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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.
2QFY12 revenues, up 22% yoy and 11% qoq, was 9% higher than our estimate
Sales at Rs10.5 bn was 9% higher than our estimate with (1) services business comprising CMO
and DDDS sales (20% of sales) up 4% qoq due to pick-up in DDDS sales, which was up 12% qoq,
however, CMO sales were flat qoq at Rs154 mn, (2) products business grew 13% qoq and a
strong 25% yoy led by generics business performance (23% of sales) which was driven by (a)
market share gains in existing products, (b) strong volume growth led by particularly strong sales
from a single product, (c) positive pricing impact, (3) however, lifescience ingredients business
(56% of sales) was down qoq on account of decline in volume with positive pricing impact of 7%.
Decline in volumes in this segment was mainly on account of shortage of capacities, according to
the management, which is expected to correct once capacities come on stream from 2HFY12E.
EBITDA margin at 23% was higher than our estimate of 19%
Despite 11% qoq growth in sales, EBITDA margin (including other income of Rs54 mn) at 23%
was up 3% qoq due to strong margin in generics business. While margin in services business was
flat qoq at 17%, product business margin shot up to 26.8% in 2QFY12 from 23% in 1QFY12 on
account of higher margin in generics which saw strong volume and pricing growth.
We increase FY2012E-13E estimates by 16%
We expect EBITDA margin at 21.3% in 2HFY12E versus 21.6% in 1HFY12. We believe (1)
lifescience ingredients (56-60% of sales) continues to face headwinds of declining volume growth,
(2) sharp sequential margin improvement of 3% in products business in 2QFY12 may not be
sustainable possibly aided by low competition opportunity in generics and translational forex gains.
We would regard the margin improvement as sustainable when backed by growth in its core
ingredients and CMO business. Jubilant has accounted for MTM losses of Rs800 mn on part of its
forex loans in its balance sheet as per AS 30. We factor in these losses in 2HFY12E as these will be
amortized over 3 quarters starting 2QFY12 and as our INR/USD assumption is 49 for 2HFY12E.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
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.
2QFY12 revenues, up 22% yoy and 11% qoq, was 9% higher than our estimate
Sales at Rs10.5 bn was 9% higher than our estimate with (1) services business comprising CMO
and DDDS sales (20% of sales) up 4% qoq due to pick-up in DDDS sales, which was up 12% qoq,
however, CMO sales were flat qoq at Rs154 mn, (2) products business grew 13% qoq and a
strong 25% yoy led by generics business performance (23% of sales) which was driven by (a)
market share gains in existing products, (b) strong volume growth led by particularly strong sales
from a single product, (c) positive pricing impact, (3) however, lifescience ingredients business
(56% of sales) was down qoq on account of decline in volume with positive pricing impact of 7%.
Decline in volumes in this segment was mainly on account of shortage of capacities, according to
the management, which is expected to correct once capacities come on stream from 2HFY12E.
EBITDA margin at 23% was higher than our estimate of 19%
Despite 11% qoq growth in sales, EBITDA margin (including other income of Rs54 mn) at 23%
was up 3% qoq due to strong margin in generics business. While margin in services business was
flat qoq at 17%, product business margin shot up to 26.8% in 2QFY12 from 23% in 1QFY12 on
account of higher margin in generics which saw strong volume and pricing growth.
We increase FY2012E-13E estimates by 16%
We expect EBITDA margin at 21.3% in 2HFY12E versus 21.6% in 1HFY12. We believe (1)
lifescience ingredients (56-60% of sales) continues to face headwinds of declining volume growth,
(2) sharp sequential margin improvement of 3% in products business in 2QFY12 may not be
sustainable possibly aided by low competition opportunity in generics and translational forex gains.
We would regard the margin improvement as sustainable when backed by growth in its core
ingredients and CMO business. Jubilant has accounted for MTM losses of Rs800 mn on part of its
forex loans in its balance sheet as per AS 30. We factor in these losses in 2HFY12E as these will be
amortized over 3 quarters starting 2QFY12 and as our INR/USD assumption is 49 for 2HFY12E.
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