Equity L/S Analyst | Forensic Accounting | India, Yellowstone Equity

Ankit Agrawal, CFA

Equity L/S Analyst | Forensic Accounting | India

Equity Bottom-Up

Jenburkt Pharmaceuticals / Equity Bottom-Up

<div><strong>Investment Thesis</strong></div>
<ul class="">
<li>Jenburkt Pharma is an INR 190cr branded generic pharma company, with &gt;85% revenues coming from domestic sales. It is effectively a play on domestic pharma, that over the past decade has grown at &gt;10% CAGR and is likely to continue to do so backed by many tailwinds for the industry.</li>
<li>While there are many different business models in the domestic pharma industry, Jenburkt in our view is best classified as an “Access Drivers” player (refer to later sections of the report for more information).</li>
<li>Jenburkt’s key strengths - strong product portfolio, robust distribution and brand recognition – makes it a strong competitor among its “Access Drivers” peers.</li>
<li>Jenburkt’s key moats are its 1) brand’s quality perception (determined based on our channel checks with specialist doctors and pharmacists) 2) strong distribution channel spanning across tier I to tier IV cities and 3) new product launches on a regular basis to extend key popular brands (via new dosage forms and drug combinations) and strengthen its portfolio in fast growing therapies.</li>
<li>With a strong track record of successfully launching new products and brand promotion, Jenburkt has consistently milked its distribution channel well, posting 10-12% revenue CAGR over the past decade.</li>
<li>Its measured growth approach funded fully through internal accruals, coupled with 25%+ ROEs enables it to generate strong FCF that has been distributed consistently to shareholders through dividends and buyback.</li>
<li>We think it is a hidden gem due to its low liquidity and BSE only listing.</li>
<li>Its attractive valuation at &lt;9x TTM PE (adjusted for net cash on balance sheet), strong growth prospects and FCF yield, makes it <strong>an ideal candidate for compounding &gt;20% IRR over the next 3-5 years.</strong>
</li>
<li>Weaker than expected earnings over the last couple of quarters, has created an attractive entry point for accumulating the stock. Recent weakness in earnings was largely temporary, driven by 1) Hiring of additional medical representatives (MRs) which led to increased employee costs - as these MRs start contributing to sales, profitability should normalize 2) Q1FY20 (Apr - Jun 2019) in particular witnessed weak sales due to delayed monsoon. Delay in monsoon delayed the onset of seasonal diseases (flu, malaria, dengue, etc.) leading to decline in patient footfalls for general practitioners, who tend to be the key prescribers of Jenburkt's drugs.</li>
</ul>

Investment Thesis

Jenburkt Pharma is an INR 190cr branded generic pharma company, with &gt;85% revenues coming from domestic sales. It is effectively a play on domestic pharma, that over the past decade has grown at &gt;10% CAGR and is likely to continue to do so backed by many tailwinds for the industry.
While there are many different business models in the domestic pharma industry, Jenburkt in our view is best classified as an “Access Drivers” player (refer to later sections of the report for more information).
Jenburkt’s key strengths - strong product portfolio, robust distribution and brand recognition – makes it a strong competitor among its “Access Drivers” peers.
Jenburkt’s key moats are its 1) brand’s quality perception (determined based on our channel checks with specialist doctors and pharmacists) 2) strong distribution channel spanning across tier I to tier IV cities and 3) new product launches on a regular basis to extend key popular brands (via new dosage forms and drug combinations) and strengthen its portfolio in fast growing therapies.
With a strong track record of successfully launching new products and brand promotion, Jenburkt has consistently milked its distribution channel well, posting 10-12% revenue CAGR over the past decade.
Its measured growth approach funded fully through internal accruals, coupled with 25%+ ROEs enables it to generate strong FCF that has been distributed consistently to shareholders through dividends and buyback.
We think it is a hidden gem due to its low liquidity and BSE only listing.
Its attractive valuation at &lt;9x TTM PE (adjusted for net cash on balance sheet), strong growth prospects and FCF yield, makes it an ideal candidate for compounding &gt;20% IRR over the next 3-5 years.

