HDFC Securities is bullish on Jubilant Life Sciences has recommended buy rating on the stock with a target price of Rs 845 in its research report dated July 29, 2019.
HDFC Securities' research report on Jubilant Life Sciences
Revenue grew 5.0% YoY driven by the pharma segment. The sequential fall of 8.5% was led by higher de-growth in the LSI biz. The mgmt is considering a de-merger of the two businesses into individual entities, which will unlock shareholder value. Pharma rev at Rs 13.21bn grew 12% YoY led by expanded CDMO capacities, and growth in Ruby-Fill, venoms, and allergy. Sartan API sales were lower due to additional quality checks. Generics witnessed lower volumes, to normalize over 2H. Further capacity expansion in CDMO (3QFY20) and market share gains in Ruby-Fill, along with ongoing ANDA filings from the new unit will drive growth (+9% CAGR over FY19-22E). 1QFY20 saw a healthy ramp up in specialty ingredients and advanced intermediates, as well as better pricing in Vit B3. However, de-growth in the chemicals biz led to a 5/12% fall in LSI rev YoY/QoQ. Easing of input costs (acetic acid & molasses), better demand for acetic anhydride and
improvement in pricing for nutra products to drive a recovery in LSI aided by additional specialty capacities and the new acetic anhydride plant. We expect ~7% CAGR over FY19-22E. EBITDA margin at 19.9% was 304bps above estimates. ‘One-off’ expenses related to litigation and non-supply penalties persist, albeit at a lower quantum (Rs 0.26bn in 1QFY20 v/s Rs 0.37bn QoQ). We expect this to continue till FY20-end. Adjusted EBITDA margin was at 22.1%, up 280bps QoQ. PAT grew 38% QoQ to Rs 1.85bn, down 8% YoY due to margin pressure. Net debt was Rs 32.93bn (-5.6% QoQ).
We maintain BUY on JUBILANT following an 8/12% beat on our EBITDA/PAT estimates for 1QFY20. Our TP is revised at Rs 845 (12x Jun-21E EPS) with a 5/10% cut to our FY20/21E EPS due to higher interest cost and tax rate.
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