J.B. Chemicals & Pharmaceuticals Ltd. (JBCL)| Q2FY15 First Cut Analysis | Domestic formulation drive earnings for the quarter :: IndiaNivesh

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Sales up 11%y-y, while adjusted PAT down 2% y-y for the quarter: Sales at Rs2.7bn
grew by 11%y-y, driven by strong growth in domestic formulation. Despite additional
sales of products in Russia-CIS countries, which was absent in 2Q FY14, exports
formulation grew at muted rate of 8% y-y for the quarter. However, ROW market
posted healthy growth of 32% y-y to Rs983mn for the quarter. API sales grew at
moderate rate of 5% to Rs285mn for the quarter. Despite gross margin declining by
274 bps y-y to 59%, EBITDA margin improved by 106bps y-y to 19.1%. This is mainly
due to flat other expenditure on y-y basis for the quarter. Other expenditure as
percentage of sales reduced from 30% in 2Q FY14 to 27% for the quarter. However,
depreciation increased by 34% y-y to Rs100mn for the quarter, due to change in
law. Other income declined by 16% y-y to Rs106mn. All these factors led to 2% y-y
decline in adjusted PAT to Rs400mn. JBCP had forex loss of Rs81mn for the quarter,
resulting in 4%y-y decrease in reported PAT to Rs319mn.
Valuation: At current market price of Rs229, the stock is trading at 12.4x FY15E EPS
of Rs18 and 10.9x FY16E EPS of Rs21. JBCP has allayed investor concerns of cash on
books by using it for capital expenditure. JBCP has envisaged capex of Rs1.4bn to
be spent in next 12-18 months. As per the press release, this capex is progressing as
per schedule. We expect sales as well as profitability to grow at higher rate once,
this project is commissioned, which could be the trigger for re-rating of JBCP. The
political turmoil has adversely impacted business in Russia and Ukraine. We may
review our estimates and price target, post management interaction, to factor
adverse impact on business due to political tension in Russia/Ukraine and any
incremental business from new project. Currently, we have BUY rating on stock
with price target of Rs295, based on 14x FY16 earnings.

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