Jubilant Life Sciences
July 05, 2016
We have revisited our key assumptions and earnings estimates to evaluate visibility of major revenue drivers in Pharma and LSI divisions. Also, our assumptions re‐ evaluates structural scenarios such as a) Chemical consumption growth in key markets (China), b) competitive landscape and structural headwinds (US), c) crude prices and d)regulatory/Trade restrictions and realisations.
Surajit Pal
[email protected] +91‐22‐66322259 Rating Price Target Price Implied Upside Sensex Nifty
BUY Rs317 Rs484 52.7% 27,279 8,371
(Prices as on July 04, 2016) Trading data Market Cap. (Rs bn) Shares o/s (m) 3M Avg. Daily value (Rs m) Major shareholders Promoters Foreign Domestic Inst. Public & Other Stock Performance (%) 1M 6M Absolute (10.3) (25.0) Relative (11.9) (31.4) How we differ from Consensus EPS (Rs) PL Cons. 2017 30.8 35.6 2018 35.5 45.0
48.9 154.5 43.8 54.02% 15.12% 0.11% 31.00% 12M 85.7 88.6 % Diff. ‐13.7 ‐21.0
Price Perf. (RIC:JULS.BO,BB:JUBILANT IN)
With possibility of first NDA approval in US, Jubilant’s Radiopharma business is poised to leap into branded business with limited competition. Management expects to receive approval in gRuby‐fill (505(b)(2)) in Q2FY17E and launch in Q4FY17E. The superior clinical profile is to help in faster acceptance of gRuby‐fill and expand the market to reach peak revenue potential of US$250m by 2020. CMO and API businesses are also likely to grow faster than other verticals of Jubilant. LSI business however continues to passing through structural headwind with weak visibility of turnaround in consumption growth of pyridines and commoditised chemicals in key geographies such as China. While there are head winds in terms of demand stagnation impacting Nutrition business, Jubilant plans to retrofit its chemical plants to pare‐up with global trend in commoditised chemical business. Valuation methodology changed to EV/EBITDA from PER; Maintain ‘Buy’, new TP at Rs484
With better visibility in operating profit in Pharma and LSI divisions in FY17E and FY18E, we changed our valuation methodology to EV/EBITDA of Pharma and LSI. With steady EBITDA margin of 25‐29% in Pharma, we factor 1‐yr forward EV/EBITDA of 10x on FY18E EBITDA. LSI business is mainly featured with commoditised chemical and we assign 1‐yr forward EV/EBITDA of comparable peers at 3x on FY18E EBITDA. Our new TP derived under 1‐yr in forward EV/EBITDA methodology is Rs484 (Changed from Rs578 in PER) and maintain ‘Buy’ recommendation. 2015 Key financials (Y/e March) 2016 2017E 2018E Revenues (Rs m) Growth (%) EBITDA (Rs m) PAT (Rs m) EPS (Rs) Growth (%) Net DPS (Rs)
57,761 1.0 6,392 (97) (0.6) (102.9) 3.0
57,005 (1.3) 11,759 4,140 26.0 (4,385.9) 3.0
60,580 6.3 12,679 4,901 30.8 18.4 3.0
64,951 7.2 13,809 5,658 35.5 15.4 3.0
2015 11.1 (0.4) 3.4 1.6 14.8 (522.3) 2.1 0.9
2016 20.6 15.4 9.1 1.6 7.8 12.2 1.7 0.9
2017E 20.9 15.7 9.7 1.5 7.1 10.3 1.5 0.9
2018E 21.3 15.7 10.3 1.3 6.2 8.9 1.3 0.9
(Rs) 500 400 300 200 100
Source: Bloomberg
Jul‐16
May‐16
Mar‐16
Jan‐16
Nov‐15
Sep‐15
Jul‐15
0
Profitability & Valuation EBITDA margin (%) RoE (%) RoCE (%) EV / sales (x) EV / EBITDA (x) PE (x) P / BV (x) Net dividend yield (%) Source: Company Data; PL Research
Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision.
