Jubilant Life Sciences -Some green shoots but long way to go… :: ICICI Securities

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Jubilant Life Sciences receives ANDA approvals for Mycophenolate Mofetil and Rizatriptan; maintain SELL rating with PT of Rs131 :: IndiaNivesh, link

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Jubilant Life Sciences -Outlook remains hazy… • :: ICICI Securities, PDF link

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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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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.

Jubilant Life Sciences -Q1FY13 review – Strong start to the year, Nomura research,

Strong guidance and improvement in profitability encouraging

Action: Retain Buy; strong start to the year
Jubilant reported strong Q1FY13 results with an adjusted PAT of
INR1.09bn, 17% higher than our estimates. Sales and core EBITDA
recorded 31% and 47% y-y growth, respectively. The growth was driven
by higher volumes across business segments (ex-DDDS) and favourable
currency movement. Management has guided for 20-22% revenue y-y
growth for FY13 and EBITDA margins of 21%. Over three years,
management has guided for a revenue CAGR of 20% with an
improvement in margins. At a quarterly adjusted net profit run rate, RoE
and RoCE were at 18% and 15%, respectively. We believe the moderation
in capex intensity and sustainable improvement in return ratios will be key
to the stock’s re-rating. The company has guided for a debt-to-EBITDA
ratio of less than 2.5x and net debt-to-equity of less than 1.0 by FY15.

Buy Jubilant Life Sciences; Target : Rs 209 : ICICI Securities PDF link

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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.

Jubilant Life Sciences (JULS.BO) Healthy Signs Continue; Leverage Remains High :: Citi

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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 ::Debt remains a concern – Maintain Buy: Emkay

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¾ Q3FY12 Results – Revenues at Rs10.9bn (up 25%YoY), b)
EBITDA at Rs2.1bn (up 58% YoY) and c) APAT at Rs771mn
(up 82% YoY)
¾ Top-line growth and EBITDA margin expansion was led by
strong traction in Generic business & favorable impact of INR
depreciation, however debt increased by Rs4bn QoQ
¾ Going forward, new capacity additions in pyridine & vitamin
business, momentum in Cadista and +ve impact of currency
will boost the top-line and the bottom-line
¾ Strengthening INR will ease out debt concerns in next
quarter – Maintain Buy with a target price of Rs348
(10xFY13E EV/EBITDA)
Revenues driven by strong traction in Generic biz and INR depreciation
n Product business (contributes 80%) grew by 24% YoY
¡ Generic business (contributes 19%) grew by 79% due to ramp-up in
Methylpredisone, Lamotrigine and Meclizine and INR depreciation
¡ Ingredients business (contributes 60%) grew by 13% led by strong API sales
on back of launch of new products i.e. Valsaratan, Donepezil and Irbesartan
n Service business (contributes 20%) grew by 32% YoY
¡ CMO business (contributes 14%) grew by 37% on account of order execution
for an MNC. DDDS business (contributes 5%) grew by 20% YoY
Debt as on Dec 31st, 2011 has increased from Rs36bn in Q2FY12 to Rs40bn in
Q3FY12 – an increase of Rs4.2bn. This was mainly due to MTM on foreign currency
loans of US$458mn and Re loan of Rs9.1bn swapped in USD.
Future Outlook
n Jubilant has set up a 10,000 mt plant for Vitamin B3 (Niacin/ Niacinamide) and has
commenced trial batches in Q2’11. Cost advantage owing to scale, vertical
integration in Beta picoline and tax incentives (as this plant is set up in an SEZ in
Gujarat) should help it to gain market share
n Company’s increased pyridine capacity has also started contributing. Management
expects increased volumes due to increase in capacity utilization. This will also
help Jubilant in backward integration for Symtet and Vitamin B3 production
n Commissioning of Symtet plant by Q1FY13 for which the company has already
signed the long term supply contract with a leading international life science co.
n At full capacity utilization – management expects Niacinamide and Symtet plant to
generate USD70mn and USD90mn respectively over the next 2-3 years
Valuations
We expect Jubilant to report 19% revenue growth in FY12 and 15% growth in FY13. We
expect EBIDTA margins to improve from 16% in FY11 to 20% in FY12 and FY13.
Earnings will grow by 21% CAGR over FY11-13E. We value the company at 10x FY13
EV/EBITDA with a target price of Rs348 and BUY rating. At CMP, the stock trades at
9xFY12E EPS of Rs20 and 7XFY13E EPS of Rs25

