Azmarda's Growth And CDMO Expansion Will Fuel Strong Revenue And Margin Growth

Key Takeaways

• Strong cardiology market growth and strategic product positions signal potential revenue boosts and improved market standing.
  
• Expansion in CDMO and geographic reach could enhance earnings, backed by cost optimization and high-margin product strategies.
  
• Persistent material availability issues and moderate international growth may lead to inconsistent revenue, while forex fluctuations and cost dynamics threaten profitability and net margins.

Catalysts

Manufactures and markets pharmaceutical formulations, herbal remedies, and active pharmaceutical ingredients (API) in India and internationally.

• The strong potential growth in the cardiology market, with J. B. Pharma jumping from the 15th to the 8th rank within three years, backed by products like Azmarda and Razel, indicates a likely improvement in future revenue from this segment.
  
• The forecasted 15% to 20% CAGR growth for the sacubitril/valsartan market, into which Azmarda fits, sets a path for increasing top-line revenues in the next 5 years.
  
• Expansion and improvement in the CDMO business, with a plan to grow it from $50 million to $100 million in 3 to 5 years, suggest future uptrends in revenue and possibly EBITDA as these units ramp up.
  
• Ongoing cost optimization and a focus on maintaining margins in the 26% to 28% range highlight potential future improvements in net margins, especially as new high-margin products and geographies contribute.
  
• Planned new launches and geographic expansions in the CDMO and international markets, like entering new markets with new drug delivery systems, could bolster overall earnings growth in medium to long-term projections.

J. B. Chemicals & Pharmaceuticals Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming J. B. Chemicals & Pharmaceuticals's revenue will grow by 13.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.5% today to 20.3% in 3 years time.
• Analysts expect earnings to reach ₹11.1 billion (and earnings per share of ₹63.93) by about January 2028, up from ₹6.1 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 48.1x on those 2028 earnings, up from 43.8x today. This future PE is greater than the current PE for the IN Pharmaceuticals industry at 29.7x.
• Analysts expect the number of shares outstanding to grow by 3.58% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.15%, as per the Simply Wall St company report.

J. B. Chemicals & Pharmaceuticals Future Earnings Per Share Growth

Risks

• The CDMO business faced challenges in the first half of the fiscal year due to material availability issues, which could lead to inconsistent revenue generation if similar issues persist. (Impacts revenue and earnings)
  
• The international business experienced a moderate growth rate of only 3% year-on-year, with certain markets like South Africa recently recovering from tender rationalization, indicating potential volatility in international revenues. (Impacts revenue)
  
• The company's operating cash flow decreased from ₹421 crores in H1 FY '24 to ₹380 crores in H1 FY '25, which may reflect inefficiencies or challenges in cash management or increased costs. (Impacts net margins and earnings)
  
• Despite maintaining a guidance of 26% to 28% for operating margins, fluctuations in forex rates, particularly the depreciation of the ruble, and cost dynamics could impact profitability if not managed effectively. (Impacts net margins)
  
• The future growth potential of acquired brands like Azmarda, projected at a 15% to 20% growth rate, relies heavily on market dynamics and disease diagnosis rates, which may pose risks if these trends do not materialize as expected. (Impacts revenue)

Valuation

• The analysts have a consensus price target of ₹2193.69 for J. B. Chemicals & Pharmaceuticals based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹2479.0, and the most bearish reporting a price target of just ₹1686.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹54.6 billion, earnings will come to ₹11.1 billion, and it would be trading on a PE ratio of 48.1x, assuming you use a discount rate of 12.2%.
• Given the current share price of ₹1719.55, the analyst's price target of ₹2193.69 is 21.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.