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A Leading CRAMS Play
Business Snapshot – Jubilant Life Sciences Limited (formerly Jubilant
Organosys Ltd) is an integrated Pharma and Life Sciences Company. It is the
largest Custom Research and Manufacturing Services (CRAMS) player and a
leading Drug Discovery and Development Solution (DDDS) provider out of
India. It provides Life Sciences products and services across the value
chain. With 11 world-class manufacturing facilities and a team of ~ 6000
multicultural people across the globe, the company is committed to deliver
value to its customers across 65 countries. Besides, it also has a small
presence in generic APIs & formulations, radiopharmaceuticals, allergenic
extracts and healthcare delivery in India.
Latest Quarterly Performance – Revenues grew 6% YoY, mainly due to the
growth in the domestic business (+11% YoY). CRAMS sales fell 6% YoY (on
postponement of some key orders and general sluggishness in the industry)
but good growth in the APP business (+30% YoY) shored up the topline.
Higher raw material costs pulled down EBITDA margins to 16.1% as
compared to 20.2% during 2QFY10. The appreciating rupee also took a toll
on topline growth and margins. Net profit was up by 41% YoY due to a lower
tax rate (7% vs 29%) & lower interest costs (down 32% YoY).
Key Catalysts / Issues – a) Trends in outsourcing – when will the current
sluggishness end?; b) Execution of delayed orders that led to 1HFY11
numbers being lower than expected; c) Ability to gain market share in
Sestamibi, with raw material constraints coming to an end; d) Approval and
launch of sartans by its partners in the regulated markets – Jubilant is a
leading API supplier for this product category; e) Molasses prices – still a
key input, especially for its life science chemicals business
Valuations – Jubilant has derated along with most other CRAMS stocks,
given the sluggishness in this space over the last two years. It currently
trades at c8 xFY12E EPS. Traditionally, the company’s presence in multiple
businesses, including the recently demerged performance chemicals & agri
products business, has been a drag on valuations. Post the demerger, we
expect the valuation range to shift upwards for the pharma & life sciences
company. However, we expect a re-rating to happen only once there are
tangible signs of improvement on the CRAMS business
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