jol_090212

8/3/2019 jol_090212

http://slidepdf.com/reader/full/jol090212 1/8

Nimish Desai ([email protected]); Tel: +91 22 39825406

Amit Shah ([email protected]); Tel: +91 22 3982 5423

Jubilant LifesciencesBSE SENSEX S&P CNX

17,622 5,335CMP: INR179 TP: INR199 Neutral

Bloomberg JOL IN

Equity Shares (m) 159.3

52-Week Range ( INR) 227/148

1,6,12 Rel. Perf. (%) -8/-13/-11

M.Cap. (INR b) 28.5

M.Cap. (USD b) 0.6

8 February 2012

3QFY12 Results Update | Sector: Healthcare

Jubilant Organosys 3QFY12 performance was below our estimates

Sales were up 25.5% YoY to INR10.87b (v/s est INR10.67b), EBITDA was up 60% YoY to INR2.07b (v/s est INR2.22b)

while EBITDA margins stood at 19% (v/s est of 20.8%). The company reported net loss of INR784m (v/s est PAT

of INR479m) mainly due to INR1.55b forex losses.

Life Sciences Products business grew 24% YoY led by both volume growth and improved pricing while LifeScience Services business grew a strong 32% YoY mainly led by 37% YoY growth in CMO business.

EBITDA grew 60% YoY to INR2.1b, but was below our estimates. EBITDA growth was led by services business.

EBITDA margin expanded by 400bp to 19% (v/s est 20.8%). The margin improvement in services business was

led by improved product mix, increased capacity utilization and cost control measures.

Despite strong EBITDA growth, JOL reported net loss of INR784m due to INR1.55b of MTM forex losses and

unrealized exchange loss amortization on long term foreign currency loans and doubling of interest cost.

Over FY11-13E, we expect JOL to record topline CAGR of 18.5%, EBITDA CAGR of 37% on a low base and a 40.5% EPS

CAGR (again on a low base). While topline growth will be mainly led by a 43% CAGR in Generics business, EBITDA

growth will be mainly driven by normalization of EBITDA margin to 20.3% compared to the significantly lowermargins of 15.2% recorded in FY11. EPS CAGR at 40.5% will be only marginally better than EBITDA growth as high

forex gains get tempered by increased tax rate and higher minority interest. We believe JOL needs to restructure

its balance sheet significantly for the stock to be re-rated. Currently it has net debt of INR36.85b to support an

overall topline of INR41.6b. High debt continues to be our main concern area for JOL. High debt and low RoCE

(FY13 RoCE will be ~14%) remain an overhang. Based on our revised estimates, the stock trades at 16x FY12E EPS

and 6.2x FY13E EPS. We maintain Neutral with target price of INR199 (7x FY13E EPS).

8/3/2019 jol_090212


Jubilant Lifesciences

8 February 2012 2

Topline led by product business while EBITDA led by services business

Sales were up 25.5% YoY to INR10.87b (v/s est INR10.67b), EBITDA was up 60% YoY to

INR2.07b (v/s est INR2.22b) while EBITDA margins stood at 19% (v/s est of 20.8%). The

company reported net loss of INR784m (v/s est PAT of INR479m) mainly due to INR1.55b

forex losses.

Life Sciences Products business grew 24% YoY led by both volume growth and improved

pricing. Life Science Ingredients business grew 13% YoY while generics business grew

78% YoY led by volume growth across geographies and favorable pricing in solid dosage

formulations business segment.

Life Science Services business grew a strong 32% YoY mainly led by 37% YoY growth in

CMO business to INR1.57b on account of the company’s strategic initiatives. Drug

Discovery and Development Services (DDDS) business grew 22% YoY to INR590m led

by robust growth in chemistry services.

Sales Mix (INR M)

3QFY12 3QFY11 % YoY 2QFY12 % QoQ

Life Science Ingredients 6,560 5,820 12.7 5,920 10.8

Generics 2,110 1,180 78.8 2,410 (12.4)

Life Science Products 8670 7000 23.9 8330 4.1

CMO 1,570 1,150 36.5 1,540 1.9

DDDS 590 490 20.4 580 1.7

Others 40 27 48.1 30 33.3

Life Science Services 2200 1667 32.0 2150 2.3

Total 10,870 8,667 25.4 10,480 3.7Source: Company

EBITDA grew by 60% YoY to INR2.1b below our estimates

EBITDA grew 60% YoY to INR2.1b, but was below our estimates. EBITDA growth was

led by services business. EBITDA margin expanded by 400bp to 19% (v/s est 20.8%).

The margin improvement in services business was led by improved product mix,

increased capacity utilization and cost control measures.

