Jubilant Lifesciences (JOL IN, Mkt Cap USD0.5b, CMP INR163, Neutral) - Motilal Oswal

Jubilant Life Sciences 4QFY13 results were in line with estimates.

Key highlights:

- Jubilant Life Sciences (JOL) 4QFY13 operational performance was in line with estimates. Sales were up 18.5% YoY to INR13.88b (v/s est INR13.3b), EBITDA was up 29% YoY to INR2.33b (v/s est INR2.25b), while EBITDA margin stood at 16.8% (v/s est of 17%). JOL reported a net loss of INR310m v/s a net loss of INR635m last year. PAT, adjusted for exceptional items, fell 5% to INR454m (v/s est INR915m), mainly impacted by higher tax outgo and forex losses.

- Top line growth was led by a 24% growth in Life Sciences business to INR6.9b, while Pharma business grew 13% to INR7b. Growth due to favorable forex was 7%.

- EBITDA margin expanded by 130bp YoY (in-line), aided by increased capacity utilization in Life Sciences division and better product mix in Pharma business.

- Guidance: While management refrained from giving specific guidance for FY14, it retained long term guidance of 20% revenue over FY13-15E, with EBITDA margin at 21% in FY15. Tax rate has been guided at 30% over the next two years, with a capex guidance of INR3.5b.

Valuation and view: Post 4QFY13 results, we lower FY14E/15E EPS estimates by 5%/6%, mainly due to the high tax guidance at 30%, against our earlier guidance of 25%. For the FY13-15E period, we expect JOL to record 15.5% top line CAGR, 17% EBITDA CAGR and 60% EPS CAGR (on a low base). EPS CAGR will be much higher than EBITDA CAGR due to large forex losses in FY13. High debt (net debt was INR34.32b as in Mar-13) continues to be our main concern. We believe JOL needs to restructure its balance sheet significantly for the stock to get re-rated. We also believe that some of its past acquisitions (like Draxis) have been made at expensive valuations, resulting in extended payback periods and lower return ratios. The stock trades at 5.2x FY14E EPS and 4.6x FY15E EPS. We maintain Neutral with a target price of INR213 (6x FY15E EPS).

Source : Equity Bulls

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