Please refer to important disclosures and disclaimers at the end of the report
Company Update
Pharma remain strong, LSI attached to vulnerable commodities
Jubilant Life Sciences
Revisiting estimates: Radiology, CMO to drive Pharma growth With capacity expansion in ingredient plant, strong product‐line and alternative strategy to build contract manufacturing, Radiology Pharma and CMO (Contract manufacturing) are to be major drivers of Pharma sales of Jubilant Life at 10% CAGR in FY16‐18E. Exhibit 1:
Contributions of key revenue sources
Revenue Model Pharma Business Generics
FY14
FY15
FY16
FY17E
FY18E
27,274
26,820
30,548
33,577
36,876
13,000
15,630
17,379
18,286
19,933
Specialty Pharma
4,240
7,120
9,184
10,412
11,622
Radio Pharmaceuticals
2,380
5,250
7,140
8,304
9,439
Allergenic Extracts
1,860
1,870
2,044
2,108
2,183
Dosage Formulations
8,760
8,510
8,195
7,873
8,311
API
5,280
5,410
6,130
6,819
7,267
Services
8,994
5,780
7,040
8,472
9,677
CMO of sterile/ non‐Sterile Products
6,960
4,480
5,699
6,628
8,072
Drug Discovery & Dev. Services (DDDS)
1,840
1,230
1,257
1,747
1,492
India Formulations (Healthcare)
194
70
84
97
114
Life Science Ingredients (LSI) Biz
30,760
31,442
27,475
28,114
29,265
Proprietary prods & exclusive synthesis
13,280
11,790
10,611
10,838
11,330
Nutritional Ingredients
3,960
4,860
4,883
5,037
5,265
LSI Chemicals
13,520
14,792
11,982
12,238
12,669
Less: Other Op. Rev
818
501
1,019
1,110
1,191
Net Consol. Rev
57,216
57,761
57,005
60,580
64,951
12%
1%
‐1%
6%
7%
YoY Gr% Source: Company Data, PL Research
Radiology: Current portfolio to drive revenues at 15% CAGR, Ruby‐fill to boost additional sales in FY18E With high natural entry barrier for new players and consolidation among existing competitors, Radiology business in US/Canada is to achieve 15% CAGR in sales. MAA/DTPA (used for imaging of lung cancer) is the largest contributor and is likely to grow at 16% CAGR on limited competition between two generics and discontinuation of other generic. I131 (used for treating thyroid/kidney cancer) being second largest contributor in radiology is also benefitted from limited competition of generics and is expected to maintain 10% CAGR in FY16‐18E. Systamibi is third product and its sales are expected to remain tepid at US$2‐5m in FY16‐18E as it lost market share to competition. Systamibi was the first product of Jubilant to make a foray in US radiology business through acquisition. With the current product line, we expect Jubilant to comfortably maintain 15% CAGR in FY16‐18E and may reach its
July 05, 2016
2
Jubilant Life Sciences
super normal growth (as it was 66% CAGR in FY14‐16) till 2020 once its pipeline of branded NDA products (e.g. Ruby‐fill, Magnivest, I131 MIBG, Senetac) receives approval and achieve success. Exhibit 2: Radiology sale, growth and operating margin Sales (Rs m)
Growth (RHS)
Operating Margin (RHS) 140.0%
10,000
120.0%
8,000
100.0% 6,000
80.0%
4,000
60.0% 40.0%
2,000
20.0%
‐
0.0% FY14
FY15
FY16
FY17E
FY18E
Source: Company Data, PL Research
gRuby‐fill (Rubidium Chloride, Rb 82 generator) is in the final stage to receive approval from USFDA as Jubilant filed the NDA through 505(b)(2). With better technical capability and proven clinical efficiency, Ruby‐fill is to be directly marketed by Jubilant, including branding, promotion among doctors and utilising own distribution network among hospitals in US. gRuby‐fill being non‐AB rated product, Jubilant to optimise and expand (by 10‐12 people) in‐house sales team to cover 162 hospitals in US. Ruby‐fill is patented and currently marketed by Bracco with US$77m sales without any generics. Ruby‐fill being long off‐patent and belongs to comparably older generation technology in nuclear imaging; Jubilant’s gRubi‐fill proves to be a technically superior product in clinical trials and seems to be a highly upgraded option for doctors in nuclear imaging.
