Jubilant Life Sciences - Operational Hiccup, Better Outlook - Karvy

Jubilant Life Sciences reported 31.4% YoY improvement in revenues to Rs. 11,755 mn in Q4FY12 higher than our estimates of Rs. 10,919 mn, primarily due to outperformance in its generic business. With the additional capacity scale up, limited capex and better realizations the Company is expected to witness margin expansion, we reiterate our "BUY" recommendation on the stock.

- Quarter Details: Its generics biz grew 112% YoY to Rs. 2.7 bn, while life science services biz grew 24% YoY to Rs. 2.4 bn and CMO business 19.6% YoY to Rs. 1.6 bn in Q4FY12. EBITDA margins stood at 17.9% (adj. for EOI (loan waiver by a customer of Rs 249 mn) against our estimates of 18.3% mainly due to higher other expenses. The Company's net loss stood at Rs. 635 mn in Q4FY12 – after providing for a impairment of assets of goodwill of clinical trials business, MTM loss, amortization of FCMITDA and other extraordinaries of Rs.1,464 mn.

- Road Ahead: Higher capacity utilization at its Sartans (API), Niacinamide & new Symtet capacities – will provide additional revenue traction. Generic business with 48 pending ANDAs will provide requisite traction of which 19 are approved in US and company has launched 11. Moreover, net exposure hedges of US$300 mn at Rs. 53.68 will aid margins in FY13E. The company expects 20‐22% y‐o‐y improvement in revenues over the next 2 years while EBITDA is expected to sustain at current levels.

- Outlook & Valuation: We upgrade our revenue estimates for FY13E by 2.2% to Rs. 50.6 bn owing to upgrade in revenues in API and generics space. We broadly maintain our EBDITAM for FY13 at 19.8%. We downgrade our EPS estimate by 1.8% for FY13E to Rs.20.6 owing to higher tax payment. We introduce FY14 estimates and roll over our target price on FY14E EPS. We maintain our "BUY" recommendation on the stock with target price of Rs. 255 per share based on 9X FY14E.

- Risks: Appreciation in the INR with increasing cost structure due to commencement of facilities would impact Company's margins despite company having hedges to the tune of US$300 mn.

Source : Equity Bulls

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