JB Chemicals (JBC), a mid-sized pharmaceutical company, had sold off its OTC business in Russia/CIS last year for ~Rs.1,155 crore. It is one of few companies to share the cash proceeds with the shareholders which boasts of a good management -it gave out a hefty special dividend of Rs.40/share to shareholders from the proceeds of this sale;
Post the sale of Russian OTC business, JBC is now focusing on domestic formulations and has taken various initiatives to bring down its high cost structure of the residual Russian prescription business and expand the domestic pharma business;
The latest quarterly results of JB Chemicals indicate progress made by the company in improving the margins as well as in expanding the business:
–The company’s net revenue grew by 32% YoY to Rs212 crore adjusting to other operating income in Q2 FY2013;
–PBIT came at Rs25.7 crore as compared to Rs.40.7 crore during Q2FY2013. This is very impressive considering that the company registered Other Operating Income (OOI) of Rs.5.12 crore in Q2FY2013 as compared Rs.32.9 crore in Q2FY2012. If we adjust for the variation in OOI, the PBIT has grown by 87% YoY;
–Net profit was Rs.39 crore during Q2FY2013 – quarterly EPS is alone Rs.4.6;
The company has net cash of Rs.469 crore (cash & current investments of Rs.515 crore minus debt of Rs.46 crore), which is 2.95 times its Net Enterprise Value of Rs.159 crore (Current market Cap of Rs.628 crore less net cash of Rs.469). Its book value is at Rs.997 crore as of September 2012, which is Rs.117.7 per share or 1.6 times the current market price;
Considering current margin and growth, the company can achieve Rs.12 EPS in FY2014, implying a P/E of 6x at current market price. Further, its has cash and equivalents of Rs.55 per share which is 74% of current stock price. The stock can easily double in a year’s time. We therefore recommend Buy on the stock with a fair value of Rs.96 at 8x FY2014E EPS;
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