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EBITDA margin expansion in 1Q12 (led by improved capacity utilisation, commissioning of new
facilities and pricing improvements in its products business) was the key positive from the results.
This justifies our expectations of a stronger FY12F on yoy basis. However, high debt remains a
concern. Buy.
1Q12 revenues marginally ahead of estimates...
�� Jubilant reported 1Q12 revenues of Rs9.4bn (+15% yoy) 6% ahead of our estimate of
Rs8.9bn.
�� Life Science product division (78% of FY11 revenues) grew by 20% yoy to Rs7.4bn. Life
Science ingredients (proprietary products and exclusive synthesis, nutritional ingredients, Life
science chemicals and API) grew by 18% to Rs6.1bn while the Generics division (radio
pharmaceuticals, allergenic extracts and dosage forms) grew by 32% to Rs1.3bn
�� Life Science services division (22% of FY11 revenues) witnessed a muted growth at 5%
(Rs2.1bn). The CMO service businesses, is showing signs of recovery and grew by 9% yoy to
Rs1.5bn while the Drug Discovery and Development business (DDDS) declined 5% yoy to
Rs520m.
…but EBITDA margin expansion positively surprised us
�� While gross margin improved by only 20bps yoy and 86bps qoq to 47.4% in 1Q12, EBITDA
margin made a sharp recovery (209bps yoy and 487bps qoq) to 19.3% on the back of strong
performance in both its business segments - Life Science products and Life Science services.
�� The EBITDA margin of the Life Science products stood at 23.1% in 1Q12 vs.22.9% in 1Q11
and 19.6% in 4Q11. This margin improvement was on account of successful implementation
of enhanced vertical integration, innovation led cost optimisation and improved capacity
utilisation.
�� The Life Science services division witnessed a significant expansion in margin from 6.3% in
1Q11 to 17.3% in 1Q12 (10.3% in 4Q11) led by successful implementation of margin
improvement initiatives and increased capacity.
�� The yoy margin expansion was also aided by lower staff costs as a percentage of sales
(20.1%, -155bps yoy) reflecting higher productivity and the sequential expansion was even
led by lower SG&A expense (8.1% of sales, -355bps qoq).
�� PBT was Rs967m (27% yoy); Tax rate came in at 15.7% vs. 7.6% in 1Q11.
�� Core PAT was Rs813m (14% yoy) vs. our estimate of Rs669m and consensus of Rs611m.
�� The company registered an exceptional items (forex related) loss of Rs42m, adjusted for
which reported PAT came in at Rs771m (53% yoy).
High debt remains a concern
�� Jubilant’s net debt increased from Rs28.4bn as of end-March 2011 to Rs32.8bn as of end-
June 2011, with net gearing increasing to 148% from 123% over the same period. The
increase in debt was largely due to the yield to maturity (YTM) payment of US$69m on the
redemption of its US$140m FCCBs.
�� 1Q results were impacted by higher interest costs due to the increase in debt. Interest costs
increased from Rs195m in 1Q11 to Rs434m in 1Q12 (Rs323m in 4Q11).
�� However, we observe that the company has reduced the share of relatively expensive rupee
debt (at 11% pa) to its overall debt from 40% as of end-March 2011 to 19% as of end-June
2011 which has helped it reduce its average cost of debt to 6% pa.
Management is optimistic on sustaining margin momentum
�� The management, in its 1Q analyst presentation, expects to continue building on the robust
sustainable revenue and margin growth momentum recorded in 1Q.
�� It expects the revenue growth in the products business to be driven by commissioning of new
capacities and geographic expansion into high growth markets while margins to be driven by
improved capacity utilization and increased vertical integration.
�� The management further expects increased capacity utilization, higher margin product mix
and cost optimization to drive margins in the services business.
We expect a stronger FY12; maintain Buy
�� We continue to believe that FY12 would be stronger benefiting from commissioning of new
facilities, pricing improvements in its products business and our expectations of recovery in
global outsourcing business.
�� Our TP of Rs230 is derived by valuing the company on a blended FY12F EV/EBITDA of 9.9x.
