ICICI Direct is bullish on Jubilant Life Sciences has recommended buy rating on the stock with a target price of Rs 550 in its research report dated Jun 01, 2020.
ICICI Direct's research report on Jubilant Life Sciences
Revenues remained flat YoY at Rs 2391.4 crore (I-direct estimate: Rs 2344 crore). Revenues in the pharma business grew 6.0% YoY to Rs 1483.4 crore (I-direct estimate: Rs 1497 crore) on the back of strong growth in specialty pharma and generics segment, partially offset by a decline in CDMO. Life science ingredients (LSI) revenues declined 9.8% YoY to Rs 823.0 crore (I-direct estimate: Rs 730 crore) due to a decline in life science chemicals and specialty intermediates business. EBITDA margins expanded 743 bps YoY to 22.4% (I-direct estimate: 19.8%) mainly due to higher gross margins and lower other expenditure. EBITDA grew 49.9% YoY to Rs 536.6 crore (I-direct estimate: Rs 465 crore). Adjusted net profit grew 92.3% to Rs 260.5 crore (I-direct estimate: Rs 198.1 crore) mainly due to a better operational performance.
Despite challenges in some revenue streams (especially in LSI segment) the FY20 narrative for the company was: significant net debt reduction, moderating capex and margin expansion. We expect pharma segment to maintain growth momentum thanks to consistency and visibility in all the three segments- specialty, CDMO and generics. On the LSI front, the performance continues to be lumpy except nutritional sub segment. As both these businesses have different fortunes and return profiles, we continue to value the company on SoTP basis till formal separation. Accordingly, we arrive at a target price of Rs 550. Despite lumpiness, the stock remains a compelling bet from a risk-reward perspective.
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