Jubilant Life Sciences Research Reports By Motilal Oswal & ICICI-Direct

Research report by Motilal Oswal

Multiple triggers in place to drive earnings

Jubilant Life Sciences (JLS), part of Jubilant Bhartia Group, is an integrated pharmaceuticals and life sciences company engaged in the manufacture of radiopharmaceuticals, allergy products, generics, advance intermediates, nutritional products and life science chemicals. JLS also provides services in contract manufacturing and drug discovery solutions. JLS’ operations are spread across the world, including India, the US, Canada, Europe and other countries.

– All sub-segments in pharmaceuticals (52% of total sales) are well poised for growth, in our view. Compared to peers, JLS has a unique portfolio of specialty pharmaceuticals, which includes radiopharmaceuticals, allergy products and CMO. We expect the company’s differentiated products & distribution strategy and long-term contracts to lead to 18% CAGR (FY17- 20) in radiopharmaceuticals sales, while enhanced marketing efforts to improve productivity should lead to 20% CAGR (over FY17-20) in allergy products sales. High entry barriers for developing and manufacturing are expected to further improve profitability.

– JLS is also expected to perform well in the life science ingredients (LSI) segment (45% of total sales), driven by product launches and price hikes in key products. Post 4.2% compounded decline in revenues over FY14-17 due to product-specific issues, LSI is expected to post revenue CAGR (FY17-20) of 10.2% to INR36.2b.

– JLS has successfully cleared US FDA inspections at its various facilities in the past three years. Notably, it resolved warning letters at Spokane and Montreal within 12-15 months. While peers are faced with numerous regulatory headwinds, we believe JLS has minimal regulatory risks over the medium term.

– The company’s debt-reduction program (from internal accruals) remains on track. This is expected to reduce financial leverage from 1.1x in FY17 to 0.4x in FY20. This, along with lower-cost debt, is expected to improve the interest coverage ratio from 3.1x in FY17 to 6.6x by FY20. Overall, for JLS, we expect PAT CAGR (FY17-20) of 22.9%.

– We value JLS on an SOTP basis, assigning 11x EV/EBITDA to the Pharma business and 4.5x EV/EBITDA to the LSI business. We value the Pharma business at industry average, as the share of high-margin segments is increasing in the pharma portfolio. Accordingly, we initiate coverage on JLS with a Buy rating and a price target of INR905.

Research report by ICICI-Direct

Margin accretive businesses on faster track; maintain BUY

Q1 revenues were more or less in line while net profit was below expectation due to higher taxation. Going forward, we expect margins to improve through FY19 on the back of the tilt of product mix towards margin accretive businesses, especially Radiopharma. For Radiopharma, we expect contribution to pharma revenues to improve from 25% in FY17 to 31% in FY19E. On the LSI business front, we expect product rationalisation to continue. With an improved visibility led by improvement in product approvals and a better segment mix we expect a continuous improvement in free cash flow generation and focus on debt repayment. We have ascribed a target price of Rs 845 (SOTP basis) based on 1) 14x FY19E EPS of Rs 59 and 2) Rs 17 pre share valuation of the acquired pharmacy business.