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Jubilant Life Sciences (JULS.BO) Rs211.90
Positive News Equity Research
Two large contracts reaffirm gradual recovery is on track; Buy
News
Jubilant announced today that it has entered into a multi-year contract with
a leading US pharma company to manufacture a prominent over the
counter (OTC) women’s health, antifungal product at its Montreal facility. It
is a “take or pay” contract with a minimum quantity commitment and a
total value of over US$70 mn for a period of over 4 years, with an option of
further extension of 2 years for a higher quantity.
Analysis
(1) Contract will be executed from the Montreal facility which is currently
running at a 60% capacity utilization. Hence, there is no need for capex on
facility expansion for this contract, in our view. (2) Accrual of the contract is
evenly spread out over four years, starting 3QFY2012. (3) It is an exclusive
contract from a new customer and will be margin accretive, in our view.
This follows the company signing another long-term supply agreement in
August 2011, in the proprietary products business with a leading life
sciences company. The total contract is valued at over US$80 mn to be
supplied in 3 years, starting 1QFY13. This contract has a minimum volume
‘take or pay’ commitment and has the potential to go over US$100 mn. We
estimate the combined revenue impact of both the contracts at about
US$15 mn/US$45 mn/US$45 mn for FY12E/FY13E/FY14E, respectively,
implying about 2%/4%/4% of our revenue estimates.
Implications
These contracts support our view of a recovery in its business (refer to our
June 15, 2011, report Gradual recovery ahead post a tough transition year;
maintain Buy. In our view: (1) gradual recovery in CMO and DDDS
segments, (2) increased capacity utilization and (3) EBIT margin recovery
by 390 bp in FY12E will result in 36% EPS CAGR over FY11-FY14E. Despite
outperforming the sector by 34% in the past 3 months, the stock is trading
at 8X FY13E P/E, close to trough multiples and at a 45% discount to the
sector. We reiterate our Buy rating with 12-m Director’s Cut TP of Rs286,
implying 33% potential upside. Risks: slower growth in CRAMS business.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Jubilant Life Sciences (JULS.BO) Rs211.90
Positive News Equity Research
Two large contracts reaffirm gradual recovery is on track; Buy
News
Jubilant announced today that it has entered into a multi-year contract with
a leading US pharma company to manufacture a prominent over the
counter (OTC) women’s health, antifungal product at its Montreal facility. It
is a “take or pay” contract with a minimum quantity commitment and a
total value of over US$70 mn for a period of over 4 years, with an option of
further extension of 2 years for a higher quantity.
Analysis
(1) Contract will be executed from the Montreal facility which is currently
running at a 60% capacity utilization. Hence, there is no need for capex on
facility expansion for this contract, in our view. (2) Accrual of the contract is
evenly spread out over four years, starting 3QFY2012. (3) It is an exclusive
contract from a new customer and will be margin accretive, in our view.
This follows the company signing another long-term supply agreement in
August 2011, in the proprietary products business with a leading life
sciences company. The total contract is valued at over US$80 mn to be
supplied in 3 years, starting 1QFY13. This contract has a minimum volume
‘take or pay’ commitment and has the potential to go over US$100 mn. We
estimate the combined revenue impact of both the contracts at about
US$15 mn/US$45 mn/US$45 mn for FY12E/FY13E/FY14E, respectively,
implying about 2%/4%/4% of our revenue estimates.
Implications
These contracts support our view of a recovery in its business (refer to our
June 15, 2011, report Gradual recovery ahead post a tough transition year;
maintain Buy. In our view: (1) gradual recovery in CMO and DDDS
segments, (2) increased capacity utilization and (3) EBIT margin recovery
by 390 bp in FY12E will result in 36% EPS CAGR over FY11-FY14E. Despite
outperforming the sector by 34% in the past 3 months, the stock is trading
at 8X FY13E P/E, close to trough multiples and at a 45% discount to the
sector. We reiterate our Buy rating with 12-m Director’s Cut TP of Rs286,
implying 33% potential upside. Risks: slower growth in CRAMS business.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Coverage View: Neutral
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