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Healthy Signs Continue — Strong growth across businesses led to the top line
beating our estimate, but this was offset by higher overheads, leading to in-line EBIDTA
and lower-than-expected net income. We expect the latter to be absorbed better over
the next few quarters, as newly installed capacity translates into higher revenues. The
last 2-3 quarters have given us some comfort that the increasing traction in most of
JUBO's businesses is sticky, leading us to raise our FY12-14 EPS est. by 6-8%. Its
high leverage however prompts us to move to a lower multiple (12x v/s 15x earlier),
leading to a lower TP of Rs300/sh.
Growth Momentum Sustains — Revenue growth (+26% YoY) was driven by strong
growth across businesses: Products (+24% YoY, Generics up 79%) and Services
(+32% YoY, CMO up 37%) – higher than Citi est. The Products biz was helped by
currency depreciation as well as positive volume & price variance. Growth in Services
could have been higher - a) decline in clinical trial biz revenues & b) postponement of
some despatches to 4Q suppressed further growth.
Overheads Hurt Margins — Increase in fuel & staff costs (increments, new hiring for
recently commissioned plants) resulted in a lower EBIDTA margin (-352bps QoQ, lower
by 130bps vs. Citi est.) – leading to in-line EBITDA. Adj net income growth remained
strong (+66% YoY) on last year’s low base – missed Citi est. due to higher interest cost
& higher depreciation (new facility commissioned) & increase in minority interest.
Leverage Remains High — Net debt has increased from Rs28bn (FY11) to Rs37bn
(end Dec’11) - we estimate net D/E to move to 1.8x by end FY12 from 1.4x (end FY11).
This continues to remain high but expect improvement FY13 onwards if current trends
sustain & cash flows improve. This would be the key to a re-rating in the stock.
Key Earnings Call Takeaways — a) Registrations: US (44 ANDAs, 19 approved); EU
(35 filings, 30 approved); Canada (4 pending approvals); b) API filings: 54 USDMFs, 29
EDMFs; c) Capex: Rs5bn in FY12, Rs2.5-3bn in FY13; d) Average interest rate for
outstanding loans at 5.9%; e) Symtet plant to be commissioned by Mar’12.
Jubilant Life Sciences
Company description
Jubilant Life Sciences Limited (formerly Jubilant Organosys Ltd) is an integrated
Pharma and Life Sciences Company. It is the largest CRAMS company and a
leading research services provider out of India. It provides Lifesciences products
and services across the value chain, through 11 manufacturing facilities and a team
of c6,000 people across the globe. Its operations cover generic APIs & formulations,
radiopharmaceuticals, allergenic extracts and healthcare delivery in India.
Investment strategy
We rate Jubilant Buy (1), with a TP of Rs300. Jubilant is among the top Indian
pharma outsourcing plays. After a torrid phase (FY09-11), on the back of a
challenging macro environment for outsourcing, we expect things to turn around,
though the pace of recovery would remain slow. While growth in the products
business will drive growth, some pick up in manufacturing services & restructuring
of the research services biz should aid profitability. We forecast a 16% CAGR in
revenues & 31% in EPS over FY11-FY14E. Valuations are attractive & we see
limited downside; however, we expect material re-rating only post visible signs of
recovery over a few quarters.
Valuation
Given that pharma is a growth sector, we use P/E as our primary method to value
the base business of every company. Jubilant has a well diversified model and has
lower dependence on a few specific contracts / businesses, although its high
leverage prompts us to lower our multiple to 12x from 15x earlier. We now use a
target multiple of 12x for Jubilant given the high leverage. At 12x Mar'13E EPS, we
value the stock at Rs300/sh.
