Jubilant runs out of steam on St

Jubilant Organosys, a leading player in the contract research and manufacturing services (CRAMS) business in India, has seen a sharp surge of 20% in its stock price on Wednesday. The rally seemed to have been triggered by news that the company���s wholly-owned subsidiary had signed a deal to partner with the Singapore campus of Duke University, under which both entities would work on expediting translation of discoveries by Duke scientists into clinical therapies.

It���s an initial intent of both the parties to enter into a long-term relationship and the parties should complete definitive agreements by the first quarter of 2010. It nowhere justifies a steep jump of 20% in the company���s stock price.

The company���s performance has been below expectations in the past couple of quarters. The latest September quarter saw subdued performance of its non-core chemical & fertiliser division, resulting in no growth in topline. The company intends to hive off its non-core business with sole focus on its lifesciences business. The company has also increased its guidance for operating profit by one-thirds, after its North American business bagged new contracts. With this, the prospects of the company, going forward, do look encouraging.

The company���s stock had underperformed the Sensex during most part of past one year. The stock has started outperforming the Sensex from October and has seen appreciation of 15% against 1.6% drop in Sensex during the same period.

At Rs 227, the company���s stock was trading at a P/E multiple of 31. That itself was high, considering the fact that some frontline pharma stocks like Cipla, Sun Pharma, GlaxoSmithKline Pharma and Lupin are trading in the 21-24 range. After a single-day jump of Rs 45 jump, the stock is now trading at a consolidated P/E multiple of 37. This makes it quite unattractive. There would be little wonder if the stock sees some pullback on account of profit booking.