Result Update: Marico, Manappuram General Finance, Tamilnadu Newsprint, Jubilant Life Sciences, GSK Consumer, KSK Energy:: Emkay

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Result Update

Marico Reco: ACCUMULATE CMP: Rs 163 Target Price: Rs 172 No Hiccups, Hereon, Maintain ACCUMULATE ·      Upbeat volume growth drives performance in Q3FY12; Revenue +29.4% yoy to Rs10.6 bn, Ebidta +22.1% yoy Rs1.2 bn and APAT +21% yoy Rs841 mn ·      Domestic business registered volume growth of 13% yoy and International business registered organic growth of 16% yoy ·      Shares optimistic outlook, Volume growth of 10-12% yoy in FY13E; Parachute at 8-10%, Saffola 14-16% and Hair Oils 20% ·      Forecast strong earnings performance in ensuing quarter, Retain FY13E earnings at Rs7.5/Share. Maintain ACCUMULATE rating with target price of Rs172/Share

Manappuram General Finance Reco: HOLD CMP: Rs 59 Target Price: Rs 65 Results inline; price led growth a concern ·      MAGFIL results inline with expectation with NII at Rs4.3bn and net profit at Rs1.6bn. The growth driven by strong advance growth and broadly stable NIM’s at 13% ·      AUM growth strong at 90%yoy supported by 63%yoy increase in customer base in commensurate with 53%yoy increase in branch network ·      Despite aggressive additions of 1345 branches over last  five quarters, the gold stock additions have seen consistent decline from 9.4MT/qtr to 4.3MT/qtr ·      MAGFIL continue to grow at a healthy pace, however sustainability of the same amid rising competition and any regulatory change in NPA recognition to 90dpd is under ques

Tamilnadu Newsprint Reco: ACCUMULATE CMP: Rs 93 Target Price: Rs 110 Disappointing results; trim estimates ·      Q3FY12 results disappointed due to lower sales volumes & higher input cost. Sales increased by 13%yoy  to Rs 3.1 bn. EBITDA margin declined by 700bps yoy/900bps qoq to 19.1% ·      TNPL reported adjusted loss of Rs 177mn against est of profit of Rs 22mn. APAT has been adjusted for EO gain of Rs 1bn (tax adjusted Rs 812mn) on forward currency contract. ·      Inventory builtup to the tune of ~60,000mt is a key concern which is likely to put pressure on near term realisations and EBITDA margins ·      Due to weak Q3FY12 results we have reduced our FY EPS est to Rs 1.3 (from Rs 9.1). On back of compelling valuations (40% discount to BV) we maintain Accumulate

Jubilant Life Sciences Reco: BUY CMP: Rs 177 Target Price: Rs 348 Debt remains a concern – Maintain Buy ·      Q3FY12 Results – Revenues at Rs10.9bn (up 25%YoY), b) EBITDA at Rs2.1bn (up 58% YoY) and c) APAT at Rs771mn (up 82% YoY) ·      Top-line growth and EBITDA margin expansion was led by strong traction in Generic business & favorable impact of INR depreciation, however debt increased by Rs4bn QoQ ·      Going forward, new capacity additions in pyridine & vitamin business, momentum in Cadista and +ve impact of currency will boost the top-line and the bottom-line ·      Strengthening INR will ease out debt concerns in next quarter – Maintain Buy with a target price of Rs348 (10xFY13E EV/EBITDA)

GSK Consumer Reco: ACCUMULATE CMP: Rs 2,637 Target Price: Rs 2,743 16% volume growth in Horlicks, Retain Accumulate ·      One-offs in A&P spends and Tax outgo impact performance, APAT growth curtailed to 11% yoy to Rs591 mn ·      Horlicks bounces back with volume growth of 16% yoy, but MFD volume growth of 12% yoy… ·      GSK has raised product prices by 8% on Boost portfolio effective December 2011 and 4% on Horlicks portfolio effective January 2012 ·      Maintain Earnings estimates for CY12E, Remains preferred play within 3 themes in Consumer sector, Maintain ‘ACCUMULATE’ with target price of Rs 2,743

