Jubilant Life Sciences - Debt remains a concern – Maintain Buy - Emkay

- Q3FY12 Results – Revenues at Rs10.9bn (up 25%YoY), b) EBITDA at Rs2.1bn (up 58% YoY) and c) APAT at Rs771mn (up 82% YoY)

- Top-line growth and EBITDA margin expansion was led by strong traction in Generic business & favorable impact of INR depreciation, however debt increased by Rs4bn QoQ

- Going forward, new capacity additions in pyridine & vitamin business, momentum in Cadista and +ve impact of currency will boost the top-line and the bottom-line

- Strengthening INR will ease out debt concerns in next quarter – Maintain Buy with a target price of Rs348 (10xFY13E EV/EBITDA)

Revenues driven by strong traction in Generic biz and INR depreciation

- Product business (contributes 80%) grew by 24% YoY
Generic business (contributes 19%) grew by 79% due to ramp-up in Methylpredisone, Lamotrigine and Meclizine and INR depreciation

Ingredients business (contributes 60%) grew by 13% led by strong API sales on back of launch of new products i.e. Valsaratan, Donepezil and Irbesartan

- Service business (contributes 20%) grew by 32% YoY

CMO business (contributes 14%) grew by 37% on account of order execution for an MNC. DDDS business (contributes 5%) grew by 20% YoY

Debt as on Dec 31st, 2011 has increased from Rs36bn in Q2FY12 to Rs40bn in Q3FY12 – an increase of Rs4.2bn. This was mainly due to MTM on foreign currency loans of US$458mn and Re loan of Rs9.1bn swapped in USD.

Future Outlook

- Jubilant has set up a 10,000 mt plant for Vitamin B3 (Niacin/ Niacinamide) and has commenced trial batches in Q2'11. Cost advantage owing to scale, vertical integration in Beta picoline and tax incentives (as this plant is set up in an SEZ in Gujarat) should help it to gain market share

- Company's increased pyridine capacity has also started contributing. Management expects increased volumes due to increase in capacity utilization. This will also help Jubilant in backward integration for Symtet and Vitamin B3 production

- Commissioning of Symtet plant by Q1FY13 for which the company has already signed the long term supply contract with a leading international life science co. n At full capacity utilization – management expects Niacinamide and Symtet plant to generate USD70mn and USD90mn respectively over the next 2-3 years

Valuations

We expect Jubilant to report 19% revenue growth in FY12 and 15% growth in FY13. We expect EBIDTA margins to improve from 16% in FY11 to 20% in FY12 and FY13. Earnings will grow by 21% CAGR over FY11-13E. We value the company at 10x FY13 EV/EBITDA with a target price of Rs348 and BUY rating. At CMP, the stock trades at 9xFY12E EPS of Rs20 and 7XFY13E EPS of Rs25.

Source : Equity Bulls

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