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JB Chemicals & Pharmaceuticals

JB Chemicals & Pharmaceuticals Ltd (JBCPL)’s Q3FY2011 results have come below our estimates. The adjusted net profit is up 17.6% year on year (YoY) to Rs34.7 crore as against our expectation of Rs39.4 crore. The top line grew by 9.4% during the quarter. The mainstay export business saw a muted 3.8% growth while the domestic formulation business witnessed a growth of 15.4%. The operating profit margin (OPM) remained muted at 19.9% due to an expansion in the field force.
JBCPL remains positive on its contract supply business for lozenges with orders from South Africa, Australia, and UK amongst other geographies. Further its product launch line up for FY2012 (three in Russia) would also boost the growth. We forecast revenues of ~$6 million from the contract research and manufacturing services (CRAMS) business in FY2011 and $8-10 million in FY2012.
We remain optimistic about the export business with an expected compounded annual growth rate (CAGR) of 15% over FY2011-13E and thus maintain our current estimates. We also introduce our FY2013E numbers in this report and expect the company to post an earning per share (EPS) of Rs22.2 in FY2013.
At the current market price of Rs135, the stock trades at a price/earnings (P/E) of 8.8x FY2011E and 7.3x FY2012E earnings. Considering the double-digit growth in the revenue and earnings from its core business, the strong free cash flows and the healthy return ratio (18-20%), we maintain our Buy recommendation on the stock with a price target of Rs174 (9.5x FY2012E earnings). 
( Reco: Buy; CMp Rs: 135, Tgt: Rs. 174)