Jubilant Life Sciences - Sequential improvement likely to continue - ICICI Securities

Jubilant Life Sciences' (JLS) Q2FY21 performance was below our estimates as revenues were down due to the impact of COVID-19 on specialty business, though material improvement was observed QoQ. Pharma segment revenues grew 4.4% YoY while LSI business witnessed 4.3% growth. Consolidated revenues were 4.8% YoY higher at Rs23.7bn (I-Sec: Rs25.3bn) and adjusted PAT declined 10.2% YoY on lower revenues and higher tax. EBITDA margin was largely flattish at 20.5% (I-Sec: 21.8%). Company has launched Remdesivir, a potential treatment for COVID-19, in India and several other countries as part of licensing agreement with Gilead Life Sciences; this should help growth in the coming quarters. JLS reduced net debt by Rs1.9bn in H1FY21. NCLT approval for demerger of pharma and LSI businesses is awaited. Maintain ADD.

- CDMO and generics drove growth: Pharma business revenues grew 4.4% YoY driven by 23.1% increase in CDMO business (CMO and API) and 42.6% jump in generics revenue. Within CDMO, CMO business continued to grow whereas APIs recovered with resumption of supplies from Nanjangud plant, which was temporarily shut due to COVID-19 cases. Generics segment witnessed strong growth led by good traction in key products in the US market and Remdesivir launch. However, the specialty segment remained under pressure and declined 21.3% due to fewer patient footfalls in hospitals. LSI reported a growth of 4.3% aided by nutritional products and life science chemicals. Drug discovery solutions posted a 19.8% YoY rise on the back of strong demand for its services.

- Margin maintained despite lower specialty revenues: Reported EBITDA margin at 20.5% was flat YoY, but below our estimate, due to lower revenues in specialty segment. Pharma business margin shrunk 400bps YoY to 22.6% while LSI margin improved 560bps to 17.7% driven by better pricing. DDS operating profit increased 70% YoY and posted a margin of 27.4%. Gross margin contracted 170bps due to lower specialty revenues and higher LSI sales. Overall, we expect EBITDA margin to remain stable at 21-22% going forward.

- Outlook: We estimate revenue/EBITDA/PAT CAGRs of 6.2/6.2/7.4% over FY20- FY23E. Demand in most businesses has normalised to pre-COVID levels with visible growth Q3FY20 onwards. Company continues to focus on reducing debt by repaying Rs1.9bn in H1FY21 on constant currency basis. Current gross and net debts stand at Rs41.5bn and Rs29.8bn respectively.

- Valuations and risks: We marginally lower our revenue/EBITDA estimates by 1-2%/2-3% for FY21-FY23E to factor-in the Q2FY21 performance. We maintain ADD on the stock with a revised target price of Rs806 based on Sep'22E, 8x pharma EBITDA and 4x LSI EBITDA (earlier TP: Rs822). Key downside risks: regulatory hurdles and delay in the recovery of specialty business.

Shares of JUBILANT LIFE SCIENCES LIMITED was last trading in BSE at Rs.706.7 as compared to the previous close of Rs. 696.25. The total number of shares traded during the day was 21788 in over 1611 trades.

The stock hit an intraday high of Rs. 711 and intraday low of 695. The net turnover during the day was Rs. 15334501.

Source : Equity Bulls

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