Buy Jubilant Life Sciences, target Rs 980: HDFC Securities

HDFC Securities has a buy call on Jubilant Life Sciences (JUBL) with a target price of Rs 980.

The current market price of Jubilant Life Sciences is Rs 650.90.

Time period given by the brokerage is one year when Jubilant Life Sciences price can reach the defined target.


View of the brokerage on the company:
Jubilant’s 2QFY19 performance was boosted by generic pharma, LSI and the integration of Triad pharmacies.

Revenues were up 38.2 per cent YoY to Rs 22.7bn (6 per cent beat). Ex-triad, we believe, it grew about 14 per cent YoY. EBITDA came in at Rs 4.5bn, 6 per cent below our expectations.

The margins were affected by a lower profitability of the LSI segment of 12 per cent.

PAT was at about Rs 2bn, up 67 per cent YoY, 14 per cent lower than our estimates due to higher taxes at 30 per cent of PBT.

The pharma segment was up 55 per cent Y-o-Y. Ex-Triad, pharma growth was at 17 per cent Y-o-Y and EBITDA margin improved to about 27 per cent.

This was largely driven by the healthy growth reported in generic pharma segment driven by both API and finished dosages.

LSI segment also grew generously at 20 per cent but the margin was down to 12 per cent during this quarter from 18 per cent in 2QFY18.

Weaker traction in vitamin B3, normalized prices in the chemical segment and unutilized fresh capacities were the key reason.

To support the growing injectable supplies in speciality pharma and increased demand in the chemical segment, the mgmt is spending Rs 5.5bn on capex in FY19.

It has guided for stronger 2HFY19 with new block commissioning for acetic anhydride, re-priced Ethanol contracts from govt, major traction in allergy and radio pharma businesses, additional injectable line in CMO segment and improving generic segment.

Overall, we model about 15 per cent revenue and about 30 per cent earnings CAGR over FY17-20E.

With the planned IPO for its Singapore subsidiary, JUBL will go on to further reduce its net debt while continuing additional capex (Rs 1bn debt reduction will lead to at least 10 per cent EPS addition).

This, along with an addition in capacity and new product launches makes JUBL lucrative at EV/EBITDA of 6.0x (FY19) and 4.8x (FY20).

Maintain 'Buy' rating with a target price of Rs 980 (SEP20E EV/EBITDA 10x for pharma + 4x for LSI).