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to expect a stronger FY12 aided by commissioning of new capacities. We expect gradual
improvement in operating margin which would partly be offset by rising interest costs. Maintain
Buy.
Revenue growth remains muted, in line with our expectations
Jubilant reported 4Q11 revenues of Rs8.9bn (-10% yoy). Excluding the contribution of the
now de-merged APP division in 4Q10, revenue growth was almost flat. The Life Science
Ingredients business (65% of FY11 revenues) grew by 10% yoy. The generics business (13%
of FY11 revenues) reported robust 24% growth (volume growth of 28%) as contribution from
Sestamibi has kicked in. The Life Science services business (22% of FY11 revenues)
continues to be weak with revenues declining 31% yoy primarily due to delay in customer
orders and milestone payments. The CMO business declined by 39% yoy; excluding one-time
H1N1 revenues of Rs980m in 4Q10, revenue growth was 9%.
Margin pressure continues
EBITDA of Rs1.3bn was 41% lower yoy and 8% below our estimate. Pricing has only
marginally improved in the products business while unabsorbed fixed costs due to lower
capacity utilization have resulted in EBITDA margin contracting 770bps yoy to 14.4%. If we
exclude the impact of forex loss of Rs140m in 4Q11, EBITDA margin came in at 16%. The
EBITDA margin of Life Science products and Services business has contracted to 19.6% and
10.3% in 4Q11 as compared to 30.3% and 17% in 4Q10 respectively. Lower depreciation and
a positive tax credit of Rs54m were the key positive earnings surprise drivers. Core PAT was
Rs771m (-43% yoy) while reported PAT (adjusted for forex impact on FCCBs) was Rs617m (-
55% yoy).
FY12 to benefit from past Capex expansion plans
Jubilant has recently commissioned 2 new plants for Agrochemical Actives/ Intermediates and
guides to commissioning of its new Niacinamide (Vitamin) plant this quarter. In 2QFY12
management expects the commissioning of a new pharmaceutical intermediate plant and
benefit from the 20% capacity expansion in pyridines. The Life Science Chemicals capacity
expansion is likely to be completed in 3QFY12 while the commissioning of the Symtet plant, a
large volume intermediate is likely to be completed by 4QFY12. Management has further
announced capex plans of Rs5bn which it estimates would generate revenues of about
Rs12bn at full capacity.
While FCCB repayment is not a challenge, interest costs could rise
Jubilant's FCCBs of US$202m (US$142m and YTM of US$60m) is due for repayment on 19th
of this month. However, the company has already raised fresh debt and now has cash
equivalents of US$230m. Net debt as of end-March 2011 stands at Rs28.4bn compared to
Rs28.8bn at the end of December 2010. Management has disclosed that its average cost of
rupee debt is 9.5%pa while its dollar debt is at 4.3% pa. We observe that while net debt has
remained largely flat over the past two quarters, the share of rupee debt (as % of net debt)
has increased from 21% to 54%. This in a rising domestic interest rate environment could
result in lower net profit margins.
We expect a stronger FY12; maintain Buy
We continue to believe that FY12 would be stronger benefiting from commissioning of new
facilities, pricing improvements in its products business and our expectations of recovery in
global outsourcing business. Our TP of Rs230 is derived by valuing the company on a
blended FY12F EV/EBITDA of 9.9x and factoring the potential increase in debt by about
US$60m (YTM on its US$142m FCCBs due later this month). We retain our Buy rating on
potential near-term growth catalysts and attractive valuations, on our analysis.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
to expect a stronger FY12 aided by commissioning of new capacities. We expect gradual
improvement in operating margin which would partly be offset by rising interest costs. Maintain
Buy.
Revenue growth remains muted, in line with our expectations
Jubilant reported 4Q11 revenues of Rs8.9bn (-10% yoy). Excluding the contribution of the
now de-merged APP division in 4Q10, revenue growth was almost flat. The Life Science
Ingredients business (65% of FY11 revenues) grew by 10% yoy. The generics business (13%
of FY11 revenues) reported robust 24% growth (volume growth of 28%) as contribution from
Sestamibi has kicked in. The Life Science services business (22% of FY11 revenues)
continues to be weak with revenues declining 31% yoy primarily due to delay in customer
orders and milestone payments. The CMO business declined by 39% yoy; excluding one-time
H1N1 revenues of Rs980m in 4Q10, revenue growth was 9%.
Margin pressure continues
EBITDA of Rs1.3bn was 41% lower yoy and 8% below our estimate. Pricing has only
marginally improved in the products business while unabsorbed fixed costs due to lower
capacity utilization have resulted in EBITDA margin contracting 770bps yoy to 14.4%. If we
exclude the impact of forex loss of Rs140m in 4Q11, EBITDA margin came in at 16%. The
EBITDA margin of Life Science products and Services business has contracted to 19.6% and
10.3% in 4Q11 as compared to 30.3% and 17% in 4Q10 respectively. Lower depreciation and
a positive tax credit of Rs54m were the key positive earnings surprise drivers. Core PAT was
Rs771m (-43% yoy) while reported PAT (adjusted for forex impact on FCCBs) was Rs617m (-
55% yoy).
FY12 to benefit from past Capex expansion plans
Jubilant has recently commissioned 2 new plants for Agrochemical Actives/ Intermediates and
guides to commissioning of its new Niacinamide (Vitamin) plant this quarter. In 2QFY12
management expects the commissioning of a new pharmaceutical intermediate plant and
benefit from the 20% capacity expansion in pyridines. The Life Science Chemicals capacity
expansion is likely to be completed in 3QFY12 while the commissioning of the Symtet plant, a
large volume intermediate is likely to be completed by 4QFY12. Management has further
announced capex plans of Rs5bn which it estimates would generate revenues of about
Rs12bn at full capacity.
While FCCB repayment is not a challenge, interest costs could rise
Jubilant's FCCBs of US$202m (US$142m and YTM of US$60m) is due for repayment on 19th
of this month. However, the company has already raised fresh debt and now has cash
equivalents of US$230m. Net debt as of end-March 2011 stands at Rs28.4bn compared to
Rs28.8bn at the end of December 2010. Management has disclosed that its average cost of
rupee debt is 9.5%pa while its dollar debt is at 4.3% pa. We observe that while net debt has
remained largely flat over the past two quarters, the share of rupee debt (as % of net debt)
has increased from 21% to 54%. This in a rising domestic interest rate environment could
result in lower net profit margins.
We expect a stronger FY12; maintain Buy
We continue to believe that FY12 would be stronger benefiting from commissioning of new
facilities, pricing improvements in its products business and our expectations of recovery in
global outsourcing business. Our TP of Rs230 is derived by valuing the company on a
blended FY12F EV/EBITDA of 9.9x and factoring the potential increase in debt by about
US$60m (YTM on its US$142m FCCBs due later this month). We retain our Buy rating on
potential near-term growth catalysts and attractive valuations, on our analysis.
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