Accumulate Jubilant Life; target of Rs 208: Emkay

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Accumulate Jubilant Life; target of Rs 208: Emkay

Emkay Global Financial Services is bullish on Jubilant Life Sciences and has recommended accumulate rating on the stock with a target of Rs 208 in its June 24, 2011 research report.

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Emkay Global Financial Services is bullish on Jubilant Life Sciences and has recommended accumulate rating on the stock with a target of Rs 208 in its June 24, 2011 research report.

"Jubilant Life Sciences has received 2 milestone payments -from Endo Pharma and AstraZeneca in Q1FY12. With this payment and improvement in services business, EBITDA margins are slated to expand by 400-500bps in research services during FY11-12 to ~10%. o Jubilant Life's Drug discovery business deteriorated in FY11 on account of unabsorbed fixed cost due to lower capacity utilization and absence of new contracts. Margins in research business (contributes 22% of revenues) declined from 15.8% in FY10 to 4.6% in FY11. However, with improving outsourcing scenario, business is coming back to normal in FY12."

"Company has successfully repaid its FCCB and swapped its domestic debt of Rs. 10 bn with the low cost foreign currency debt and with this the overall cost of debt has come down to less than 6%. At present, all the negatives are built in the stock price. From here onwards things will improve for the better. FY12 will be the year of transition where company is improving the efficiencies, cutting the cost, putting new capacities in its core business i.e. Pyridines business. Full impact will be visible in FY13; however improvements will start from this year. Initially, the recovery will be lumpy but once all the businesses will come back to normal then the company will be back to its old growth path."

"We expect Jubilant to report 11% revenue growth in FY12 and 13% growth in FY13. We expect EBIDTA margins to improve from 16.1% in FY11 to 17.3% in FY12 and 17.9% in FY13. Core earnings will decline by 13%in FY12 due to sharp increase in debt cost. We value the company at 8.5x FY13 EV/EBITDA with a target price of Rs208 and upgrade the stock one-notch to Accumulate. At current price of Rs 163, the stock trades at 13xFY12E EPS of Rs12.5 and 9.2XFY13E EPS of Rs17.6," says Emlay Global Financial Services research report.

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