Anand Rathi, Jubilant Life Sciences --3Q below estimates, lowering target price; Buy

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Jubilant Life Sciences
3Q below estimates, lowering target price; maintain Buy
Though 3Q figures are not comparable yoy (the agri and
performance polymers business was split off in FY11), Jubilant’s
results came below our estimates. Its 3Q revenue fell 9.9% yoy,
while its EBITDA margin slid 580bps owing to the continuing
pressure in life-science services. This led to a 54% yoy fall in net
profit, to `460m.

 Pressure continued in services business. Jubilant reported flat
revenue (excl. the APP business) of `8.7bn mainly owing to the
32.1% decline in its life science services business. The life science
products business grew 13.1% yoy, in line with our estimates.
 Margin pressure persists. The EBITDA margin slid 580bps to
15% due to the rise in raw material costs and high SG&A expense.
We believe that margins would be under pressure for the next 2-3
quarters until the services business picks up.
 Lower estimates. We lower our FY11-13e revenue 2.6% owing
to the subdued performance in the services business. We lower
our net profit estimates for FY11-13 by 13-15% to factor in the
lower margins and higher interest cost from rising interest rates.
 Valuation and risks. We lower our target to `250 based on 12x
FY12e EPS (from `347 based on EV/EBITDA of 10x FY12e) to
factor in the lower earnings. We have changed our valuation
method to a P/E-based one as the APP business has been split
off and only the pharma business remains. We maintain our Buy.
Risk: delay in executing CRAMS contracts.