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Ascending the value chain

* Greek philosopher Aristotle once said, “The secret to business is to know something that nobody else knows.” Blue Jet Healthcare (BLUEJET) is on the path to building a legacy business in line with this philosophy. With its niche product offerings in Contrast Media and Pharmaceutical Intermediaries & API, BLUEJET has been changing the way the healthcare industry caters to the therapeutic needs of patients around the globe. The company has established itself as a reliable supplier to its customers for the past three decades and is now working toward moving up the value chain by significantly increasing its investment in R&D.

* Known for its advanced R&D capabilities, backward integration, and focus on complex chemistries, BLUEJET is at the forefront of delivering high-value solutions in regulated and emerging markets. The company’s focus on innovation, quality, and sustainability has positioned it as a key enabler in high-growth therapeutic areas such as cardiovascular, oncology, Central Nervous System (CNS), and diagnostic imaging.

* BLUEJET delivered a muted CAGR of 7%/2%/4% in revenue/EBITDA/PAT during FY20-24, as it did not launch new products during this period. Now, with existing products ramping up and new product launches in sight, we expect BLUEJET to post a CAGR of ~27%/24%/19% in revenues/ EBITDA/ PAT over FY25-27E, with a sharp uptick to be seen in the pharma Intermediaries segment. We expect an average EBITDAM of 35.1% during FY25-27E.

* We expect FCF generation of INR3.6b during FY25-27E, with cumulative capex of INR5b. The stock is trading at a P/E of ~28x on FY27E EPS of INR24.7 and FY27E EV/ EBITDA of ~20x. We initiate coverage with a BUY rating on the stock with a target price of INR865, valuing the company at a P/E of 35x on FY27E EPS of INR24.7.

Contrast media intermediates

* The global contrast-media formulations market was valued at USD5.9b (INR443b) in MAT Jul’23, growing at 7-8% CAGR. The market was dominated by iodinated agents with a 74% share, followed by gadolinium-based agents at 24% and microbubble agents at 2%. The top four players, mainly multinational companies (MNCs), controlled 75% of the market in CY24, with the leader holding 27%.

* Global population growth, aging demographics, and rising lifestyle diseases will boost healthcare demand, supported by diagnostic advancements and wellness focus. BLUEJET, with over 20 years of experience, dominates India’s 5-amino-N, N’-bis (2, 3-dihydroxypropyl) isophthalamide hydrochloride (ABA HCL) exports and supplies key intermediates for iodinated contrast media.

* BLUEJET is expanding its margin and reducing supply chain risks by backward integrating to produce 3-Amino-1,2-propanediol (APD). With strong ties to GE Healthcare and a growing footprint in gadolinium contrast media, the company aims for sustainable growth, projecting a 36% contribution from the segment by FY27

Pharma intermediaries and API

* BLUEJET partners with pharma companies to supply intermediates for APIs in chronic therapeutic areas, focusing on high-margin new chemical entities (NCE) projects. It targets the USD6-7b formulation and USD2-3b API markets across regulated and emerging markets.

* India is becoming a key outsourcing hub for global innovators, with initiatives like production-linked incentives and bulk drug parks reducing reliance on China. BLUEJET serves over 40 customers in India and 16 globally, leveraging its focus on quality, research, and chemistry expertise, along with strong relationships with innovators to secure contracts.

* BLUEJET is focusing on advanced intermediates for NCEs in USFDA trials, specializing in oncology, Cardiovascular System (CVS), and CNS. Its pharma intermediaries segment posted a 31% CAGR during FY21-24 and is expected to continue expanding at a 41% CAGR through FY25-27E.

High intensity sweeteners

* BLUEJET manufactures saccharin and its salts for the high-intensity sweetener market, valued at USD2.9b-3b in CY23, with a global demand of ~37-40ktpa and a capacity of 3.7ktpa. The market is projected to grow at 6-7% CAGR, with BLUEJET supplying over 300 global customers across industries like oral care, beverages, and pharmaceuticals.

* Stringent food and beverage regulations drive demand for stable, long-term suppliers, with BLUEJET supplying high-quality sweeteners to firms like Colgate and Unilever. Growth in this market is driven by rising cases of diabetes, increasing obesity rates, and growing demand for low-calorie and processed foods.

* Saccharin production is largely concentrated in Asia, with China holding most capacity, and competition has increased, leading to a 27% YoY revenue decline for BLUEJET in FY24. Despite this, the segment saw a 9% CAGR during FY21-24. BLUEJET aims to post 12% growth by scaling up Calcium Saccharin sales and expanding its capacity to meet customer demand.

Valuation and view – initiate with BUY

* BLUEJET’S revenue growth will be driven by new products in iodinated and gadolinium contrast media, NCE intermediates, and a high-intensity sweetener variant. The PI/API segment is also set for strong growth, with ramp up in supplies for Esperion’s Bempedoic acid in coming quarters.

* The company also recently commissioned Plant 6 at Unit 2 (Ambernath) with an investment of INR900m, adding 120KL capacity for PI and contrast media. It also started a cardiovascular PI production in mid-Sep’24, expanded R&D into advanced platforms, and bolstered talent for CDMO growth.

* We expect a CAGR of 27%/24%/19% in revenue/EBITDA/PAT during FY25-27E, with an expected average EBITDAM of 35.1% during FY25-27E. We expect average RoE/RoCE of ~28%/26% during FY25-27E with an average fixed asset turnover of 3.1x.

* We expect FCF generation of INR3.6b during FY25-27E with cumulative capex of INR5b. The stock is trading at a P/E of ~28x on FY27E EPS of INR24.7 and FY27E

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