JB Chemicals, a little-known pharma company in India is now on the radar of private equity giants around the world – here’s why
Panoli plant of JB Chemicals
- Private equity giants like KKR, the Carlyle group and others are interested in acquiring a controlling stake in JB Chemicals, a little-known pharma company in India.
- Although JB Chemicals is a small player in the Indian pharma industry, it has built four strong brands and has market leadership in three of them, which has resulted in industry-beating growth.
- Some of the popular brands that JB Chemicals owns include Metrogyl, Rantac, Cilacar and Nicardia – driving 80-85% of the company’s India formulations revenue.
AdvertisementJB Chemicals, a little-known pharma company in India with a market capitalization of ₹4,600 crore is reportedly on the radar of private equity giants around the world. This has sent the stock to an all-time high of ₹621 in intra-day trade.
JB Chemicals is a relatively small player when it comes to the Indian pharmaceutical industry, behind giants like Sun Pharma, Dr Reddy’s and others. However, its inexpensive valuation, strong growth and a healthy balance sheet have private equity giants interested in it.
According to a report by Economic Times, global private equity players KKR, the Carlyle group, Apax Partners and PAG are interested in acquiring a controlling stake in JB Chemicals. Its promoters, Jyotindra Bhagawanlal Mody and family are said to be in talks to sell their 56% stake in the company.
The acquisition is valued at ₹5,000 crore ($650 million), which is 9% higher than JB Chemicals’ current market cap of ₹4,600 crore ($600 million). The news has sent the company’s stock rallying, hitting an all-time high of ₹621 before closing at ₹603 on Wednesday, May 6.
Here’s what makes JB Chemicals an attractive acquisition
Inexpensive valuation and healthy free cash flows
The company’s valuation at ₹5,000 crore is inexpensive, according to a report by market research firm IIFL Securities dated January 17, 2020. Apart from this, it also has healthy free cash flows, which make up 22% of the company’s balance sheet. Since then, the valuation has only gone down as the share price cracked in the coronavirus carnage.
Four strong brands with market leadership in three of them
|Year||Top 4 brands||Other products|
Instead of spreading itself thin with several products, JB Chemicals has focused on building a few large brands like Cilacar, Rantac, Metrogyl and Nicardia. Out of these, it has market leadership in three, which together account for 80-85% of the company’s revenue.
Focusing on these core brands has also helped JB clock in growth of 17-22% over the last two years. Out of these, Cilacar and Nicardia, the two cardiovascular brands, have grown by more than 20% in the past four years.
AdvertisementOutperforming industry growth in the past seven years
JB Chemicals’ focus on building strong brands in the cardiovascular and gastrointestinal segments has helped it outperform industry growth for seven years straight.
“This outperformance vs. the industry has been driven by increasing exposure to chronic therapies, as contribution of chronic products in the company’s India revenue mix has expanded from 29% in 2016 to 42% in 2019,” says a report by IIFL Securities.
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