Motilal Oswal neutral on Jubilant Life Sciences

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Motilal Oswal neutral on Jubilant Life Sciences

Motilal Oswal has maintained neutral rating on Jubilant Life Sciences with a target of Rs 212, in its August 10, 2011 research report.

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Motilal Oswal has maintained neutral rating on Jubilant Life Sciences with a target of Rs 212, in its August 10, 2011 research report.

"Jubilant Life Sciences, top-line grew 15.5% YoY to INR9.45b (against our estimate of INR8.95b), EBITDA grew 29.5% YoY to INR1.82b (against our estimate of INR1.32b) and PAT grew 52.9% YoY to INR770m (against our estimate of INR438m) led mainly led by better operational performance and lower foreign exchange losses. Overall, the life sciences products business revenue grew 19% YoY to INR7.39b (contributed 78% of revenue) led by volume growth and better pricing. Revenue at the life science services business grew just 4.6% YoY to INR2.1b. EBITDA increased 29.5% YoY to INR1.82b led by the services business and EBITDA margins were 19.3% (up 210bp). The product business posted small margin improvement but margin improvement in the services business was significant. Adjusted PAT declined 55% YoY to INR617m, led by poor operational performance. However the decline in PAT was partly restricted by negative tax expenses in 1QFY12."

"We believe the demerger of the APP business is a positive step as it reflects the management's intention to adopt a focused approach for the PLSPS business. The demerger will also lead to improved RoCE for JOL as the APP business accounted for only 2% of its FY10 EBITDA but 6% of capital employed. Though JOL reported strong performance in 1QFY12, we believe JOL will have to consistently deliver better performance in the coming quarters. Some of the past acquisitions (like Draxis) were made at expensive valuations, resulting in extended payback periods and lower return ratios. High debt and low RoCE (11-13%) are an overhang. Based on our revised estimates, the stock trades at 12.5x FY12E EPS and 8.8xFY13E EPS. We maintain a Neutral rating with a target price of INR212 (9x FY13E EPS)," says Motilal Oswal research report. 

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