Jubilant Life Sciences: Rising Comfort

Jubilant Life Sciences: Rising Comfort as Capex Guidance Maintained

Jubilant Life Sciences’ (JOL’s) Q2 net revenue (up 16% YoY to Rs 12.2 bn) and adj. PAT (down 16% YoY to Rs 1.0 bn) were in line with estimate, led by strong volume growth across segments (11% YoY) and currency benefit.

Maintain FY13 capex guidance at Rs 3.5 bn (Rs 2.2 bn in H1FY13): Rs 2.5 bn of development capex (Symtet plant and generics capacity expansion) and Rs 1.0 bn of maintenance capex.

Outlook: Management expects 20% revenue CAGR with EBITDA margin of 21% over next three years led by: (a) ramp-up at new facilities in LSI and APIs, (b) product launches and geographic expansion in Generics and Specialty Pharma, (c) improved execution in CMO/DDDS and (d) higher realization on exports (have hedged FY14 exposure at exchange rate of Rs 59.23). We believe the company would benefit from better utilization of current asset base going forward and estimate revenue CAGR of 17% over FY12-14E and EBITDA margin of 19-20% (revenue was up 24% in FY12 with margin of 19% in FY12).

Raise target PE; maintain BUY 

We believe JOL would benefit from peaking out of capex cycle (more than Rs 43 bn of capex done over past 5 years). Lower capex going forward coupled with improving financial performance would lead to free cash generation and debt reduction (D/E to fall below 1.0x by FY15 from 1.5x currently).

Sustained volume growth and EBITDA margin along with management adhering to capex guidance increases our comfort level on cash flow generation. Raise target PE to 9x from 8x earlier. Maintain BUY with target price of Rs 270 (9x FY14E EPS) from Rs 240 earlier.

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