Premia Research Jubilant Life Sciences Ltd CMP: ` 689-year Target: `851 Sector Pharma Recommendation BUY Upside 24% Stock Data Sensex 34,734 52 Week h/l (`) 1,039 / 600 Market cap (`Cr) 11,953 BSE code 530019 NSE code JUBILANT FV (`) 1 Div yield (%) 0.4 Shareholding Pattern Dec-17 Mar-18 June-18 Promoters 54.0 50.7 50.7 DII+FII 26.1 29.0 29.3 Individuals 19.9 20.3 20.0 Source: www.bseindia.com Share Price Trend Prices as on 15/10/2018 Analyst– Shrikant Akolkar [email protected]October 15, 2018 Jubilant Life Sciences (JLS), an integrated global pharma/life sciences company, aims to grow its revenue with ramp-up of Ruby-fill, monopoly in venom products, higher demand for lyophilization services, and improving ingredients business. We forecast revenue and adj. PAT CAGR of 15.7% and 18.4% respectively over FY18-20E, with ~70bps EBITDA margin expansion. We recommend BUY with target price of `851 (SOTP). Diversified business with strong entry barriers: JLS has created a diversified business with nine separate business verticals. Specialty injectables (~30% EBITDA margins) enjoy low competition due to regulations/complex manufacturing. Generic pharma business is litigation free with favorable tailwinds viz. rupee depreciation and abating US price erosion. Further, vertically integrated ingredients business is seeing strong demand and improved pricing. Revenue to register 16% CAGR, margin to expand 90bps by FY20E: JLS' pharma business is expected to grow at 18.8% CAGR over FY18-20E owing to Ruby-fill ramp-up, higher allergy product sales and strong demand for CMO services. Its commodity ingredient business is likely to grow at 12.4% CAGR over FY18-20E due to growth in acetyl and pyridine derivatives. Further, better product mix and improved prices to aid EBITDA margin expansion of ~70bps over the same period. Attractive valuations: JLS currently trades at 10.8x FY20E P/E and 6.0x FY20E EV/EBITDA. We value the company’s pharma and ingredients business at 9x and 6x of FY20E EV/EBITDA respectively to derive the target price of `851/share and recommend Buy. Financial summary Consolidated `cr FY17 FY18 FY19E FY20E Revenue 5,861 7,518 9,104 10,069 Growth (%) yoy 2.0 28.3 21.1 10.6 EBITDA% 23.0 20.2 20.8 20.9 Adj. PAT 575 725 896 1,017 Growth (%) yoy 48.6 26.2 23.6 13.5 P/E (x) 18.6 16.7 12.2 10.8 ROE (%) 16.7 17.8 18.2 17.2 EV/EBITDA (x) 10.6 9.2 7.1 6.0 ROCE (%) 15.2 16.7 19.5 19.6 Source: Company, IIFL Research, FY18 PAT adjusted for Rs91cr R&D write-off 30000 35000 40000 500 750 1000 1250 Oct-17 Feb-18 Jun-18 Oct-18 Jubilant Life Sensex
16
Embed
Jubilant Life Sciences Ltd - content.indiainfoline.com
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Premia Research
Jubilant Life Sciences LtdCMP: ` 689-year Target: `851
indicated that it’ll pass-on the prices, with three month lag, to its
customers, hence we expect H2FY19E to be better for this business.
Acetic anhydride capex coming at favourable time
Global demand for acetic anhydride is rising and hence, companies are
enjoying favorable pricing. JLS’ utilization at its existing plants has
been 100% for the past three years. However, it is expanding its acetic
anhydride capacity at this favorable time by building a new plant at
Bharuch. This will increase its capacity from 100,000 tonne currently
to 145,000 tonne and will commission by Q3FY19E. This plant has
annual revenue potential of `300cr upon full utilization. The company
expects the plant to achieve 100% utilization by FY21E. We are
expecting 14.6% CAGR in the LSC business over FY18-20E owing to (1)
capacity addition in acetic anhydride, (2) `2.85/lt increase in ethanol
prices by government, and (3) addition of new anhydrous alcohol
capacity at Gajraula, UP and Nira, Maharashtra.
Financial performance improves after foray in specialty pharma
Owing to its diversified business, acquisitions in low competition and
high growth space, and judicious capacity additions, JLS has managed
to deliver a good performance over the past few years. Its revenue
CAGR over the past 10-year, 5-year and 3-year is 11.7%, 7.8%, 8.9%
respectively, while EBITDA CAGR is 12.8%, 7.3%, 29.4% respectively.