Ruby‐fill to be game changer, strong pipeline to maintain mojo in radiology Jubilant’s superior Ruby‐fill is expected to expand existing market of product to US$250m by 2020. Jubilant non‐AB rated generic is expected to receive better acceptance among specialists for cardiac therapy and may claim 50‐60% market share of existing sales of Ruby‐fill in FY18E and may gain potential revenues of US$100m in FY19E. We however have not factored revenues from Ruby‐fill opportunity and will upgrade our estimates for Radiology sales once the company receives long overdue approval from USFDA. We expect approval may be received in Q2FY17E and the company begin promotion and marketing along with distribution in Q4FY17E. We expect revenues from Radiology to grow at 16% and 14% to Rs8.3bn and Rs9.4bn in FY17E ad FY18E, respectively.
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Jubilant Life Sciences
Exhibit 3: Existing and pipeline products in North America Radiology business Radio Pharmaceuticals
Radio Pharmaceuticals
Cardiolite (generic) sestamibi kit
Myocardial perfusion kit
Ruby‐fill technetium generator
Cardiac imaging
Magnevist (generic)
MRI contrast imaging
Moly‐fill technetium generator
Nuclear medical application
Source: Company Data, PL Research
Following upcoming commercial prospect of Ruby‐fill, Jubilant has also ramped up its pipeline in Radiology business in North America. We believe majority of its pipeline products are in NDA product filing through 505(b)(2) route and expected to receive three approvals by 2020. The current accumulated market size of the three approvals is US$210m at innovator price. We believe Ruby‐fill approval and expected marketing success to be a game changer for Jubilant. Once the company’s track record in Ruby‐fill established, we expect the investors to take notice of its pipeline in radiology. While we expect Radiology sales may reach US$300m in FY19E at a 40% CAGR in sales, we have not factored any potential revenues from any 505(b)(2) products of Jubilant in our earnings estimates.
Capacity expansion to drive API sales by 9% CAGR in FY16‐18E With the completion of capacity expansion in FY16, we expect API sales (3% CAGR in FY14‐16) to be revived with 9% CAGR in FY16‐18E. Jubilant continues to earn major revenues in API from Carbamazepine, Oxcarbamazepine and Sartans with largest global capacities. With nearing of completion of GDUFA‐1 in 2017 in contrast with long list of overdue pending of many molecules, we expect many new generics (of its partners) to be approved and will drive Jubilant’s API business due to its pre‐existent contract with many ANDA filers. The company has six API plants across North India with average 90 days DSO (receivables). Jubilant’s capital employed in API is Rs6.5bn with 20‐21% ROCE in FY16. Jubilant’s API sales is expected to be increased by 11% and 7% to Rs6.8bn and Rs7.3bn in FY17E and FY18E respectively. Exhibit 4: Sales, growth and margin in API sales Sales (Rs m)
Growth (RHS)
Operating Margin (RHS) 20.0%
8,000 7,000
15.0%
6,000 5,000 4,000
10.0%
3,000 2,000
5.0%
1,000 ‐
0.0% FY14
FY15
FY16
FY17E
FY18E
Source: Company Data, PL Research
July 05, 2016
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Jubilant Life Sciences
CMO: Alternative strategy to reduce vulnerability of order book In the first year post recovery, Jubilant’s CMO business increased by 20% to US$86m in FY16. Management expects CMO to reach its previous peak revenues of US$130m in FY18E with better order book and increase in capacity utilisation from 60% in FY16. Both the CMO plants of the company (USA and Canada) had received resolution (against warning letters) in June 2015. Jubilant’s CMO annual revenues fell to US$65m with EBITDA loss of Rs400m in FY15 post warning letter, due to discontinuation of clients’ contracts. The company’s new strategy is however not only winning back older clients but also better profitability in executing the order book. Hence, it expects gradual recovery of CMO and slower ramp up in utilisation. Exhibit 5: Sales, growth and margin in CMO Sales (Rs m)
Growth (RHS)
Operating Margin (RHS)
9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 ‐
40.0% 30.0% 20.0% 10.0% 0.0% ‐10.0% ‐20.0% ‐30.0% ‐40.0% FY14
FY15
FY16
FY17E
FY18E
Source: Company Data, PL Research
With steadfast objective of building quality order book with higher profitability, Jubilant plans to utilised unused capacity with its own ANDA in injectable. It has begun filing ANDA (para‐III) from the injectable plant and received one approval in Q1FY17. The two CMO plants have capability of manufacturing liquid, powder and ointments. Among the existing order book, biologics contribute 25% and Synthesis work contributes 75%. We expect 17% CAGR in revenues of Rs6.6n and Rs8.1bn in FY17E and FY18E, respectively.