EBITDA Margin Trend

Source: Company

8/3/2019 jol_090212



8 February 2012 3

Despite strong EBITDA growth, JOL reported net loss of INR784m due to INR1.55b of

MTM forex losses and unrealized exchange loss amortization on long term foreign

currency loans and doubling of interest cost due to increase in debt.

Key Highlights of the conference call EBITDA margin is down QoQ despite a favorable currency due to adverse product-

mix. Management has guided for overall FY12 EBITDA margin of 20-21%.

As of 31-Dec-11, JOL had net debt of INR36.85b, up INR2.48b QoQ. The increase is

mainly due to restatement of forex loans to current exchange rate.

The company is expecting growth momentum to sustain across business segments

led by new capacity commissioning, new product launches, vertical integration

and foray into new geographies. The management expects EBITDA margins to

improve in FY13 (9MFY12 EBITDA margins were ~20.3%) led by hedges taken at

favourable rates (INR53/USD), new launches, change in product mix and higher

capacity utilization in services business. Forex hedge at INR53: While the company has not disclosed the quantum of forex

hedges, it has indicated that a major portion of its net exposure for FY13 (i.e. USD

revenues less all USD costs) has been recently hedged at INR53/USD. Management

has indicated that every 1% change in INR-USD rate results in about INR120-150m

change in net exposure.

9MFY12 pricing stable: Unlike in FY11 wherein the company had faced pricing

pressure in product business, management has said that it has witnessed stable

pricing in 9MFY12 expect for the Niacin business which is currently facing pricing

pressure (although this is currently a small portion of the overall business). For

some of its products, JOL is witnessing the benefits of improved prices. Generics: The company has a pipeline of 25 ANDAs pending approval in the US, 5

dossiers pending approval in Europe and 4 in Canada.

Life Science Services business reported better performance during the quarter

led by change in product mix, better capacity utilization. The management said

that the company has cut down on low margin clinical services business which has

led to margin improvement. Management also indicated that the margin

improvement will sustain in the coming quarters.

High debt on the books remains concern; Interest cost to double in FY12

The debt on JOL’s books stand at INR36.85b. The company had raised debt in 4QFY11for redemption of FCCBs worth USD142m (USD202m incl YTM) which was due for

redemption in May 2011. We believe the debt level is unlikely to reduce during FY12/

13 given high working capital requirement led by strong topline growth expectation

and large capex at INR5b for FY12E and INR3b for FY13E. Overall interest cost for FY12

will double to INR2.12b (9MFY12 interest cost is up 200% to INR1.5b), despite a large

part of debt in foreign currency loans which have lower interest cost.

Revising estimates

FY12 – While our topline estimates remain unchanged, we have reduced our EBITDA

margin estimate by 90bp to 19.8% to factor in the lower than expected margin recorded

in 3QFY12. Our new EPS estimate at INR11.1 represents a significant cut mainly due to

the large forex losses recorded in 3QFY12 while it also takes in to account the increase

in tax guidance and minority interest.

8/3/2019 jol_090212



8 February 2012 4

FY13 – Our EPS estimates are upgraded by 1.6% as the benefit of significant reversal

of forex losses is tempered by higher tax rate and minority interest.

Outlook and valuation

Over FY11-13E, we expect JOL to record topline CAGR of 18.5%, EBITDA CAGR of 37%on a low base and a 40.5% EPS CAGR (again on a low base). While topline growth will

be mainly led by a 43% CAGR in Generics business, EBITDA growth will be mainly

driven by normalization of EBITDA margin to 20.3% compared to the significantly

lower margins of 15.2% recorded in FY11. EPS CAGR at 40.5% will be only marginally

better than EBITDA growth as high forex gains get tempered by increased tax rate and

higher minority interest.

We believe JOL needs to restructure its balance sheet significantly for the stock to be

re-rated. Currently it has net debt of INR36.85b to support an overall topline of

INR41.6b. High debt continues to be our main concern area for JOL. We also believesome of its past acquisitions (like Draxis) have been made at expensive valuations,

resulting in extended payback periods and lower return ratios. High debt and low

RoCE (FY13 RoCE will be ~14%) remain an overhang. Based on our revised estimates,

the stock trades at 16x FY12E EPS and 6.2x FY13E EPS. We maintain Neutral with target

price of INR199 (7x FY13E EPS).

8/3/2019 jol_090212



8 February 2012 5

Company description

Jubilant Organosys Limited is the largest specialty

chemicals company in India with high degree of vertical

integration along with global scale and reach in almost

all its key products. Its business model thus spans

pharmaceuticals & life sciences, industrial chemicals

and performance chemicals. It has forayed into API

business (by acquiring Max India’s API operations) and

into formulations and regulatory services (by acquiring

PSI n.v and PSI supply).

