Blue Jet Healthcare Limited (Subscribe)

Highlights

Blue Jet Healthcare Limited (BJHL) is a speciality pharmaceutical and healthcare ingredients and intermediates company that offers niche products targeted toward innovator pharmaceutical companies and multi-national generic pharmaceutical companies.

Since company incorporation in 1968, it has established a contract development and manufacturing organization (CDMO) business model with specialized chemistry capabilities in contrast media intermediates and high intensity sweeteners, on the back of strategic and early investments in R&D and manufacturing infrastructure. The Company’s operations are primarily organized in 3 product categories (i) Contrast Media Intermediates, (ii) High intensity sweeteners, and (iii) pharma intermediates and active pharmaceutical ingredients
(APIs).

The Company also manufacture a variety of products in-house, including important starting intermediates and advanced intermediates, allowing them to maintain control over its production process for consistent quality and cost effectiveness.

With multi-year contracts, the Company has created a long-term customer base of innovator and multi-national generic pharmaceutical companies. It provides a vital starting intermediate as well as numerous advanced intermediates to 3 of the world’s largest contrast media manufacturers: GE Healthcare AS, Guerbet Group, and Bracco Imaging S.p.A. It also provides high-intensity sweeteners to a number of multinational corporations, including Colgate Palmolive (India) Limited and Unilever.

As of June 2023, the Company has invoiced a total of more than 400 customers in 39 countries. Currently, the Company manufacturing facilities are located in Shahad (Unit I), Ambernath (Unit II) and Mahad (Unit III) in the state of Maharashtra, India, with an annual installed capacity of 200.60 KL, 607.30 KL and 213.00 KL, respectively. The Company has also acquired a leasehold Greenfield manufacturing site (Unit IV) in Ambernath in 2021 to build several multi-purpose blocks dedicated to its pharma intermediate and API business.

The company will not receive any proceeds from the Rs. 8402 mn IPO proceeds and all the offer proceeds will be received by the Selling Shareholders, in proportion to the offered shares sold by the respective Selling Shareholders as part of the Offer.

Key Highlights

• The global contrast media formulation market had a moving annual turnover of roughly USD 5.9 bn in June 2023, and it is expected to increase at a CAGR of 6 pct to 8 pct between calendar years 2023 and 2025. As of calendar year 2023, the worldwide high-intensity sweetener market was worth roughly USD 2.9 bn to USD 3.0 bn. The end product markets for high-intensity sweeteners, which include dental care and non-alcoholic drinks, are predicted to increase at CAGRs ranging from 3 pct to 8 pct from 2023 to 2026. Looking at the industry size and growth rate, company has plenty of room available to grow.
• The Company has consistently supplied the key beginning intermediate as a building block, as well as many functionally critical advanced intermediates, for the production of seven of these iodinated contrast media. The Company has developed and marketed another contrast media intermediate in 2020 as a building component for all gadolinium-based contrast media, greatly increasing its overall target market.
• The Company entered into one- to four-year supply contracts, which offer high visibility and predictability of order book revenue in addition to cash flow visibility. In the three months ending June 30, 2023, as well as the Financial Years 2021, 2022, and 2023, more than 70 pct of the Company’s total sales were supported by contracted sales volumes through yearly and multi-year contracts.
• Apart from the existing production capacity, the Company is planning to expand their production capacities in Unit II, from 607.30 KL as of June 30, 2023 to 743 KL by the Financial Year 2025.  It also planning to expand their production capacity from 213.00 KL as of June 30, 2023 to 499 KL as of the Financial Year 2025 in Unit III. In the Ambernath’s Unit IV facility, company expect this Unit have an estimated installed capacity of 71 KL.
• As of FY23, 74.49 pct of the company sales comes from the Europe, 13.94 from the India, 4.88 pct from the United States of America and 6.69 pct from the other countries. Out of the overall sales 70.57 contributed by Contrast Media Intermediates, 24.48 pct contributed by High-intensity Sweeteners, 4.73 pct contributed by Pharma intermediates and API and 0.22 pct contributed by others.
• The sales of the company has grown by 20.21 pct CAGR during the period FY21-23 while EBITDA and Profit increased by 3.91 pct CAGR and 8.59 pct CAGR over the same period. During FY23, company reported revenues of Rs. 7,209 mn which increased by 5.49 pct YoY while EBITDA declined by 12.11 pct YoY to Rs. 2,190 mn as EBITDA margin declined sharply from 36.47 pct in FY22 to 30.9 pct in FY23 due to increase in Raw material prices because of Russia Ukraine war. Profit in the FY23 stood at Rs. 1,600 mn, which declined by -11.84 pct YoY. During Q1FY24 company sales, EBITDA, Profit increased YoY by 24.22 pct, 53.73 pct and 58.63 pct respectively.

Key Risk

• The Company is dependent on Europe and the United States, which are regulated markets, for a significant portion of their revenue from operations.
• The Company depends upon a limited number of raw material suppliers and their three largest suppliers are located in China, Norway and India. Any delay, interruption or reduction in the supply or transportation of raw materials or an increase in the costs of such raw materials to manufacture their products may adversely affect its business, results of operations, financial condition, and cash flows.
• Pricing pressure from customers may affect company’s gross margin, profitability and ability to increase prices, which in turn may adversely affect company’s business, financial condition and cash flows.

Valuation

BJHL has niche products with long-term relationships with prime customers. We the planned capacity expansion, the performance is set to improve in the coming years. At the upper end of the price band, the issue is quoting at PE of 34x its FY24 annualized earnings. One may Subscribe from a longer-term perspective.

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