Generic formulations continue to face structural headwinds With 85% contribution in revenues from dosage formulations, US remain major contributor of Jubilant’s generic formulation business in export markets. Maintaining its strategy of pursuing only non‐para‐IV drugs to avoid conflict of interest, Jubilant’s profitable launches in US have been limited due to strong competition and channel consolidation. With growing competitive intensity among para‐IV applicants in US, para‐III applicants finds commercially unattractive generic market when its turn comes to launch drugs. The company’s opportunity in drugs which are impacted by supply of shortage remains limited, post benefits of Methylprednisolone which drove formulation business by 58% CAGR in FY11‐15.
July 05, 2016
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Jubilant Life Sciences
The consolidation among channel partners is another negative development which has been significantly impacting generic prices in US. The events of acquisition and partnership have led to make effectively three groups of buyers in comparison to earlier seven distributors. We expect the structural headwinds in US continue to impact revenues from dosage formulations as revenues from other geographies (such as Japan‐US$10m, EU‐US$5m and ROW‐US$15m) are yet to be sizeable contributors. We expect dosage formulations to grow at 1% CAGR in revenues of Rs7.8m and Rs8.3m in FY17E and FY18E respectively. Exhibit 6: Sales, growth and margin of Dosage formulations Sales (Rs m)
Growth (RHS)
Operating Margin (RHS) 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% ‐5.0% ‐10.0%
9,000 8,800 8,600 8,400 8,200 8,000 7,800 7,600 7,400 FY14
FY15
FY16
FY17E
FY18E
Source: Company Data, PL Research
DDDS: Shifting strategy to NCE molecules will benefit back‐ended Management changes in strategy to pursue more research services in NCE business has begun reflect, as they made the first out‐license deal with US$2m upfront fees. The revenue potential from the out‐licensed molecule is US$180m in 3‐4 years for which it spent R&D investment of US$3.6m. The company’s pipeline has three more molecules and expect similar kind of out‐licensing deal in near to medium term. With total investment of Rs3bn till date in two divisions, Biosys and Chemsys, research work for generic companies used to be main source of revenues in DDDS division. With drying out of generic opportunity in US and EU, the company is gradually shifting to NCE‐based research work. We believe the benefits of strategic change will be back‐ended and expect 9% CAGR in revenues in FY16‐18E
July 05, 2016
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Jubilant Life Sciences
Exhibit 7: Sales, growth in DDDS Sales (Rs m)
Growth (RHS)
Operating Margin (RHS)
2,000
50.0% 40.0% 30.0% 20.0% 10.0% 0.0% ‐10.0% ‐20.0% ‐30.0% ‐40.0%
1,500 1,000 500 ‐ FY14
FY15
FY16
FY17E
FY18E
Source: Company Data, PL Research
LSI: Realisation, demand remain tepid; Commoditised molecule yet to show sign of revival With 47% contribution in consolidated revenues, the tepid demand cycle and subdued realisation of LSI business have impacted Jubilant’s revenue growth and margin. The global bearish scenario in commodities also impacted indifferent realisation of Jubilant’s commoditised chemical products (Pyridine, beta picoline, alfa picoline, Niacin, acetyls etc) in LSI business. Its only vibrant business in LSI, Nutritional ingredients (Niacin, Niacinamaide) also impacted by demand stagnation in FY16 as it grew by 0.5% YoY despite price rise by 10% in Q1FY16.
PPES: The laggard‐visibility of demand, revenue pick‐up has weak sign of revival Jubilant has two large problems in PPES business: 1) China being largest (60% of global consumption) consumer of pyridine, impacted demand pattern of pyridine consumption and 2) globally largest production capacity (62,000tonnes). The combination of the two vexed issues has impacted Jubilant’s product profile in pyridines and realisations. Besides, the failure of Symtet has further complicated its efficiency of Rs3bn capex in its plant and distresses the company’s plan for launching new product line in Pyridine.
