Two years ago, the 45 year old company JB Chemicals and Pharmaceuticals -  which manufactures drugs, APIs (active pharmaceutical ingredients) and carries out manufacturing for other brands under its CMO (Contract Manufacturing Organization) - changed owners. The private equity giant KKR acquired a controlling stake of 54% in JB Chepharm from its promoters in July 2020. After this, KKR appointed a new management team and hired Mr. Nikhil Chopra as CEO to lead the organisation. The senior management team was augmented with professionals from leading pharma companies like Dr Reddy’s, Torrent Pharma and Cipla.

The Q1FY23 results saw the strategy adopted by the new management play out, with the focus on growing the domestic and CMO business. It has also made a couple of acquisitions and is looking to expand through both organic and inorganic opportunities.

During an investor conference call, CEO Nikhil Chopra said, “Our aspiration in domestic market is to make our big brands bigger, focus on both market share and prescription gains for our acquired portfolio and organic portfolio, target focused life cycle management in existing brands and pursue new brand launches.”

Quick Takes

• The domestic business records highest ever sales in a quarter of Rs 418 crore registering YoY growth of 34%
• Net Profit declined YoY by 12% to Rs 105 crores on account of higher treasury income in Q1FY22, acquired brands and finance costs in Q1FY23
• International business recorded robust revenue growth of 28% to Rs 366 crores
• The acquired brands from Sanzyme performed well, with Sporlac gaining market share during the quarter
• Successful transition of the acquired brand Azmarda with healthy monthly revenue traction achieved
• JB acquired four Pediatric brands from Dr Reddy’s for Rs 98 crore in June 2022

Strengthening market leadership in key brands

Revenues increased 30% YoY to Rs 785 crore in Q1FY23. Domestic formulations delivered good growth and crossed a revenue of Rs 400 crore in a quarter, which was an all-time high for the India business. Its approach on improving productivity of field teams is yielding results, along with a focus on driving chronic business. With new product launches in adjacent therapies, the existing brands have gained market share in respective segments.

Key brands like Metrogyl, Cilacar-T, and Nicardia have each further improved their rankings within the Top 300. The management also said that its prescription base increased to 4.09 crore in Q1FY23 from 2.6 crore in Q1FY22, a YoY growth of 57%.

The YoY revenue growth of 30% consisted of 20% organic growth, and the rest through the new acquisitions made last quarter and this quarter. The depreciation in rupee vis-a-vis dollar also aided the growth in revenues.

The gross margin for Q1 was 63% compared to 64% in the previous year. Excluding Azmarda, gross margins for the business were relatively flat. The management attributes this to the impact of inflationary pressure in input costs and packing material costs, though these have been optimized through a slew of cost management and pricing initiatives. 

The management also said that they are witnessing softening in certain packing material costs like aluminum and on international freight costs. But given the continued volatility that they see on the geopolitical and the economic front globally, they are taking a cautious approach and  continue to monitor the situation, particularly for  fuel supplies and API prices.

Acquisitions add to a broad based portfolio across therapies

Part of the new strategy for JB Chem after the ownership shift, is acquiring brands as a growth strategy. The acquired product portfolio from Sanzyme has performed well, while Sporlac, a leading brand in Sanzyme, saw market share gains. 

Azmarda represents an extension of its portfolio in the cardiology segment. Heart failure is a relatively new sub-segment and vastly underserved. The management said that they are presently in investment mode for Azmarda and are witnessing good results month-on-month. The augmented on ground teams are geared up with an end-to-end portfolio from hypertension to the prevention of heart failure. 

In keeping with the strategy to be present in high potential categories, JB Chem also completed the acquisition of four pediatric brands from Dr Reddy’s for Rs 98 crore. This acquisition will provide JB Chem a comprehensive portfolio with well-known brands to cater  to pediatrics as a specialty.  

International business recorded robust revenue growth of 28% YoY to Rs 366 crores in Q1FY23. Exports formulations, CMO and API business recorded growth of 11%, 108% and 17% respectively. 

The South Africa unit registered growth in both public and private markets along with robust tender demand and new launches in the private market. Local sales in Russia remained steady despite the recent political upheaval, with  positive receivables from the region.

CMO revenue crossed Rs 100 crores for the first time in a quarter due to strong surge on account of demand in lozenges and liquids from key partners.

JB Chem’s top four brands Cilacar (calcium channel blocker), Rantac (anti-peptic ulcerant), Nicardia (calcium channel blocker) and Metrogyl (antibiotic) contribute to about 75% to the total revenue. All these brands are old and the company has a first mover advantage towards Cilacar and Nicardia. It has 50% market share in Cilnidipine molecule through Cilacar franchise and 85% market share in Nifedipine molecule through Nicardia franchise, in India.

Top three out of these four brands - Rantac, Metrogyl & Nicardia are under price control and they are strongly entrenched in the market. New management has accelerated growth with introduction of new line extensions across its legacy brands.

JB Chempharm has a larger presence in Metros and Tier-1 cities. Currently the focus is on Tier 2-3 towns in order to enhance penetration of the prescriber base. The company services 300k healthcare practitioners across the country. It has realigned its Go-To-Market model, backed with lifecycle management along with brand line extensions, which has resulted in market-beating performance of these brands.

Management guides for an EBITDA in the mid twenties for FY23

The management guided for FY23 while defining the focus areas of each of the business segments. Domestic business is expected to consistently outperform market growth driven by big brands becoming much bigger. Market share and prescription gains in the acquired portfolio of probiotics, heart-failure and paediatric segments to aid growth.

Growth momentum in international business is expected to be driven by strong delivery in CMO business aided by new launches. Rising contribution to private and tender business in South Africa and a demand revival in specific ROW markets.

A thrust on cost optimization initiatives to deliver EBITDA margins in mid-twenties, despite inflationary pressure and external market uncertainties. With the change in management and reflection of their strategy in the Q1FY23 results, JB Chempharm is emerging as a favourable investment in the mid cap pharma space.