887.5% Dividend In 2023: Pharma Player JB Chemical's Long-Term Growth Intact; PL Maintains Buy For Rs 1,800 TP

Pharmaceuticals giant, JB Chemicals has stepped into Trade Mark License Agreement with Novartis Innovative Therapies AG for ophthalmic brands in the Indian market. This opthal segment is a high-growing market, which will work well in favour of JB Chemicals. Apart from this, JB Chemicals' long-term growth drivers are intact, and hence brokerage Prabhudas Lilladher has maintained buy on this dividend-paying pharma stock for a target price of Rs 1,800, which would be a potential upside of nearly 11% from the current market price.

In its research note, Prabhudas Lilladher highlighted that JB Chemical (JBCP) has entered into Trade Mark License Agreement with Novartis Innovative Therapies AG, beginning Jan'27, for a portfolio of 10 opthalmic brands in the Indian market.

Initially, the company will in-license all 10 brands (generic in nature) from Novartis for a period of 3 years starting Dec'23 for Rs 1.25bn and later acquire all 10 brands for a consideration of $116mn (Rs 9.64bn) payable on or before 31st Dec26. JBCP holds Rs 26bn worth of highly profitable sales (70% of total sales; including Novartis brands).

In the near term, PL expects this acquisition to dilute return ratios, however, will be EPS neutral in year 1 and gets entry into the highly growing opthal segment.

Also, the brokerage added in its note, "Initially JBCP will likely enjoy lower OPM, as sourcing will be done from Novartis. Post-grant of perpetual license, the standalone margin from this portfolio will be significantly higher than the current domestic margin profile as the company will enjoy flexibility in sourcing. Assuming mid-teens growth of acquired portfolio till FY27, acquisition cost works to be 3.5x sales. We expect JBCP to generate +40% OPM with likely EBITDA generation of Rs 1.1bn (8-10% addition to our FY26E EBITDA) from acquired portfolio post FY27. The acquisition cost works 8-9x EV/EBITDA, likely EPS neutral in year 1."

Further, PL's note added that JBCP's long-term growth drivers remain intact led by 1) geographical expansion of legacy brands 2) improvement in MR productivity 3) scale-up in acquired portfolio 4) launch of new products & therapies 5) rise of contract manufacturing business and 6) improvement in FCF generation.

Accordingly, the brokerage has raised its target price on JB Chemicals.

Its note said, "At CMP, the stock is trading at 27x FY26E P/E adjusted for ESOP and amortization charges. We maintain 'BUY' rating with revised TP of Rs1,800/share (Rs1,675 earlier) as we roll forward, valuing at 30x FY26E EPS adjusted for ESOP and amortization charges."

On BSE, JB Chemical's share price ended at Rs 1,622.55 apiece, marginally up on December 26th with a market cap of Rs 25,156.69 crore. On this day, the stock also touched a new 52-week high of Rs 1,639.80 apiece, which is over 79% upside from its 52-week low of Rs 914.65 apiece. YTD, the stock has risen by 65%.

JB Chemicals is also among the high dividend-paying pharma stocks in the midcap space. In 2023 alone, the company rewarded dividends up to a whopping 887.50% amounting to Rs 17.75 per share. Currently, it has a dividend yield of 0.55%.

Disclamer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.