Risks
The key risks to our target price include: (1) Lower than expected pace of recovery
in the services business; (2) Future growth is dependent on several generic
launches by partners - approval delays could hurt; (3) Inability to integrate & exploit
synergies with its acquired subsidiaries; and (4) Increases in input prices.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Healthy Signs Continue — Strong growth across businesses led to the top line
beating our estimate, but this was offset by higher overheads, leading to in-line EBIDTA
and lower-than-expected net income. We expect the latter to be absorbed better over
the next few quarters, as newly installed capacity translates into higher revenues. The
last 2-3 quarters have given us some comfort that the increasing traction in most of
JUBO's businesses is sticky, leading us to raise our FY12-14 EPS est. by 6-8%. Its
high leverage however prompts us to move to a lower multiple (12x v/s 15x earlier),
leading to a lower TP of Rs300/sh.
Growth Momentum Sustains — Revenue growth (+26% YoY) was driven by strong
growth across businesses: Products (+24% YoY, Generics up 79%) and Services
(+32% YoY, CMO up 37%) – higher than Citi est. The Products biz was helped by
currency depreciation as well as positive volume & price variance. Growth in Services
could have been higher - a) decline in clinical trial biz revenues & b) postponement of
some despatches to 4Q suppressed further growth.
Overheads Hurt Margins — Increase in fuel & staff costs (increments, new hiring for
recently commissioned plants) resulted in a lower EBIDTA margin (-352bps QoQ, lower
by 130bps vs. Citi est.) – leading to in-line EBITDA. Adj net income growth remained
strong (+66% YoY) on last year’s low base – missed Citi est. due to higher interest cost
& higher depreciation (new facility commissioned) & increase in minority interest.
Leverage Remains High — Net debt has increased from Rs28bn (FY11) to Rs37bn
(end Dec’11) - we estimate net D/E to move to 1.8x by end FY12 from 1.4x (end FY11).
This continues to remain high but expect improvement FY13 onwards if current trends
sustain & cash flows improve. This would be the key to a re-rating in the stock.
Key Earnings Call Takeaways — a) Registrations: US (44 ANDAs, 19 approved); EU
(35 filings, 30 approved); Canada (4 pending approvals); b) API filings: 54 USDMFs, 29
EDMFs; c) Capex: Rs5bn in FY12, Rs2.5-3bn in FY13; d) Average interest rate for
outstanding loans at 5.9%; e) Symtet plant to be commissioned by Mar’12.
Jubilant Life Sciences
Company description
Jubilant Life Sciences Limited (formerly Jubilant Organosys Ltd) is an integrated
Pharma and Life Sciences Company. It is the largest CRAMS company and a
leading research services provider out of India. It provides Lifesciences products
and services across the value chain, through 11 manufacturing facilities and a team
of c6,000 people across the globe. Its operations cover generic APIs & formulations,
radiopharmaceuticals, allergenic extracts and healthcare delivery in India.
Investment strategy
We rate Jubilant Buy (1), with a TP of Rs300. Jubilant is among the top Indian
pharma outsourcing plays. After a torrid phase (FY09-11), on the back of a
challenging macro environment for outsourcing, we expect things to turn around,
though the pace of recovery would remain slow. While growth in the products
business will drive growth, some pick up in manufacturing services & restructuring
of the research services biz should aid profitability. We forecast a 16% CAGR in
revenues & 31% in EPS over FY11-FY14E. Valuations are attractive & we see
limited downside; however, we expect material re-rating only post visible signs of
recovery over a few quarters.
Valuation
Given that pharma is a growth sector, we use P/E as our primary method to value
the base business of every company. Jubilant has a well diversified model and has
lower dependence on a few specific contracts / businesses, although its high
leverage prompts us to lower our multiple to 12x from 15x earlier. We now use a
target multiple of 12x for Jubilant given the high leverage. At 12x Mar'13E EPS, we
value the stock at Rs300/sh.
Risks
The key risks to our target price include: (1) Lower than expected pace of recovery
in the services business; (2) Future growth is dependent on several generic
launches by partners - approval delays could hurt; (3) Inability to integrate & exploit
synergies with its acquired subsidiaries; and (4) Increases in input prices.
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