Key investment arguments

A composite and integrated player with offerings

across the pharma and specialty chemicals valuechain

Continuous forward integration, with global scale

capacities in key products and widespread global

presence puts Jubilant on the high growth path.

Growing share of the profitable Pharma business,

driven by CRAMS, steriles & radiopharmaceuticals

business, to ensure improved profitability and

earnings visibility.

Key investment risks

Hi debt on the books is a concern which may impact

the profitability going forward

Adverse foreign currency movement can impact the

revenue and profitability of the company.

Recent developments

Jubilant and Eli Lilly have extended Drug Discovery

collaboration on successful delivery of Pre-clinical

candidates.

Valuation and view

Over FY11-13E, we expect JOL to record topline CAGR

of 18.5%, EBITDA CAGR of 37% on a low base and a

40.5% EPS CAGR (again on a low base).

High debt continues to be our main concern area for

JOL. High debt and low RoCE (FY13 RoCE will be ~14%)

remain an overhang.

Based on our revised estimates, the stock trades at

16x FY12E EPS and 6.2xFY13E EPS. We maintain

Neutral with price target of INR199 (7x FY13E EPS).

Sector view

The CRAMS segment is likely to witness exponential

growth over the next few years.

Comparative valuations

Jubilant Divis Dishman

P/E (x) FY12E 16.1 22.1 -

FY13E 6.3 17.5 6.2

P/BV (x) FY12E 1.4 4.9 0.5

FY13E 1.2 4.1 0.5

EV/Sales (x) FY12E 1.5 6.4 1.4FY13E 1.3 5.2 1.1

EV/EBITDA (x) FY12E 7.8 17.8 7.2

FY13E 6.4 13.7 5.7

Shareholding pattern (%)

Dec-11 Sep-11 Dec-10

Promoter 49.0 48.9 47.2

Domestic Inst 1.4 2.1 3.9

Foreign 28.8 28.6 28.8

Others 20.8 20.4 20.2

Jubilant Lifesciences: an investment profile

Stock performance (1 year)

EPS: MOSL forecast v/s consensus (INR)

MOSL Consensus Variation

Forecast Forecast (%)

FY12 11.1 19.4 -42.8

FY13 28.5 25.9 9.8

Target price and recommendation

Current Target Upside Reco.

Price (INR) Price (INR) (%)

179 199 11.2 Neutral

130

160

190

220

250

Feb-11 May-11 Aug-11 Nov-11 Feb-12

Jubilant Life Sensex - Rebased

8/3/2019 jol_090212



8 February 2012 6

Financials and Valuation

8/3/2019 jol_090212



8 February 2012 7

N O T E S

8/3/2019 jol_090212


DisclosuresThis report is for personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an offer, invitation or inducement

to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has been

furnished to you solely for your information and should not be reproduced or redistributed to any other person in any form.

Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its affiliates

or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSt

or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays.

The information contained herein is based on publicly available data or other sources believed to be reliable. While we would endeavour to update the information herein on reasonable basis, MOSt and/or its

affiliates are under no obligation to update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so. MOSt or any of its affiliates or

employees shall not be in any way responsible and liable for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report . MOSt or any of its affiliates

or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness

for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations.

This report is intended for distribution to institutional investors. Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision

based on this report or for any necessary explanation of its contents.

MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of Interest

Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report.

Disclosure of Interest Statement Jubilant Lifesciences

1. Analyst ownership of the stock No2. Group/Directors ownership of the stock No

3. Broking relationship with company covered No

4. Investment Banking relationship with company covered No

Analyst CertificationThe views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or

will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible

for preparation of MOSt research receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

Regional Disclos ures (outside India)This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to

law, regulation or which would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions.

For U.K.

This report is intended for distribution only to persons having professional experience in matters relating to investments as described in Article 19 of the Financial Services and Markets Act 2000 (FinancialPromotion) Order 2005 (referred to as "investment professionals"). This document must not be acted on or relied on by persons who are not investment professionals. Any investment or investment activity to

which this document relates is only available to investment professionals and will be engaged in only with such persons.

For U.S.MOSt is not a registered broker-dealer in the United States (U.S.) and, therefore, is not subject to U.S. rules. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange

Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S.,

Motilal Oswal has entered into a chaperoning agreement with a U.S. registered broker-dealer, Marco Polo Securities Inc. ("Marco Polo").

This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional

investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major

institutional investors and will be engaged in only with major institutional investors.

The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, Marco

Polo and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.

Motilal Oswal Securities Ltd3rd Floor, Hoechst House, Nariman Point, Mumbai 400 021

Phone: (91-22) 39825500 Fax: (91-22) 22885038. E-mail: [email protected]

jol_090212

Documents