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http://content.icicidirect.com/mailimages/ICICIdirect_JubilantLifeScience_InitiatingCoverage.pdf
B a n k i n g o n i n t e g ra t e d C R A M S m o d e l …
Jubilant Life Sciences (JLS) is an integrated mid-sized pharmaceutical
company that has a presence across the value chain from basic life
science chemicals to generic formulations including speciality
pharmaceuticals like radio pharmaceuticals. It is the largest Indian
company in the CRAMS space. The demerger of its agri and polymer
products business augurs well for concentrating on pharmaceuticals and
catering to incremental CRAMS demand. With the unique USP of being
vertically integrated, it is well placed to maintain margins and profitability
despite volatility in pricing. We expect JLS’ revenues, EBIDTA and PAT to
grow at a CAGR of 16.8%, 26.5% and 24.4% to | 5152.6 crore, | 1130.1
crore and | 521.1 crore, respectively in FY11-14E. We are initiating
coverage on the stock with a BUY rating.
CRAMS revival to improve leverage position
After a lull in FY10, the fortunes of Indian CRAMS players are slowly but
surely coming back to normal. JLS, being the largest Indian CRAMS
player, is riding on the revival in CRAMS fortunes and the recent order
inflow of ~US$270 million (most of them are ‘take or pay’) in the last 8 to
12 months vindicates the revival. This, we believe, will improve the cash
flows and already stretched balance sheet, a major stumbling block for
valuation multiples.
Life science products to provide multiple growth drivers
The life science products business (~78% of overall sales), which
comprises seven business verticals, is expected to grow at a CAGR of
~17% in FY11-14E on the back of new capacity additions and new
product launches in various geographies. We believe pricing pressure in
the life science ingredients (LSI) sub-category will be made good by
strong traction from the generic sub-category.
Valuations
We have applied the EV/EBITDA methodology to value JLS on account of
substantial debts on its books, which are here to stay for a sizable part of
its future. We have valued the stock at ~50% discount to CRAMS leader
(market cap) Divi’s Laboratories on account of 1) high leverage, 2)
diversified Group interests and 3) Divi’s superior financials. A revival in
the CRAMS space is, however, equally applicable to JLS. New product
launches and incremental capacity utilisation will drive the growth and
ease substantial balance sheet pressure. Our target price is | 209 based
on 5.5x FY14E EV/ EBITDA. The stock is currently trading at 5.1x FY14E
EV/EBITDA giving ~15% upside. We recommend BUY with a lightweight
bias.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://content.icicidirect.com/mailimages/ICICIdirect_JubilantLifeScience_InitiatingCoverage.pdf
B a n k i n g o n i n t e g ra t e d C R A M S m o d e l …
Jubilant Life Sciences (JLS) is an integrated mid-sized pharmaceutical
company that has a presence across the value chain from basic life
science chemicals to generic formulations including speciality
pharmaceuticals like radio pharmaceuticals. It is the largest Indian
company in the CRAMS space. The demerger of its agri and polymer
products business augurs well for concentrating on pharmaceuticals and
catering to incremental CRAMS demand. With the unique USP of being
vertically integrated, it is well placed to maintain margins and profitability
despite volatility in pricing. We expect JLS’ revenues, EBIDTA and PAT to
grow at a CAGR of 16.8%, 26.5% and 24.4% to | 5152.6 crore, | 1130.1
crore and | 521.1 crore, respectively in FY11-14E. We are initiating
coverage on the stock with a BUY rating.
CRAMS revival to improve leverage position
After a lull in FY10, the fortunes of Indian CRAMS players are slowly but
surely coming back to normal. JLS, being the largest Indian CRAMS
player, is riding on the revival in CRAMS fortunes and the recent order
inflow of ~US$270 million (most of them are ‘take or pay’) in the last 8 to
12 months vindicates the revival. This, we believe, will improve the cash
flows and already stretched balance sheet, a major stumbling block for
valuation multiples.
Life science products to provide multiple growth drivers
The life science products business (~78% of overall sales), which
comprises seven business verticals, is expected to grow at a CAGR of
~17% in FY11-14E on the back of new capacity additions and new
product launches in various geographies. We believe pricing pressure in
the life science ingredients (LSI) sub-category will be made good by
strong traction from the generic sub-category.
Valuations
We have applied the EV/EBITDA methodology to value JLS on account of
substantial debts on its books, which are here to stay for a sizable part of
its future. We have valued the stock at ~50% discount to CRAMS leader
(market cap) Divi’s Laboratories on account of 1) high leverage, 2)
diversified Group interests and 3) Divi’s superior financials. A revival in
the CRAMS space is, however, equally applicable to JLS. New product
launches and incremental capacity utilisation will drive the growth and
ease substantial balance sheet pressure. Our target price is | 209 based
on 5.5x FY14E EV/ EBITDA. The stock is currently trading at 5.1x FY14E
EV/EBITDA giving ~15% upside. We recommend BUY with a lightweight
bias.
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