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ICICI Securities
JB Chemicals & Pharmaceuticals (Buy)
CMP: ₹424.7
Target: ₹550
Surprising positive move by regulator: We view NPPA’s (National Pharmaceuticals Pricing Authority) notification of one-time price increase to the tune of 50 per cent for select 21 NLEM (National List of Essential Medicines) products. It is surprisingly positive for the industry as the regulators have been largely focused on reducing healthcare cost by capping the prices across pharma and hospitals verticals. It also indicates a sense of relief that the regulators are ready to help the industry where necessary. We expect JB Chemicals and Pharmaceuticals to benefit with this announcement as it can potentially raise prices in four metronidazole-based drugs, which currently contribute about 10 per cent of India sales. Any price increase would raise India revenue by 5 per cent and large part of this revenue increase post trade margin would translate directly to PBT.
Outlook: The key positive about the company is that about 43 per cent of its total revenues and >55 per cent of EBITDA comes from domestic formulations We expect 17.5 per cent PAT CAGR over FY19-FY22 led by strong growth in India and 220 bps margin expansion. RoIC would improve from 17.0 per cent in FY19 to 24.9 per cent in FY22E.
Risks: Slowdown in India growth and escalation of ranitidine impurity issue.
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