Weaker than expected earnings over the last couple of quarters, has created an attractive entry point for accumulating the stock. Recent weakness in earnings was largely temporary, driven by 1) Hiring of additional medical representatives (MRs) which led to increased employee costs - as these MRs start contributing to sales, profitability should normalize 2) Q1FY20 (Apr - Jun 2019) in particular witnessed weak sales due to delayed monsoon. Delay in monsoon delayed the onset of seasonal diseases (flu, malaria, dengue, etc.) leading to decline in patient footfalls for general practitioners, who tend to be the key prescribers of Jenburkt's drugs.


Jenburkt Pharma: A Hidden Gem and a Steady Growth Compounder

Frontier and emerging markets (Vietnam)

Dylan Waller

Nomadic Equity

Thematic (Sector/Industry)

<p>Now is a strategic time to focus on the upside potential of biotechnology companies in India, as India&rsquo;s biotechnology industry is projected to grow at an average rate of <a href="http://www.india-briefing.com/news/foreign-investment-opportunities-abound-indias-growing-biotechnology-industry-10354.html/" target="_blank">30% until 2025</a>. &nbsp;India offers the global biotechnology &nbsp;industry the advantages of low cost manufacturing and sophisticated research and development. India&rsquo;s low cost manufacturing abilities offer a strong alternative to the industry in America, where companies are criticized for high drug prices, high valuation, and non-profitable operations. &nbsp;An article published on Bloomberg this year shows how Joel Roth traveled to India to obtain a version of Gilead&rsquo;s Sovaldi at<a href="http://www.bloomberg.com/news/articles/2015-06-01/hepatitis-cruise-india-trips-among-plans-to-save-on-1-000-pill" target="_blank"> 1% of the cost.</a>&nbsp; &nbsp;This illustrates the issues with the high cost of drugs in America, and India's ability to deliver&nbsp;high&nbsp;quality and low cost products. In addition to its low cost manufacturing abilities, the country also offers sophisticated research and development capabilities, driven by India&rsquo;s educational emphasis on math and science. &nbsp;</p><p>Consequently, India&rsquo;s biotechnology industry already has an extremely prestigious standing:</p><ul><li>India has the 3rd largest biotechnology industry in the Asia Pacific region, and has the 2nd largest amount of FDA approved sites.</li><li>India currently produces approximately <a href="http://www.pharmtech.com/indias-contract-research-and-manufacturing-sector-set-growth" target="_blank">10% of global pharmaceuticals</a>, and is ranked among the top 2 to 3 pharmaceutical producers.</li><li>In a report issued by <a href="http://blogs.barrons.com/emergingmarketsdaily/2015/06/04/india-pharma-a-pill-in-healthy-portfolios/?mod=yahoobarrons&amp;ru=yahoo" target="_blank">Citi this year</a>, pharmaceutical stocks in India ranked third, only outperformed by South Korea and China.</li></ul><p>The consistent and substantial growth of India&rsquo;s biotechnology industry has taken place <a href="http://www.differding.com/data/fixed-1363273846EDIPicture1.jpg" target="_blank">since 2002</a>, resulting in an already prestigious industry that is poised for further growth. &nbsp;India has a flurry of economic advantages ahead of it to offer to investors; growth in consumer spending has been rapid, the country&rsquo;s annual GDP growth was <a href="http://www.tradingeconomics.com/india/gdp-growth-annual" target="_blank">most recently 7%</a>, its currency has performed relatively strong, and it has the world&rsquo;s largest youth population. &nbsp;I am bullish on India&rsquo;s economic future in a large number of aspects, yet consider its biotechnology industry to be one of the most strategic sites for investment. &nbsp;Although there are a large number of players on the ground, I have identified Dr. Reddy's and Biocon as two companies that have reasonable valuation and promising developments ahead of them.</p><p>&nbsp;</p>

