Blue Jet Healthcare Limited IPO

About the company:

Blue Jet Healthcare Ltd (“Bluejet”) incorporated in 1968 is a specialty pharmaceutical, healthcare ingredient, and intermediate company. It mainly deals with contrast media intermediates, high-intensity sweeteners, pharma intermediates, and API’s. Because of strong R&D capabilities, their CDMO portfolio increased from 6 molecules on 31st March 2020 to 43 molecules on 30th June 2023
It has 3 manufacturing facilities in Maharashtra namely Shahad, Ambernath, and Mahad cater to the demands of its domestic and global customers.

Objective of the Issues

- It’s a pure OFS issue;

Risk

- Concentrated list of customers: Revenue from the top 5 customers is ~75% and the top 10 customers are ~84%. Any pricing pressure or demand reduction from these major customers would severely affect the financials.
 
- Geographical Concentration: A significant portion of revenues are generated from regulated markets like Europe (74.49%) & USA (4.88%) totaling 79.37% any disruption in these markets would likely erode their revenues significantly.
 
- Too many regulatory compliances: Unable to comply with anyone would adversely affect operations, cash flows and ultimately affect business.
 
- All of its infrastructure, manufacturing facilities, and business operations are currently concentrated in one state – Maharashtra.

Strengths

- Largest manufacturers of contrast media intermediates in India, they supply a critical starting intermediate and several other advanced intermediates to global players like GE Healthcare AS, Guerbet Group, Bracco Imaging S.p.A.
 
- Entering this niche segment is challenging for new players, offering Bluejet a competitive advantage due to significant barriers to entry.

- Long-standing relationships and multi-year supply contracts generally exceeding 4 years, thus providing visibility and predictable cash flows, with multi-national customers.

- Focusing on sustainability through process optimization and product development with the help of in-house R&D.

Financial Snapshot (Rs. In Crores):

The company’s free cash flow stands at Rs. 70 Crs in 2022 and Rs. 78.5 Crs in 2023. It is a debt-free company. Further, Net profit during the quarter ended June FY24 surged 58% percent YoY to Rs 44.1 crore with revenue from operations in Q1FY24 at Rs. 179 crs. EBITDA for Q1FY24 stands at Rs 59 crore up by 54% from Q1FY23.

Conclusion

According to UN estimates, the global aging population (above 65 years) is expected to increase from 6.9% in 2000 to 10.4% by 2025 and the emergence of various lifestyle diseases in the early stages of life (aged below 40 years) resulting in increased spending on healthcare, and also in diagnostics. Advancements in diagnostic technologies and rising preventive healthcare awareness are poised to fuel the demand for diagnostic services.

The contrast media formulations, which contribute to 70.6% of the total revenues, segment is set to grow at 6-8% from 2023-2025. High-Intensity Sweeteners - Saccharine which contributes 24.5% to its total revenues is widely used in non-alcoholic beverages, bakery & confectionery, vitamins & dietary supplements and etc holds 12-14% market share by value and 17-19% by volume in the high-intensity sweeteners market. With 95% of revenue stemming from these products and along with a rising demand trajectory, the company is positioned for sustained growth in the foreseeable future.

The company's yearly revenue and profit growth have shown inconsistency. However, in Q1FY24, it delivered a satisfactory performance, despite the inherent volatility and export dependency in the industry. The consistent strong performance is evident with ROCE and ROE exceeding 25%, EBITDA margins surpassing 30%, and a steady PAT margin of over 20%. Furthermore, the efficient utilization of fixed assets, with a churn rate of 5.62 in FY23, reflects the company's effective resource management, enhancing its key financial metrics. Based on the company’s past performance and opportunity to grow its CDMO business the PE valuation of 37 times seems to be fairly priced.
 

So, we suggest our investors “subscribe” to this IPO.