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Earnings surprises unlikely on elevated expectations

Result Synopsis?

JB Chem reported a solid revenue beat driven by mid-teen growth in organic domestic business and about Rs840mn added from acquired brands. Costs continue to stay elevated and despite that flat gross margin indicate lot of pressure form Azmarda COGS which in turn shows better gross margin of core business – an outcome of the price hikes taken in 2Q. Depreciation included amortization for the acquired brands while ESOP charge stood at Rs180mn. CMO business continues its momentum of 1Q with another Rs1bn revenue quarter leading to better than 15% growth in FY23.

JB Chem continues to report solid numbers excluding acquired brands and with a midteen growth, is executing better than some of the other mid-sized players. We continue with our thesis of growth and margin improvement on back of operating leverage with h1 performance resulting in no need to tweak estimates; continue with our belief of earnings-led return with little scope of rerating unless margin cross 30% next fiscal

Result Highlights

* Solid beat on revenues with 36% YoY growth in revenues vs our estimate of +23% YoY

* Domestic business grew about mid-teens YoY for organic business excluding the acquired brands and ~45% YoY on reported basis; new launches contributed 4.4% to growth

* Sporlac grew by 50% YoY per IQVIA while Azmarda grew 46% YoY clocking Rs100mn revenues in Sep and entering IPM’s top 300 list

* International business sustained momentum at +28% YoY to Rs3.75bn driven by traction across formulations, API (both double digit growth) and CMO +64% YoY to Rs1.1bn

* Gross margin down 230bps YoY to 62.7% vs 65% and flat QoQ implying exAzmarda, gross margin may have improved QoQ

* Excluding Rs170mn of ESOP costs, margin at ~25% vs 24% in 1Q reflecting benefit of operating leverage

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