JB Chemicals and Pharmaceuticals Currency devaluation may put pressure on Russia business; however, maintain BUY on valuation:: IndiaNivesh

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JB Chemicals and Pharmaceuticals
Currency devaluation may put pressure on Russia business;
however, maintain BUY on valuation
JB Chemicals and Pharmaceuticals (JBCL) derives 5-6% of total sales from Russia
market. Given the political turmoil, JBCL has been cautious in getting business from
Russia market, which led to de-growth in sales from this market in past two quarters.
Currency devaluation added further woes to this business. However, given the
volatility in exchange rates, determining the adverse impact would depend on actual
realization, assuming no hedging by JBCL. Assuming Ruble INR rate remaining at
similar levels, FY16E sales may get adversely impacted by 4% and EPS may get
adversely impacted by 3%.
Valuation
The stock has already corrected by 8% in past one month and we believe that CMP
factors the adverse impact fully, assuming Ruble INR rate to remain at similar levels
for next two years. At current market price of Rs201, the stock is trading at 11.2x
FY15E EPS of Rs18 and 9.8x FY16E EPS of Rs21. The capex program is on track,
allaying major concern of investors about usage of cash on books for capex worth
Rs1.4bn. 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. We continue
to value JBCL at 14xFY16 earnings to arrive at target price of Rs295 and maintain
BUY on the stock.