Macquarie initiates coverage with an ‘Outperform’ on Jubilant
Macquarie initiates coverage with an ‘Outperform’ rating on Jubilant Organosys and a target price of Rs 450.
By ET Bureau |
RESEARCH: MACQUARIE
RATING: OUTPERFORM
CMP: Rs 338
Macquarie initiates coverage with an ‘Outperform’ rating on Jubilant Organosys and a target price of Rs 450, implying 34% upside potential. From being a specialty chemicals company, JOL has graduated to being an integrated life sciences company. JOL is the largest and lowest-cost manufacturer of pyridine in the world, and it contributes more than 50% of revenue of the CRAMS business.
Unmatched upstream/downstream integration in pyridine provides a strong entry barrier for competition along with pricing power to JOL. Post two acquisitions, JOL’s custom manufacturing operations (CMO) have a strong edge in the niche sterile injectables space. JOL already services six of the world’s top ten pharma MNCs.
With utilisation at just 60% of current capacity in CMO, there is scope for leverage as new contracts are signed and existing ones ramp up. Given the high leverage, Macquarie values JOL based on EV/EBITDA methodology at 10x FY11E EBITDA to arrive at the target price of Rs 450. JOL is guiding FY10 EBITDA of $190 million, 15% above the consensus. Conversion of ‘10 FCCBs or an announcement of the divestment of the polymer business may be additional catalysts in the coming quarters.
RATING: OUTPERFORM
CMP: Rs 338
Macquarie initiates coverage with an ‘Outperform’ rating on Jubilant Organosys and a target price of Rs 450, implying 34% upside potential. From being a specialty chemicals company, JOL has graduated to being an integrated life sciences company. JOL is the largest and lowest-cost manufacturer of pyridine in the world, and it contributes more than 50% of revenue of the CRAMS business.
Unmatched upstream/downstream integration in pyridine provides a strong entry barrier for competition along with pricing power to JOL. Post two acquisitions, JOL’s custom manufacturing operations (CMO) have a strong edge in the niche sterile injectables space. JOL already services six of the world’s top ten pharma MNCs.
With utilisation at just 60% of current capacity in CMO, there is scope for leverage as new contracts are signed and existing ones ramp up. Given the high leverage, Macquarie values JOL based on EV/EBITDA methodology at 10x FY11E EBITDA to arrive at the target price of Rs 450. JOL is guiding FY10 EBITDA of $190 million, 15% above the consensus. Conversion of ‘10 FCCBs or an announcement of the divestment of the polymer business may be additional catalysts in the coming quarters.
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