July 05, 2016
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Jubilant Life Sciences
Exhibit 8: PPES revenue, growth, realisation over years Sales (Rs m)
Growth (RHS)
Operating Margin (RHS)
14,000
25.0%
12,000
20.0%
10,000
15.0% 10.0%
8,000
5.0%
6,000
0.0%
4,000
‐5.0%
2,000
‐10.0% ‐15.0%
‐ FY14
FY15
FY16
FY17E
FY18E
Source: Company Data, PL Research
The declining pyridine consumptions in China led to glut of supply of pyridine in Chinese market and reduced realisation by 40% in FY14‐16. The supply glut, lower realisation and China’s domestic restriction on manufacturing hazardous chemicals (including those consume pyridines such as Paraquat) have led to decrease in Jubilant’s capacity utilisation to 65% in FY16 from 90% in FY14. The company has limited the damage by a)higher captive consumption to produce pyridine derivative beta‐picoline for production of Niacine/Nicinamide, b)retrofit one of the three pyridine plants into production of alfa‐picoline for supply to pharma companies and c)retrofit Symtet plant for production of three pyridine derivatives which are to be launched in FY17E and FY18E. We expect, with the current global price of Pyridine continuing to be US$3/Kg or below would lead to encourage Jubilant for more captive consumption to produce more derivatives for better realisation. PPES is likely to grow at 3% CAGR to revenues of Rs10.8bn and Rs11.3bn in FY17E and FY18E, respectively.
Nutrition: Concern over volume growth pause price rise, growth Being the only bright spot of Jubilant’s LSI business without much volatility, Nutrition revenues have grown 14% CAGR with gradual increase in capacity during FY12‐16. The business has been growing with combined benefits of increase in demand and price, though in FY16 seems to have impacted with 0.5% growth in revenues. Pyridine derivatives being a smaller market globally, fall in demand for Pyridine seems to have caught up with demand in Niacin/Niacinamide, where the company has one of the large capacities (50,000 tons) globally. Hence, Jubilant’s annual price rise has been absent in YTD FY17. We expect 2% CAGR in FY16‐18E with revenues of Rs5bn and Rs5.2bn in FY17E and FY18E respectively.
July 05, 2016
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Jubilant Life Sciences
Exhibit 9: Revenues and growth of Nutrition business Sales (Rs m)
Growth (RHS)
Operating Margin (RHS)
6,000
30.0%
5,000
25.0%
4,000
20.0%
3,000
15.0%
2,000
10.0%
1,000
5.0%
‐
0.0% FY14
FY15
FY16
FY17E
FY18E
Source: Company Data, PL Research
LSC: Lower crude price pushes margin at the cost of declining sales With Life Science Chemicals (LSC) being a high volume and low margin business, Jubilant’s declining revenue growth in LSI division has been largely contributed by LSC as its annual average contribution in LSI was 45% in FY14‐16. The major products of the division are Acetates, Acetyl of Ethylene. Its production of Ethylene was impacted when the crude price went below US$40/bbl. With global crude price below US$50/bbl since August 2015, Jubilant’s LSI sales growth has been impacted in FY16E as benefits of lower crude price has to be passed on. This has resulted in lower realisation and led to stoppage of Ethylene production as operating loss was more than fixed costs. The stoppage of Ethylene production and lower crude price however led to overall operating margin of LSI business of 16% in FY16. The recent ascent of crude prices above US$40/bbl increases possibility of Ethylene production of Jubilant, which is most likely to occur in H2FY17E. Without much to factor crude price rise in FY17E‐18E, we expect 3% CAGR in LSC revenues to Rs12.2bn and Rs12.7bn in FY17E and FY18E. Exhibit 10: Revenues and growth and realisation of LSC business Sales (Rs m)