We retain our Buy rating on potential near-term growth catalysts and attractive valuations, on
our analysis.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
EBITDA margin expansion in 1Q12 (led by improved capacity utilisation, commissioning of new
facilities and pricing improvements in its products business) was the key positive from the results.
This justifies our expectations of a stronger FY12F on yoy basis. However, high debt remains a
concern. Buy.
1Q12 revenues marginally ahead of estimates...
�� Jubilant reported 1Q12 revenues of Rs9.4bn (+15% yoy) 6% ahead of our estimate of
Rs8.9bn.
�� Life Science product division (78% of FY11 revenues) grew by 20% yoy to Rs7.4bn. Life
Science ingredients (proprietary products and exclusive synthesis, nutritional ingredients, Life
science chemicals and API) grew by 18% to Rs6.1bn while the Generics division (radio
pharmaceuticals, allergenic extracts and dosage forms) grew by 32% to Rs1.3bn
�� Life Science services division (22% of FY11 revenues) witnessed a muted growth at 5%
(Rs2.1bn). The CMO service businesses, is showing signs of recovery and grew by 9% yoy to
Rs1.5bn while the Drug Discovery and Development business (DDDS) declined 5% yoy to
Rs520m.
…but EBITDA margin expansion positively surprised us
�� While gross margin improved by only 20bps yoy and 86bps qoq to 47.4% in 1Q12, EBITDA
margin made a sharp recovery (209bps yoy and 487bps qoq) to 19.3% on the back of strong
performance in both its business segments - Life Science products and Life Science services.
�� The EBITDA margin of the Life Science products stood at 23.1% in 1Q12 vs.22.9% in 1Q11
and 19.6% in 4Q11. This margin improvement was on account of successful implementation
of enhanced vertical integration, innovation led cost optimisation and improved capacity
utilisation.
�� The Life Science services division witnessed a significant expansion in margin from 6.3% in
1Q11 to 17.3% in 1Q12 (10.3% in 4Q11) led by successful implementation of margin
improvement initiatives and increased capacity.
�� The yoy margin expansion was also aided by lower staff costs as a percentage of sales
(20.1%, -155bps yoy) reflecting higher productivity and the sequential expansion was even
led by lower SG&A expense (8.1% of sales, -355bps qoq).
�� PBT was Rs967m (27% yoy); Tax rate came in at 15.7% vs. 7.6% in 1Q11.
�� Core PAT was Rs813m (14% yoy) vs. our estimate of Rs669m and consensus of Rs611m.
�� The company registered an exceptional items (forex related) loss of Rs42m, adjusted for
which reported PAT came in at Rs771m (53% yoy).
High debt remains a concern
�� Jubilant’s net debt increased from Rs28.4bn as of end-March 2011 to Rs32.8bn as of end-
June 2011, with net gearing increasing to 148% from 123% over the same period. The
increase in debt was largely due to the yield to maturity (YTM) payment of US$69m on the
redemption of its US$140m FCCBs.
�� 1Q results were impacted by higher interest costs due to the increase in debt. Interest costs
increased from Rs195m in 1Q11 to Rs434m in 1Q12 (Rs323m in 4Q11).
�� However, we observe that the company has reduced the share of relatively expensive rupee
debt (at 11% pa) to its overall debt from 40% as of end-March 2011 to 19% as of end-June
2011 which has helped it reduce its average cost of debt to 6% pa.
Management is optimistic on sustaining margin momentum
�� The management, in its 1Q analyst presentation, expects to continue building on the robust
sustainable revenue and margin growth momentum recorded in 1Q.
�� It expects the revenue growth in the products business to be driven by commissioning of new
capacities and geographic expansion into high growth markets while margins to be driven by
improved capacity utilization and increased vertical integration.
�� The management further expects increased capacity utilization, higher margin product mix
and cost optimization to drive margins in the services business.
We expect a stronger FY12; maintain Buy
�� We continue to believe that FY12 would be stronger benefiting from commissioning of new
facilities, pricing improvements in its products business and our expectations of recovery in
global outsourcing business.
�� Our TP of Rs230 is derived by valuing the company on a blended FY12F EV/EBITDA of 9.9x.
We retain our Buy rating on potential near-term growth catalysts and attractive valuations, on
our analysis.
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