Post the acquisition of HollisterStier and Draxis Specialty, JLS’ margin
profile improved significantly. In FY07, JLS’ gross margins were at 54%,
Exhibit 15: Revenue and growth trend Exhibit 16: EBITDA and margin trend
Source: Company, IIFL Research
58
26
57
49
58
61
75
18
91
04
10
06
9
0
2000
4000
6000
8000
10000
12000
FY15 FY16 FY17 FY18 FY19E FY20E
Net Sales (Rs cr)
70
2
12
47
13
45
15
18
18
89
21
20
12
2223
20 2121
0.0
5.0
10.0
15.0
20.0
25.0
0
300
600
900
1200
1500
1800
2100
FY15 FY16 FY17 FY18 FY19E FY20E
EBITDA (Rs cr) Margin (%)
Premia Research
Jubilant Life Sciences Ltd
which improved to 60% in FY08, and stood at 62% in FY18. Further,
FY18 gross margins could have been higher, but it was arrested by the
acquisition of low margin Triad Isotopes. On the EBITDA margin front,
specialty pharma improved its trajectory from 14.5% in FY07 to 20%
in FY18.
The 2014/15 WLs on its CMO facilities took a toll on the company’s
performance. However, from FY16 onwards, the company has
consistently seen 20%+ EBITDA margins. With improving profitability,
its free cash flow (FCF) generation has also improved and has
generated FCF of `800cr+/year for the past three consecutive years.
JLS’ debt-to-equity ratio touched 2.6x in FY09 after the acquisition of
HollisterStier and Draxis Specialty. Post that, due to strong
profitability, the debt-to-equity ratio reduced to 1.1x in FY14. In FY15,
the company raised debt again to acquire minority stake in its US
generics business (Cadista). Over FY15-18, the strong FCF generation
has helped JLS consistently reduce its debt from `4,793cr in FY15 to
`3,657cr in FY18. This has reduced its debt-to-equity ratio from 2x in
FY15 to 0.9x in FY18. Net debt-to-equity ratio in Q1FY19 stood at
comfortable level of ~0.7x.
Comfort despite FX debt, JPL IPO to aid debt reduction
JLS had total foreign exchange (FX) loans of $367mn by Q1FY19 with
4.75% interest cost. The revenue mix, tilted in favor of exports (~73%
of total revenue in Q1FY19) acts as a natural hedge against the FX
debt. Further, of this FX debt, $58.2mn is from International Finance
Corporation (IFC), which is due for repayment between June 2020 and
June 2021. As per repayment agreement, repayment will happen if JLS
fails to come with an IPO for Jubilant Pharma Limited (JPL) or if IFC
does not get an exit. JLS has already started IPO activities and after a
successful IPO launch, $58.2mn FX loan would get converted into
equity, thereby reducing the debt-to-equity ratio further.
Premia Research
Jubilant Life Sciences Ltd
Outlook and valuation
We expect JLS to report revenue and adjusted PAT CAGR of 15.7% and
18.4% respectively over FY18-20E. We further project EBITDA margin
to expand ~70bps over FY18-20E due to better product mix, improved
realization in acetic anhydride products, and partially due to rupee
depreciation.
JLS currently trades at 10.8x FY20E P/E and 6.0x FY20E EV/EBITDA. We
value the company’s pharma and ingredients business at 9x and 6x of
FY20E EV/EBITDA respectively to derive the target price of `851/share
and recommend Buy.
Key risks
Ruby-fill ramp-up below expectations
Increase in Pyridine capacity in China or higher anti-dumping
duty on pyridine products
Higher competition and lower realizations in acetyl products
Regulatory risk in form of adverse observations by USFDA
Premia Research
Disclaimer
Recommendation Parameters for Fundamental/Technical Reports: Buy – Absolute return of over +10% Accumulate – Absolute return between 0% to +10% Reduce – Absolute return between 0% to -10% Sell – Absolute return below -10% Please refer to http://www.indiainfoline.com/research/disclaimer for recommendation parameter, analyst disclaimer and other disclosures. IIFL Securities Limited (Formerly ‘India Infoline Limited’), CIN No.: U99999MH1996PLC132983, Corporate Office – IIFL Centre, Kamala City, Senapati Bapat Marg, Lower Parel, Mumbai – 400013 Tel: (91-22) 4249 9000 .Fax: (91-22) 40609049, Regd. Office – IIFL House, Sun Infotech Park, Road No. 16V, Plot No. B-23, MIDC, Thane Industrial Area, Wagle Estate, Thane – 400604 Tel: (91-22) 25806650. Fax: (91-22) 25806654 E-mail: [email protected] Website: www.indiainfoline.com, Refer www.indiainfoline.com for detail of Associates. Stock Broker SEBI Regn.: INZ000164132, PMS SEBI Regn. No. INP000002213, IA SEBI Regn. No. INA000000623, SEBI RA Regn.:- INH000000248 For Research related queries, write at [email protected] For Sales and Account related information, write to customer care: [email protected] or call on 91-22 4007 1000