Now is a strategic time to focus on the upside potential of biotechnology companies in India, as India&rsquo;s biotechnology industry is projected to grow at an average rate of 30% until 2025. &nbsp;India offers the global biotechnology &nbsp;industry the advantages of low cost manufacturing and sophisticated research and development. India&rsquo;s low cost manufacturing abilities offer a strong alternative to the industry in America, where companies are criticized for high drug prices, high valuation, and non-profitable operations. &nbsp;An article published on Bloomberg this year shows how Joel Roth traveled to India to obtain a version of Gilead&rsquo;s Sovaldi at 1% of the cost.&nbsp; &nbsp;This illustrates the issues with the high cost of drugs in America, and India's ability to deliver&nbsp;high&nbsp;quality and low cost products. In addition to its low cost manufacturing abilities, the country also offers sophisticated research and development capabilities, driven by India&rsquo;s educational emphasis on math and science. &nbsp;Consequently, India&rsquo;s biotechnology industry already has an extremely prestigious standing:India has the 3rd largest biotechnology industry in the Asia Pacific region, and has the 2nd largest amount of FDA approved sites.India currently produces approximately 10% of global pharmaceuticals, and is ranked among the top 2 to 3 pharmaceutical producers.In a report issued by Citi this year, pharmaceutical stocks in India ranked third, only outperformed by South Korea and China.The consistent and substantial growth of India&rsquo;s biotechnology industry has taken place since 2002, resulting in an already prestigious industry that is poised for further growth. &nbsp;India has a flurry of economic advantages ahead of it to offer to investors; growth in consumer spending has been rapid, the country&rsquo;s annual GDP growth was most recently 7%, its currency has performed relatively strong, and it has the world&rsquo;s largest youth population. &nbsp;I am bullish on India&rsquo;s economic future in a large number of aspects, yet consider its biotechnology industry to be one of the most strategic sites for investment. &nbsp;Although there are a large number of players on the ground, I have identified Dr. Reddy's and Biocon as two companies that have reasonable valuation and promising developments ahead of them.&nbsp;

Profit from India's Rapidly Growing Biotechnology Industry

Ex-Buyside Principal, now doing Independent Secondary Research on Indian Equities

Pawan Sachdeva

<div>In continuation of my work of detailed work on India Budget for last ten years, this piece through simple charts puts in perspective:</div><div><ul><li>&nbsp;2014 Actual versus 2014 Revised Estimates.&nbsp;</li><li>Similarly 2015 Revised Estimates versus 2015 BE and gives 2016 BE numbers.&nbsp;</li></ul><p>This presentation does not gives any views on the Union Budget of 2016, which is domain of experts, except few comments given on next slide.</p><p>This presentation provides&nbsp;some tools with which readers can assess if Government&rsquo;s objective of 2016 Revenue and Costs can be met.</p><ul><li>For some key parameters, the presentation provides</li><li>2014 Revised Estimates versus 2014 Actual Numbers</li><li>2015 Budgeted Estimates versus 2015 Revised Numbers</li><li>2016 Budgeted Estimates versus 2015 Revised Estimates</li><li>Growth in 2014, 2015 and 2016</li></ul></div>

In continuation of my work of detailed work on India Budget for last ten years, this piece through simple charts puts in perspective:&nbsp;2014 Actual versus 2014 Revised Estimates.&nbsp;Similarly 2015 Revised Estimates versus 2015 BE and gives 2016 BE numbers.&nbsp;This presentation does not gives any views on the Union Budget of 2016, which is domain of experts, except few comments given on next slide.This presentation provides&nbsp;some tools with which readers can assess if Government&rsquo;s objective of 2016 Revenue and Costs can be met.For some key parameters, the presentation provides2014 Revised Estimates versus 2014 Actual Numbers2015 Budgeted Estimates versus 2015 Revised Numbers2016 Budgeted Estimates versus 2015 Revised EstimatesGrowth in 2014, 2015 and 2016

India's Budgets: 2006-2015. Key Charts, and Key questions

India

Jenburkt Pharmaceuticals Limited manufactures and markets pharmaceuticals formulations and healthcare products.

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Jenburkt Pharmaceuticals (JBP IN)

Jenburkt Pharma: A Hidden Gem and a Steady Growth Compounder

Investment Thesis Jenburkt Pharma is an INR 190cr branded generic pharma company, with >85% revenues coming from domestic sales. It is...

Ankit Agrawal, CFA

Profit from India's Rapidly Growing Biotechnology Industry

Now is a strategic time to focus on the upside potential of biotechnology companies in India, as India’s biotechnology industry is projected to...

Nomadic Equity

India's Budgets: 2006-2015. Key Charts, and Key questions

In continuation of my work of detailed work on India Budget for last ten years, this piece through simple charts puts in perspective: 2014 Actual...

Pawan Sachdeva

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)