BUY Jubilant Life Sciences (JULS.BO) Another Beat Citi research

Jubilant Life Sciences (JULS.BO)
Another Beat
 Another Beat — Adj net income beat Citi estimates by c28% on strong growth and
higher EBITDA margin. JULS has delivered consistent improvement in its business
over the last 5-6 quarters. It has also reined in capex. However, leverage (at 1.6x)
has not declined much, partly due to repricing of forex debt. We believe current
business momentum needs to sustain and leverage come down for a rerating.
However, valuations are attractive & provide downside support. Maintain Buy.

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 Robust Growth — Topline (+31%, 7% higher than Citi estimates) was driven by a
strong Pharma biz (+45%) & a steady Ingredients biz (+17%). A) Pharma: US Generics
(+30% QoQ, two launches, strong methylprednisolone) & Specialty (launch of
Sestamibi) – this is despite a muted Services (steep decline in Clinsys). B) Ingredients:
new capacities (pyridine & nutrition) utilization led growth – offset by pricing pressure in
nutrition & chemicals. Weak INR had an 8% favorable impact on revenues.
 Operating Leverage Drives Profitability — EBITDA margin improvement
(+222bps YoY, +133bps QoQ) continues as strong revenue growth drives operating
leverage. Pharma biz margin (+1,200bps YoY) improved but due to pricing
pressure, Ingredients biz margin was lower (c100bps YoY). Adj. net income growth
(+34% YoY) was strong despite higher interest, depreciation and taxes. Reported
net income was much lower on MTM losses (Rs1bn).
 Maintains FY13 Capex Guidance at Rs3.5bn — Management expects strong
revenue growth in FY13 (20%+) along with stable margins (c21%). This is despite
lower capex guidance in FY13 at Rs3.5bn (vs. Rs5bn average over the last five
years). Given JULS’ past record of overshooting on capex guidance, consistency in
management commentary on lower capex over the past one year is heartening. We
believe that lower capex will not only improve return ratios but also free up more cash to
service the high debt & is an important parameter to drive rerating.
 Key Earnings Call Takeaways — a) US: 48 ANDAs, 20 approved; b) API filings: 58
USDMFs, 28 CEPs; c) Fwd contracts: cUS270m @ Rs53.72/US$; d) Net debt:
Rs36.8bn; Cash: Rs2.9bn; e) Capitalizes products related R&D expenses.