to therapeutic segments, including gastro, cardiovascular, antibiotic and pain management. The company’s leading brands Cilacar (calcium channel blocker), Nicardia (calcium channel blocker), Rantac (anti-peptic ulcerant) and Metrogyl (amoebicides) continued to grow during FY20.

For the last several years the domestic formulations industry has seen good growth. This trend would remain intact in the foreseeable future too due to increase in healthcare spending. The chronic disease cases are on a rise, thereby increasing the per capita consumption of drugs. This is further assisted with increase in literacy rate, increase in per capita income, improved healthcare access, increasing market penetration and increasing health awareness. All these factors are expected to continue to create growth opportunities in the foreseeable future.

The management believes that brandbuilding, new product introductions, product awareness programmes and penetration in tier II and III markets will remain growth-enablers. For the company, the domestic formulations business is a focus area and has been consistently growing at better than the industry growth rate over the last several years. Its net sales have shown consistent growth. In FY20 the net sales stood at Rs1,774.73 crore as against Rs1,413 crore in FY18. The company has been able to improve its operating and PAT margins too.

The operating margin for FY20 stood at 24.14 per cent as against 18 per cent in FY18. The PAT margin for FY20 stood at 15.35 per cent as against 9.81 in FY18. The ROCE has improved too from 13.70 per cent in FY18 to 23.69 per cent in FY20. The company had a total debt of around Rs32 crore as of March 2020. The interest coverage ratio for FY20 was 142.27x as against 71.99x in the previous year. This ratio improved due to higher margins on account of favourable product mix and cost optimisation during the year on one hand and relatively lower interest outgo on the other.

The net profit margin improved due to higher margins on account of favourable product mix and cost optimisation. The results of the last few quarters also have seen the same trend. For the quarter ended June 2020, the company’s net sales increased by 17.08 per cent to Rs522.29 crore in Q1FY21 from Rs446.11 crore in Q1FY20. Its operating profit showed an increase of 64.02 per cent to Rs178.11 crore in Q1FY21 from Rs108.59 crore in the same quarter last year. PBIDT margin for Q1FY21 stood at 34.10 per cent as against 24.34 per cent in the same quarter last year.

The company’s net profit for Q1FY21 stood at Rs119.51 crore as against Rs62.11 crore in the same quarter last year, showing an increase of 92.4 per cent. PAT margin for Q1FY21 stood at 22.88 per cent as against 13.92 per cent in the same quarter last year. The company is trading at a PE of 23.02x which is higher than its ten-year median of 15.44x and five-year median of 16.10x. By virtue of these factors, our recommendation to reader-investors is to BUY this stock.