Growth (RHS)
Operating Margin (RHS)
16,000
15.0%
14,000
10.0%
12,000
5.0%
10,000
0.0%
8,000
‐5.0%
6,000
‐10.0%
4,000
‐15.0%
2,000
‐20.0% ‐25.0%
‐ FY14
FY15
FY16
FY17E
FY18E
Source: Company Data, PL Research
July 05, 2016
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Jubilant Life Sciences
Operating profit to 8% CAGR in FY16‐18E, core margin to be 20‐21% While US formulations, volatile LSI sales and crude price remain challenge, Jubilant’s EBITDA to grow at 8% CAGR due to strong benefits from Pharma business to continue which are to be led by Radiology, CMO and API. We expect core operating profit in Pharma and LSI to grow at 10% and 3%, together with operating margin of 29% and 16%, respectively. Operating profits in Pharma are Rs9.7bn and Rs10.8bn and in LSI are Rs4.6bn and Rs4.7bn in FY17E and FY18E, respectively. Exhibit 11: EBITDA (Pharma, LSI, Overall , Margin) Pharma Business
LSI
Overall Margin
35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% FY14
FY15
FY16
FY17E
FY18E
Source: Company Data, PL Research
Capex: Continue to be Rs4‐5bn in FY16‐18E Jubilant incurred core capex of Rs3bn and additional capex of Rs1bn on product development in FY16. Management guided total capex of Rs4‐5bn in FY16‐18E on the back of retrofitting Pyridine plant, expansion of capacities and development costs of ANDAs and NDA products in Radiology. The company amortize product development costs once the product is launched in market or when the product is withdrawn due to economic unviability (such as Rs590m one‐off amortisation in FY16). Exhibit 12: Capex History 5,000 4,500 4,000
(Rs m)
3,500 3,000 2,500 2,000 1,500 1,000 500 0 FY14
FY15
FY16
FY17E
FY18E
Source: Company Data, PL Research
July 05, 2016
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Jubilant Life Sciences
Debt: Better operating cash flow to lower gross debt gradually Jubilant reduced gross debt by Rs2.8bn and net debt by Rs3.7bn in FY16 with the current debt outstanding at Rs45bn. With significant amount of borrowing in USD, exchange fluctuations add to the volatility in outstanding debt. Blended interest cost is 7.6%, comprising of domestic interest cost at 11.6% and US$ interest rate at 4.9%. Gross working capital requirement remains at 37.5% of net revenues in FY16. Management guided for similar amount (Rs2.8‐3bn) of gross debt reduction as we assume average net operating cash flow to be Rs11bn and effective tax rate at 25% in FY17‐18. Exhibit 13: Debt History 60,000 50,000
(Rs m)
40,000 30,000 20,000 10,000 ‐ FY14
FY15
FY16
FY17E
FY18E
Source: Company Data, PL Research Exhibit 14: Net changes in revenues FY16 Pharma Business Generics
FY17E
FY18E
3,728 3,029 3,300 1,749
907
1,647
Specialty Pharma
2,064 1,228 1,210
Radio Pharmaceuticals
1,890 1,164 1,135
Allergenic Extracts
174 64 74
Dosage Formulations
(315) (322) 437
API
720 689 448
Services
1,259
1,433
1,205
CMO of sterile/ non‐Sterile Products
1,219 929 1,444
Drug Discovery & Dev. Services (DDDS)
27 490 (255)
