Jubilant Life Sciences - COVID impacts performance, debt reduction continues - ICICI Securities

Jubilant Life Sciences (JLS) has reported Q1FY21 performance below estimates due to revenue impact on account of COVID-19. Pharma segment revenue declined 17.5% while LSI business witnessed 8.5% decline. Consolidated revenue remained dropped 13.2% YoY Rs18.9bn (I-Sec: Rs23.1bn) and adjusted PAT declined 52.4% YoY on lower revenue and margins. EBITDA margin contracted 390bps to 16.0% (I-Sec: 21.0%). Company has launched Remdesivir, a potential treatment for COVID-19, in India and other several countries as part of licensing agreement with Gilead Life Sciences. JLS reduced net debt by Rs3.4bn. NCLT approval for demerger of pharma and LSI businesses is awaited. Considering recent rally in stock price, we downgrade it to HOLD from Add.

- Specialty Pharma and CDMO impacted revenue growth: Pharma business revenue decreased 17.5% YoY mainly on account of 26.3% fall in Specialty business (radiopharma and allergy products) and 19.1% decline in CDMO business (CMO and API). Within CDMO, CMO business continued to grow while APIs faced significant decline owing ot two months of temporary operation shutdown at Nanjangud plant due to COVID-19 cases. However, generics segment witnessed a growth of 8.9% led by good traction in key products in US market. LSI business reported a decline of 8.5% impacted by lower demand of specialty intermediates and life science chemicals on account of COVID-19. Drug discovery solutions posted a healthy growth of 25.6% YoY driven by strong demand for its services.

- Profitability hit despite improvement in gross margin: Reported EBITDA margin at 16.0% was lower primarily due to decline in revenue. Pharma business margin dropped 850bps YoY to 16.3% while LSI margin improved 170bps to 16.8% backed by better pricing. DDS operating profit nearly doubled YoY and posted a margin of 26.4%. Gross margin improved 190bps with better product mix within the segments. Overall, we expect EBITDA margin to remain stable at 21-22% going forward.

- Outlook: We estimate revenue/EBITDA/PAT CAGR of 6.5/7.0/8.6% over FY20-FY23E. We introduce FY23 estimates with growth expectation of 7.1/13.9% in revenue/PAT. The demand in most of the businesses have normalised to pre-COVID levels and growth should be visible Q2FY20 onwards. The company has entered into four COVID-19 related contracts including manufacturing of vaccines which could lead to additional business contingent upon regulatory approvals.

- Valuations and risks: Considering recent rally in stock, we downgrade it to HOLD from Add with revised target of Rs822 based on FY22E, 8x pharma EBITDA and 4x LSI EBITDA (earlier: Rs749). We have raised target EV/EBITDA for pharma business from 7x to 8x considering potential for additional business from COVID-19 related contracts. Key downside risks: Regulatory hurdles and delay in ramp-up in Ruby-Fill. Key upside risks: Additional business from COVID-19 related contracts.

Shares of JUBILANT LIFE SCIENCES LIMITED was last trading in BSE at Rs.778.3 as compared to the previous close of Rs. 829.6. The total number of shares traded during the day was 52420 in over 2628 trades.

The stock hit an intraday high of Rs. 808.5 and intraday low of 772.95. The net turnover during the day was Rs. 41195399.

Source : Equity Bulls

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