KSK Energy Reco: HOLD CMP: Rs 72 Target Price: Rs 75 Improvement in coal supplies; maintain hold ·      3Q12 PAT of Rs755mn above exp. driven by i) fuel cost (-7% qoq) and ii) other income (+57% qoq). Linkage coal supply better for Wardha/Arasmeta I. Issues continued with Arasmeta II (no fuel) and Sitapuram ·      Co. confident of getting 70-75% linkage coal for Wardha in 4Q vs 60% in 3Q, resulting in fuel cost of Rs2.4-2.5/unit vs 3Q at Rs2.9/unit. Have factored Rs2.9/unit fuel cost in FY13 for Wardha, would wait for 4Q to change our assumption ·      Open access received for Wardha, co. in process of signing BPTA. Captive power supplies to start from Mar12. PPAs at 10-20% discount to ind. grid power rates in Maharashtra ·      Were expecting run up post 2Q, on attractive valuations & better 3Q. But, CMP prices in (1) ~50-60% linkage coal for Wardha & (2) Mahanadi I. Maintain Hold; Upside triggers - (1) 60% + linkage coal for Wardha & (2) alternative block

JUBILANT LIFESCIENCES:: 3QFY12 preview :: Nomura research

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Currency depreciation, Cadista, Neutraceuticals and API to drive growth
On the positive side, we believe JOL's performance in the quarter will be assisted by
currency depreciation and some pickup in neutraceuticals and API sales (sartans).
However, we expect some sequential moderation in Cadista performance and Lipitor
formulation contract for Japan. We understand JOL has extended the contract that will
restart the Japan Lipitor generic contract again from 4QFY12. In 2QFY12, the generics
business performance was largely driven by Cadista, which benefited from higher prices
in specific products like Methylprednisolone. Methylprednisolone tablet sales for Cadista
increased by USD18mn q-q in 2QFY12. Our interaction with the management suggests
that for the generic segment there could be some slowdown sequentially, but y-y growth
is likely to remain robust. We factor in 25% y-y growth in revenues.
Building in some moderations in margins q-q
In 2QFY12, JOL reported its highest-ever EBITDA, largely driven by strong performance
at Cadista, in our view. Cadista EBITDA improved by almost USD15mn in 2QFY12 q-q,
in our view. As we factor in some sequential drop in Cadista performance, we project
EBITDA margin at 20.6% compared to 22.7% in 2QFY12, but is significantly higher than
15% recorded in the year ago period. We have factored in INR650mn in forex losses, in
line with what was reported in the previous quarter. However, the reported losses could
be lower if company decides to implement the new rule 46A, which allows companies to
amortise losses over March 2020. As per the company in September 2011, foreign debt
was ~USD540mn (including FCCB), or 85% of the outstanding gross debt.

Jubilant Life Sciences - Turning around; visit note; :: Edelweiss

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Jubilant Life Sciences  (JOL IN, INR 174, Not Rated)

Jubilant’s (JOL) recent performance highlights improvement in the core business. Capacity ramp-up, new orders and improved realizations have enhanced earnings visibility. Management is confident of maintaining current growth rate (over 20%) and operating margins in the range of 22-23%. With improved earnings visibility and focus on balance sheet, we expect the company to trade in its long term 1 yr fwd avg. multiple of 11X.

Capacity ramp-up, dosage form enhance outlook

Capacity ramp-up of vitamin D3 and Pyridine, new contracts and new launches in generic dosage form have enhanced growth visibility for JOL. During H1FY12, revenues grew by 19%, driven by strong growth in product division. JOL expects such momentum to continue over FY12/13 as well. We believe that its decision to demerge non-core business has improved growth visibility.