India Formulations (Healthcare)
13 14 16
Life Science Ingredients (LSI) Biz
(3,967)
638
1,151
Proprietary prods & exclusive synthesis
(1,179) 227 492
Nutritional Ingredients
23 154 229
LSI Chemicals
(2,811) 257 431
Less: Other Op. Rev
518 92 80
Net Consol. Rev
(757) 3,575 4,371
Source: Company Data, PL Research
July 05, 2016
11
Jubilant Life Sciences
Valuation: Methodology changed to SOTP EV/EBITDA of Pharma, LSI With better visibility in operating profit in Pharma and LSI division in FY17E and FY18E, we changed our valuation methodology to EV/EBITDA of Pharma and LSI as there are large valuation gap between two highly diversified business of Jubilant. With key features such as limited competition, strong market share and pipeline, Jubilant’s operating matrix in Pharma is as robust and comparable as its peers in US generics such as Dr Reddy’s Lab and Aurobindo Pharma. With steady EBITDA margin of 25‐29% in Pharma, we factor 1‐yr forward EV/EBITDA of 10x on FY18E EBITDA. LSI business is mainly featured with commoditised chemical and we assign 1‐yr forward EV/EBITDA of comparable peers at 3x on FY18E EBITDA. With conservative assumption of continuation with current gross debt, we arrive at new TP of Rs484 (Changed from Rs578 in PE methodology) and maintain ‘Buy’ recommendation. Exhibit 15: Change in key financial matrices Year
Sales (Rs m)
EBITDA (Rs m)
EPS (Rs)
Old
New
Diff (%)
Old
New
Diff (%)
Old
New
Diff (%)
FY17E
62,472
60,580
(3.0)
13,556
12,679
(6.5)
32.2
30.8
(4.5)
FY18E
68,187
64,951
(4.7)
15,001
13,809
(7.9)
34.6
35.5
2.6
Source: Company Data, PL Research Exhibit 16: Valuation in EV/EBITDA methodology EBITDA (FY18E) Pharma Business LSI (Chemical) business
Rs m 10,813 4,723
EV/EBITDA (ex‐post) No. of Equity share of Re.1/‐ EV/EBITDA (ex‐ante) 1‐Yr fwd
159 Rs m
Rs/Share
108,131
679
14,168
89
122,299
768
Less: Total Debt
45,140
283
Market Cap =
77,159
484
Pharma: 10x LSI: 3x Enterprise Value =
Fair Value per share CMP Capital appreciation Dividend yield Net Appreciation
484 317 52.9% 0.9% 52.0%
Source: PL Research
July 05, 2016
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Jubilant Life Sciences
Exhibit 17: One Year Forward Price/Earnings Band 700 20.0x
600
17.0x
500
14.0x
400
11.0x
300
8.0x
200 100
‐100
Mar‐05 Oct‐05 Apr‐06 Nov‐06 May‐07 Dec‐07 Jun‐08 Dec‐08 Jul‐09 Jan‐10 Aug‐10 Feb‐11 Aug‐11 Mar‐12 Sep‐12 Apr‐13 Oct‐13 Apr‐14 Nov‐14 May‐15 Dec‐15 Jun‐16
0
Source: Company Data, Bloomberg, PL Research Exhibit 18: One Year Forward Price / Earnings (+/‐ Sigma) P/E (x)
Average (µ)
(µ+σ)
(µ‐σ)
Jun‐16
Apr‐16
Feb‐16
Dec‐15
Oct‐15
Aug‐15
Jun‐15
Apr‐15
Feb‐15
Dec‐14
Oct‐14
Aug‐14
Jun‐14
Apr‐14
Feb‐14
Dec‐13
Oct‐13
Aug‐13
Jun‐13
Apr‐13
150.0 100.0 50.0 0.0 ‐50.0 ‐100.0 ‐150.0 ‐200.0 ‐250.0 ‐300.0
Source: Company Data, Bloomberg, PL Research Exhibit 19: Trailing 12M Price / Earnings Band 1200.00 1000.00
35x
800.00 25x
600.00
15x
400.00 200.00
5x
0.00
Jun‐16
Apr‐16
Feb‐16
Dec‐15
Oct‐15
Aug‐15
Jun‐15
Apr‐15
Feb‐15
Dec‐14
Oct‐14
Aug‐14
Jun‐14
Apr‐14
Feb‐14
Dec‐13
Oct‐13
Aug‐13
Jun‐13
Apr‐13
‐200.00
Source: Company Data, Bloomberg, PL Research
July 05, 2016
13
Income Statement (Rs m) Y/e March 2015 Net Revenue Raw Material Expenses Gross Profit Employee Cost Other Expenses EBITDA Depr. & Amortization Net Interest Other Income Profit before Tax Total Tax Profit after Tax Ex‐Od items / Min. Int. Adj. PAT Avg. Shares O/S (m) EPS (Rs.)
