Jubilant Life Sciences, Sales down 4% y-y, EBITDA down 61% y-y and adjusted PAT in red for the quarter: :: IndiaNivesh

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Results – below expectation; Inferior performance in pharma
as well as LSI segment adversely impacts earnings for the
quarter
Jubilant Lifescience (JOL IN) showed loss of Rs987mn, led by segment specific issues,
resulting in lower profitability in pharmaceuticals as well as life Science Ingredients
(LSI) category. We cut our earnings estimates by 83% and 12% for FY15E and FY16E
to factor impact of reduced uptake of pyridine in China and gradual improvement
in US business from Spokane facility. Accordingly we revise our price target to
Rs131 (from Rs154 earlier) on 6x EV/EBITDA basis. We downgrade JOL to SELL
from HOLD as our price target implies downside of 19% from current levels.

Sales down 4% y-y, EBITDA down 61% y-y and adjusted PAT in red for the quarter:
JOL reported highest ever adjusted Loss of Rs987mn in past sixteen quarters. The
11% y-y decline in pharmaceutical sales and muted growth of 2% y-y in LSI sales led
to overall sales decrease by 4.4% y-y to Rs13.6bn. In addition, EBITDA margin declined
by 1409bps y-y and 863bps y-y in pharmaceutical and LSI category resulting in overall
EBITDA margin to decline by 1074bps y-y. The overall EBITDA margin was impacted
to some extent in previous quarter due to shutdown at Spokane facility. In addition
to this, EBITDA margin for LSI segment got impacted in this quarter due to regulatory
changes and increased competition in advanced intermediate segment. The interest
cost, which grew by 17% y-y continued to further dampen the financial performance
of the company, resulting in loss of Rs987 for the quarter.
Contraction in Pharmaceutical sales continued for second consecutive quarter:
The pharmaceutical sales at Rs6.1bn, declined by 11% y-y, mainly due to shutdown
of Spokane facility on account of USFDA warning letter, solid dosage formulation
order postponement in Japan and delays in product approval in US. The operating
performance was further impacted due to expense worth Rs350mn for change in
plant to meet regulatory requirement, consultancy charges and rejection of some
material. Management expects these expenses to drop down sharply in coming
quarters. The other cateogories in this segment – radiopharmaceutical and CMO,
progressed as per the expectation.
LSI segment showed steep drop in y-y growth to 2%: The sales came in at Rs7.6bn.
The sales growth of this segment was affected by changes in regulatory requirement
for aqeous Paraquat formulation, increased competition and lower realization on
account of anti-dumping duty. The review of anti-dumping duty is expected in
November 2014. Management expects the regulatory change and anti-dumping
duty to stabilize in next 3-6 months. The production challenge continues for Symtet,
despite robust demand and firm pricing for the same. Above mentioned factors
also led to sharp erosion in operating margin for the quarter. The life-science
chemicals conitued to show increased traction on account of new contracts and
increased prices for key products.
Valuation: At CMP of Rs163, the stock is trading at 11.8x FY15E EV/EBITDA and 7.0x
FY16E EV/EBITDA. We reduce our earnings estimates by 83% and 12% for FY15E
and FY16E to incorporate inferior performance in advance intermediate segment
and delay in getting product approvals from USFDA and gradual pick-up in sales
from Spokane facility. Accordingly we reduce our price target to Rs131 from Rs154
LINK
http://www.indianivesh.in/Admin/Upload/635501736743680000_Jubilant%20Life%20Sciences_Q2FY15%20Result%20Update.pdf