Operating margins to improve to 22-22.5% level

During H1FY12, EBIDTA grew by 46% to INR4.3bn translating into EBIDTA margins of 21.4% (up 400bps YoY). Such a strong performance was largely driven by a 3.5x increase in services business (17% OPM) and 140bps expansion in products division (25% OPM). Going forward, with a further ramp-up in capacity utilization in CMO business, improved realization in Pyridine and restructuring of Clinsys, we expect operating margins to improve by 100 bps to 22.5% by FY13.

Capex cycle peaks out, focus to improve DE, ROCE

Jubilant has invested over INR41bn during FY07-11 and has guided for INR5bn in capex for FY12. However, going forward, management has indicated an annual capex of INR2bn-INR2.5bn. Company’s focus over the next two years, would be to reduce debt (DE at 1.8x in FY11) and improve the RoCE from the current level of 7%.

Valuations: trading at 40% discount to historical average

We expect JOL to report revenue and earnings CAGR of 18% and 45% over FY11-13E. Historically, Jubilant has traded at one year forward multiple of 11x. At CMP of INR174, the stock is trading at 6.7X FY13 consensus EPS of INR26.

Jubilant Life Sciences - Growth momentum continues :: Emkay PHARMA CONFLUENCE 2011

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Jubilant Life Sciences
Growth momentum continues
Mrs. Nidhi Aggarwal – Senior V.P. Investor Relations shared her view
on the industry and the company
Key Highlights
n US$80mn contract for Symtet - Jubilant Life has signed a long term supply
agreement in Proprietary Products business for Symtet with a leading international
Life Sciences company. The total contract is valued at over US$ 80 mn to be
supplied in 3 years starting from Q1FY13.
n US$70mn contract in CMO business - Jubilant’s North American subsidiary,
Jubilant HollisterStier, has entered into a multi year contract with a leading US
pharma company to manufacture a prominent over the counter (OTC) women health
and personal care product at its Montreal facility. This contract spans for a period of
over 4 years with a possibility of extension for another 2 years for a higher quantity.
The production of the product has already started in Sept’ 2011
n Jubilant has expanded its Pyridine capacity by another 20% to 55000 tons and now
has a global leadership position. This will help the company in backward integration
for Symtet and Vitamn B3 production. This plant will also produce other value added
products such as – Niacin, Niacinamide and Symtet. This will help the company to
expand margins
n Symtet plant is likely to be commissioned by Q4FY12. Niacinamide plant (10,000 mt)
has already been commissioned in Oct’11 and the company has plans to achieve 20-
25% capacity utilization in FY12. Jubilant is the largest producers of Beta-picoline,
which is the key raw material used for production of Niacin/Niacinamide. Cost
advantage owing to scale, vertical integration in Beta picoline and tax incentives (as
this plant is set up in an SEZ in Gujarat) should help it to gain market share
n For the generic business – Strong pipeline of 40 ANDAs backed by own APIs,
contract with a Japanese company for supply of API and CVS formulation & more
than 25 launches in regulated markets will drive revenues
n Guidance – The Company expects sales growth of 18-20% in FY12. Increase in
capacity utilization and cost optimization will help Jubilant Life to maintain EBITDA
margins at 20-22% going ahead. Capex of Rs5bn planned for FY12, expected to
generate revenue of over Rs12bn at full capacity utilisation
n Concerns on leverage will be addressed by lowered capex spends over next 3 years
- restricting it to Rs9bn. The company has ~Rs16bn debt in Re terms and US$415mn
in foreign currency. Company is targeting net debt / equity of 1:1 led by increasing
profitability
Valuations
We expect Jubilant to report 12% revenue growth in FY12 and 20% growth in FY13. We
expect EBIDTA margins to improve from 16.1% in FY11 to 19.1% in FY12 and 19.3% in
FY13. Earnings will grow by 21% CAGR over FY11-13E. We value the company at 10x
FY13 EV/EBITDA with a target price of Rs359 and BUY rating. At CMP, the stock trades
at 11xFY12E EPS of Rs17.7 and 8XFY13E EPS of Rs25

Jubilant Lifesciences :Gaining strength; 2QFY12 significantly strong: Nomura Research

