Buy Jubilant Life Sciences, target price Rs 867: Anand Rathi

Anand Rathi has given a buy rating to Jubilant Life Sciences, with a target price of Rs 867. The share price moved up by 1.41 per cent from its previous close of Rs 588.40. The last traded stock price is Rs 596.70.

According to the brokerage, Jubilant Life Sciences revenue from operations came in at Rs.2,391 crore in the fourth quarter of -FY20, up by 0.2 per cent year on year. This was on account of growth in pharmaceuticals business partially offset by decline in Life Science Ingredients business. Pharmaceuticals revenue came in at Rs 1,483 crore in Q4-FY20, an increase of 6 per cent year on year whereas LSI revenue came in at Rs 823 cr in Q4-FY20, down by 10 per cent year on year. Drug Discovery & Development Solution segment revenue came in at Rs.85 crore, up by 25 per cent year on year. On profitability front, the EBITDA from operations for the quarter improved by 49.9 per cent year-on-year to Rs.537 crore. EBITDA margins expanded by 743 bps year on year to 22.4 per cent. Margin expansion was mainly on account of lower raw material and other expenditure. Net Profit came in at Rs.260 crore in Q4-FY20 as compared to loss of Rs.99 crore in Q4-FY19. Q4-FY19 had a IFC stock settlement charge of Rs 235 crore classified as an exceptional item. Normalised profit after tax during the quarter was at Rs 260 crore as against Rs.135 crore in Q4-FY19.

Investment Rationale

The company has done a capex of Rs.89 crore in Q4-FY20 and Rs 516 crore in FY20. Going forward, according to the brokerage, the company has rationalised capex plans to conserve cash and expects capex to be in the range of US$ 50-60 million in FY21. The company has also reduced its net debt by Rs.514 crore in FY20 and continues to focus on further deleveraging its balance sheet by generating healthy levels of cash flows.

On the product pipeline front, the company has 114 ANDA filings in US; 98 oral solid dosage of which 35 are pending approval (OSD) and 16 sterile products (3 pending approval). In Canada, the company has 24 OSD filings (1 pending approval) and 17 sterile (all approved) filings. In the EU, the company has 39 OSD filings (33 approved) and 4 sterile filings (all approved). In ROW, the company has 41 OSD filings (36 approved) and 10 sterile filings (all approved).

According to the brokerage, the company's pharma business is positioned well in the current environment which bodes well for companies having a manufacturing footprint in the US and India both. Moreover, the demerger of LSI business will allow value unlocking for the pharma business valuation. The brokerage continues to remain positive on the company on a medium to longer term perspective and maintains a buy rating on the stock with a target price of Rs.867 per share.

Financials

For the quarter ended March 31, 2020, the company has reported consolidated sales of Rs 2307.32 crore, up 1.20 per cent from last quarter sales of Rs 2279.89 crore and down -1.91 per cent from last year's same quarter sales of Rs 2352.15 crore. The company reported net profit after tax of Rs 260.49 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 50.67 per cent stake in the company as of March 31, 2020 while FIIs held 27.91 per cent, DIIs 1.84 per cent and public and others 19.549 per cent.