Jubilant Lifesciences: Adjustment post demerger:: Kotak Securities

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Jubilant Lifesciences: Adjustment post demerger

. We adjust our estimates/valuation to account for the
demerger of agri, polymers business (16% of sales, 10% of EBITDA) into a separate
company (to be listed). Jubilant Life Sciences will now contain PLSPS, a higher margin
business. With 13% volume growth in1HFY11 in life science ingredients (65% of sales),
we believe growth is intact. We therefore maintain FY2012E sales growth rate at 16%.
However, we revise FY2011-12E PAT downwards due to (1) lower margin assumption
(down 300 bps) on account of slower recovery, (2) muted 2HFY11E due to absence of
high-margin CMO contracts. At 11X FY2012E, we maintain BUY with PT at Rs350
(14X FY2012E).  
Agri and polymers business (APP) demerged into a separate company
With the demerger, Jubilant Life Sciences will now contain the PLSPS, a higher margin business
with 5-year average EBITDA margin at 22% vs 19% for erstwhile business and 7% for APP
business. The APP business accounted for 16% of sales and 10% of EBITDA in 1HFY11.
2HFY11E likely to be muted due to absence of high-margin CMO contracts

Due to absence of high-margin CMO contracts last year (US$35 mn), we believe 2HFY11E will be
muted yoy; however, will show sequential improvement. Life science/nutritional business has seen
utilization of high-cost inventory paving way for sequential improvement in margin.

We believe growth is intact in life science ingredients biz; maintain FY2012E sales growth at 16%
In 1HFY11, life science ingredients business reported sales growth of 4% with volume growth at
13%. We believe growth drivers in (1) life science ingredients business (up 4% in1HFY11) and
generics (up 12% yoy) accounting for 75% of total sales is intact, (2) however, growth in CMO,
drug discovery (25% of sales) still remains under pressure. We maintain our overall FY2012E sales
growth at 16% with (1) 18% in life science ingredients aided by additional capacity for
Niacinamide and API’s coming on stream in 4QFY11E and (2) 5-10% sales growth in CMO, drug
discovery.

At 11X FY2012E, we maintain BUY with PT at Rs350 (was Rs400)
We maintain our overall FY2012E sales growth at 16%; however, revise PAT downwards due to
(1) lower margin assumption (down 300 bps) on account of slower recovery, (2) muted 2HFY11E
due to absence of high-margin CMO contracts. At 11X FY2012E, we believe valuations are
attractive and maintain BUY with PT at Rs350. We value Jubilant at 14X, in line with its 5-year
average multiple.


Jubilant Life Sciences, a higher margin business now
With the demerger, Jubilant Life Sciences will now contain PLSPS, a higher-margin business
with 5-year average EBITDA margin at 22% vs 19% for erstwhile business and 7% for APP
business. The APP business accounted for 16% of sales and 10% of EBITDA in 1HFY11.


We believe growth is intact in life science ingredients biz; however, pressure
remains in CMO/drug discovery; maintain FY2012E sales growth at 16%
We believe growth drivers in (1) life science ingredients business (up 4% in1HFY11) and
generics (up 12% yoy) accounting for 75% of total sales is intact, (2) however, growth in
CMO, drug discovery (25% of sales) still remains under pressure.


We maintain our overall FY2012E sales growth at 16% with
` 18% in life science ingredients aided by additional capacity for Niacinamide and API’s
coming on stream in 4QFY11E. Jubilant plans to debottleneck pyridines capacity by
20% in FY2011E. Jubilant is also putting up a 10,000 tons per annum plant for
Niacinamide at a cost of Rs1.5 bn in FY2011E. This is a high value-added product with
realizations of around US$9,000/ton. Jubilant is also setting up capacity for
manufacturing APIs for sartans and the latest DMF list confirms that Jubilant has filed
DMFs for most of the sartans going off patent in the near future.
` 5-10% sales growth in CMO, drug discovery.


We revise PAT est. downwards
We maintain our overall FY2012E sales growth at 16%; however, revise PAT downwards
due to (1) lower margin assumption (down 300 bps) on account of slower recovery, and (2)
muted 2HFY11E due to absence of high-margin CMO contracts.