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Strong sequential improvement in sales
2QFY12 sales of INR10.5bn (23% y-y, 10.7% q-q) were significantly
higher than our expectations. The key surprise was a strong pick-up in
the generics business, which increased by US$24mn sequentially. As
per company, growth in the generics segment was driven by new
launches, market share gains in existing products (including some
opportunistic market share gain on supply disruptions from the
competition) and some price increases. The company expects to sustain
the current momentum in the business.
Outlook growth positive
Management sounded positive on the growth outlook for 2HFY12. It
expects growth to be driven by new capacities and higher capacity
utilisation. The company recently commissioned a 10000 TPA
Niacinamide and intermediate facility at SEZ in Gujarat. The facility
presents peak sales potential of US$75mn, as per the company, which is
1.76x the FY11 segment sales. The generic and API segment growth is
expected to be driven by patent expiries. Sartans will likely be a key
growth driver in the near term as patents expire over the next 24 months.
JOL has installed one of the largest generic sartan capacities. The
capacity is expected to generate a turnover of US$60mn at full utilisation
at current prices, which is almost 80% of current sales, according to
management.
Margin improvement trend sustains in the quarter
The EBITDA margin in the Life Sciences product business recorded a
substantial improvement of 366bps q-q. The Services business margins
were stable at mid-high teens. The gross margin at 63.16% was the
highest in the last 10 qtrs. A pick-up in volumes, better capacity
utilisation, cost rationalisations and some price increases all contributed
to outperformance at the EBITDA level. EBITDA at INR2.38bn was the
highest ever recorded by the company and substantially higher than our
expectations of INR1.85bn.
MTM losses of INR426m in the quarter
Excluding the unrealised MTM losses in the quarter, the company
reported PAT of INR1.42bn. The company hasn’t taken any hedging
position and hence should benefit if the INR remains at the current level.
As per the company, every INR1 depreciation in the USD/INR exchange
rate can add approximately INR150mn to EBITDA.
Estimates are under review
With 1HFY12 EBITDA at 58% of our full-year projection and an expected
stronger 2HFY12F aided by favourable currency movement, our
estimates are under review. We retain our Buy rating.

Jubilant Life Sciences: Strong results due to generics business

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Jubilant Life Sciences (JOL)
Pharmaceuticals
Strong results due to generics business. PAT excluding forex at Rs1.2 bn beat our
estimate due to higher operating margin, up 3% qoq thanks to strong performance of
generic business (23% of sales) and lower tax rate. Topline beat our estimate by 9%
due to beat in generics, however, core CMO and pyridines business (70% of sales)
remain lackluster, down qoq with the latter witnessing no volume growth. We increase
our FY2012-13E EPS by 16% on account of new contracts signed and higher INR/USD
assumption. We need to see volume growth in lifescience ingredients business and a
sustainable pick-up in CMO before turning positive. Sharp sequential margin
improvement of 3% may not be sustainable possibly aided by low competition in
generics and forex. Maintain REDUCE with PT at Rs210 (was Rs205), 8X FY2013E EPS.

Jubilant Life Sciences Growth momentum continues – Maintain Buy ::Emkay,

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Jubilant Life Sciences

Growth momentum continues – Maintain Buy

BUY

CMP: Rs200                                        Target Price: Rs359

---

n     Jubilant’s Q2FY12 numbers were above expectations with Revenues at Rs10.5bn (up 22% YoY), EBITDA at Rs2.4bn (up 61% YoY) and APAT at Rs794mn (up 8% YoY)

n     Top-line growth and EBITDA margin expansion was primarily led by ramp-up in Cadista business & favorable impact of INR depreciation since company has no forward covers

n     Going forward, new capacity additions in pyridine & vitamin business, momentum in Cadista and +ve impact of currency depreciation will boost the top-line and the bottom-line

n     Maintain Buy with a target price of Rs359 (10xFY13E EV/EBITDA)

Jubilant Life Sciences Business back on growth trajectory – Upgrade to Buy::Emkay

