Stocks to buy: JB Chemicals | A strong quarter and India businesses' ongoing development

Considering the margin constraints that peers were experiencing, JB Pharma had a great quarter, with its overall revenue and operational EBITDA (ex-ESOP) expanding 36% and 31% YoY in 2Q, respectively. While overall revenue growth exceeded our expectations by 7% (driven by continued growth in high-margin India and CMO businesses), operational EBITDA margins increased by 80 basis points (bps) from quarter to quarter to 25%, resulting in an 8% beat at the EBITDA level. The company's ability to sustain and increase margins in the current inflationary environment is impressive, thanks in large part to its initiatives for cost reduction and productivity growth.

Regarding the acquired brands, JB revealed that:

a) Sporlac still holds the top spot in the covered market

b) Azmarda has moved up to the top 300 brands in IPM, with monthly sales currently approaching the Rs100 million level (vs. Rs60-70mn at the time of acquisition). JB's overall prescriptions in India increased by 55% YoY in the second quarter, driven by a 13% increase in prescribers and a notable rise in prescriptions per doctor. JB's goal of promoting volume-led growth in the India portfolio is supported by the fact that JB currently holds the 15th position in the IPM in terms of prescription volumes compared to its value rank of 23.

The CMO business, which grew 10% QoQ (64% YoY) versus management's guidance of sequential moderation in the CMO business, was the main driver of the beat in the exports business' growth, which was strong at 28% YoY. For the second consecutive quarter, CMO business recorded quarterly revenues of Rs1 billion or more. API sales and export formulations both experienced strong double-digit growth of 17% and 10% YoY, respectively.

Domestic business

 
Organic growth in Q1FY23 was in the mid-teens, and key brands like Cilacar, Metrogyl, Nicardia, Rantac, and Cilacar T had strong momentum. Cilacar is expanding by 14–16%, Metrogyl by 12–14%, and more niche brands like Bizfer XT are also reporting strong expansion. The business plans to add a few cardiac items.

Sanzyme:

•  In Q1 Sporlac increased its market share (clocking between Rs 55 and 60 million per month). In general, there is more of a need for probiotics in the first part of the year.
• With sales of Rs70-80 million per month, Azmarda is doing well and serving the estimated 11–12 million domestic heart failure patients. Although it now has negative EBITDA, it is anticipated to achieve business level EBITDA margins after the patent expires in January 23.

Azmarda:

• With sales of Rs70-80 million per month, Azmarda is doing well and serving the estimated 11–12 million domestic heart failure patients. Although it now has negative EBITDA, it is anticipated to improve once the patent expires in January 23 and reach company-level EBITDA margins.