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Jubilant Life Sciences

Business back on growth trajectory – Upgrade to Buy

BUY

CMP: Rs216                                        Target Price: Rs359

---

n     Signed two long term contracts worth US$150mn in CRAMS for 3-4 years

n     These contracts which are in CMO and Pyridine business, expected to commence in H2FY12 and Q1FY13 respectively

n     Business is getting back on growth trajectory and new capacity additions in H2FY12 will provide further impetus

n     Upgrade the stock to BUY with a target price of Rs359 (10xFY13E EV/EBITDA)

Goldman Sachs, :: Jubilant Life Sciences ::Two large contracts reaffirm gradual recovery is on track; Buy

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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

Jubilant Life Sciences: Significant operational improvement though may not be sustainable::Kotak Sec,

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Jubilant Life Sciences (JOL)
Pharmaceuticals
Significant operational improvement though may not be sustainable. Sales were
in line with our estimate with margin surprising at 20% versus our estimate of 17.5%,
up 470 bps qoq due to (1) pick-up in life science ingredients with generics flat qoq in
dollar terms, (2) milestone income and (3) pricing increase of around 5% yoy. However,
we remain skeptical about the company sustaining this performance as (1) life science
ingredients volume growth of around 11% is lower than 14% in FY2011and (2)
services business margin is up sharply on receipt of milestone income. We increase
FY2012-13E estimates by 2-18% to reflect higher product margin and sales from
Symtet plant. Maintain REDUCE with PT at Rs225 (was Rs195), 10X FY2013E EPS.


1QFY12 revenues, up 6% qoq, in line with our estimate
Sales at Rs9.4 bn were in line with our estimate (1) services business (22% of sales) up 7% qoq
due to pick-up in CMO sales, up US$5 mn qoq and receipt of milestone income in drug discovery
business, although DDDS sales were still 8% lower qoq, (2) products business grew 6% qoq led by
lifecycle ingredients business, up US$10 mn qoq on account of volume growth and price increases
with generics flat qoq. Overall volume growth was 11% and price growth was 5% leading to yoy
sales growth of 16%.
EBITDA margin at 20% was higher than our estimate of 17.5%
EBITDA margin (including other income of Rs50 mn) was up 472 bps qoq at 20% on account of
(1) higher margin in products business at 23%, up from 19.6%, in 4QFY11 and flat yoy due to
volume growth and pricing increase as prices had dipped in 2HFY11 resulting in poor margin in
4QFY11, and (2) services business margin increased to 17%, from 10% in 4QFY11 and 6% in
1QFY11. We believe such sharp sequential improvement is likely on account of milestone income
from two partners—Astrazeneca and Endo as reported by the company in June 2011.
We increase FY2012-13E estimates by 2-18%
We expect EBITDA margin to sustain in the products business at 20% in 9MFY12E versus 23% in
1QFY12 and at 13% in services versus 17% in 1QFY12 as excluding milestone income, drug
discovery is yet to show sales improvement. We believe (1) life science ingredients (65% of sales)
still continue to face headwinds of declining volume growth—assuming pricing growth is 5% in
line with overall pricing growth, volume growth is around 11% for this business in 1QFY12, flat
qoq and down from 15% in 3QFY11 and 14% in FY2011, and (2) EBITDA margin in services
business is not sustainable as it’s likely to have been boosted by receipt of milestone fees this
quarter.

Jubilant Life Sciences- Business getting back to normal– Accumulate:: Emkay

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Jubilant Life Sciences

Business getting back to normal– Maintain Accumulate

ACCUMULATE

CMP: Rs207                                        Target Price: Rs248

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n     Jubilant’s Q1FY12 numbers were above expectations with Revenues at Rs9.5bn (up 16% YoY), EBITDA at Rs1.9bn (up 32% YoY) and APAT at Rs806mn (up 17% YoY)

n     Revenue growth was mainly led by growth in API & dosage business. Margin expansion was due to milestone payment in DDDS, decline in SGA & new product launches in API

n     Commissioning of Vitamin plant and increase of Pyridine capacity by 20% in H2’12 and commissioning of Symtet plant by year end are the key positives to look forward

n     Upgrade estimates - Maintain Accumulate on the stock with a revised target price of Rs248 (9xFY13E EV/EBITDA)