57,761 26,617 31,144 10,903 13,850 6,392 2,880 3,553 926 884 805 79 (786) (97) 159.3 (0.6)
2016
2017E
2018E
57,005 21,175 35,830 11,267 12,803 11,759 3,460 3,786 1,155 5,669 1,529 4,140 349 4,140 159.3 26.0
60,580 22,899 37,681 11,510 13,492 12,679 3,874 3,520 1,251 6,535 1,634 4,901 — 4,901 159.3 30.8
64,951 24,227 40,724 12,341 14,574 13,809 4,227 3,374 1,335 7,543 1,886 5,658 — 5,658 159.3 35.5
Jubilant Life Sciences
Balance Sheet Abstract (Rs m) Y/e March 2015
2016
2017E
2018E
24,535 47,931 3,449 75,915 55,079 — 395 16,872 3,943 23,336 10,407 3,569 75,915
29,096 45,140 4,790 79,026 56,850 — 361 18,569 3,445 25,568 10,445 3,246 79,026
33,422 42,415 4,846 80,683 57,475 — 361 19,438 3,098 27,054 10,715 3,408 80,683
38,504 39,696 4,907 83,107 56,748 — 361 22,419 4,128 28,987 10,696 3,579 83,107
Quarterly Financials (Rs m) Y/e March Q1FY16
Q2FY16
Q3FY16
Q4FY16
14,631 3,206 21.9 751 924 (6) 1,525 390 1,158 1,158
13,795 3,075 22.3 747 900 3 1,432 230 1,169 1,169
15,013 3,202 21.3 1,260 899 2 1,045 503 707 707
2015
2016
2017E
2018E
Pharmaceuticals 26,820 LSI 31,442 Source: Company Data, PL Research.
30,548 27,475
33,577 28,114
36,876 29,265
Shareholder's Funds Total Debt Other Liabilities Total Liabilities Net Fixed Assets Goodwill Investments Net Current Assets Cash & Equivalents Other Current Assets Current Liabilities Other Assets Total Assets
Cash Flow Abstract (Rs m) Y/e March C/F from Operations C/F from Investing C/F from Financing Inc. / Dec. in Cash Opening Cash Closing Cash FCFF FCFE
2015
2016
2017E
2018E
7,833 (3,433) (5,027) (628) 4,735 3,916 256 4,234
11,333 (4,652) (7,152) (472) 3,916 3,445 13,110 10,319
10,953 (4,478) (6,821) (346) 3,445 3,098 (10,651) (13,376)
11,176 (3,478) (6,668) 1,029 3,098 4,128 4,433 1,714
Revenue (%) EBITDA (%) PAT (%) EPS (%)
Profitability EBITDA Margin (%) PAT Margin (%) RoCE (%) RoE (%)
Balance Sheet Net Debt : Equity Net Wrkng Cap. (days)
Valuation PER (x) P / B (x) EV / EBITDA (x) EV / Sales (x)
Earnings Quality
14,586 3,294 22.6 702 927 1 1,666 405 1,281 1,281
Key Financial Metrics Y/e March Growth
Net Revenue EBITDA % of revenue Depr. & Amortization Net Interest Other Income Profit before Tax Total Tax Profit after Tax Adj. PAT
2015
2016
2017E
1.0 (31.0) (103.0) (102.9)
(1.3) 84.0 (4,385.9) (4,385.9)
6.3 7.8 18.4 18.4
7.2 8.9 15.4 15.4
20.9 8.1 9.7 15.7
21.3 8.7 10.3 15.7
1.2 167
0.9 169
10.3 1.5 7.1 1.5
8.9 1.3 6.2 1.3
25.0 19.1 4.6 (272.9)
25.0 17.7 4.8 30.3
11.1 (0.2) 3.4 (0.4)
20.6 7.3 9.1 15.4
1.8 125
1.4 166
(522.3) 2.1 14.8 1.6
12.2 1.7 7.8 1.6
Eff. Tax Rate 91.0 Other Inc / PBT 104.7 Eff. Depr. Rate (%) 3.9 FCFE / PAT (4,383.1) Source: Company Data, PL Research.
27.0 20.4 5.2 249.2
2018E
Key Operating Metrics (Rs m) Y/e March
July 05, 2016
14
Jubilant Life Sciences
Prabhudas Lilladher Pvt. Ltd. 3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai‐400 018, India Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209 Rating Distribution of Research Coverage
% of Total Coverage
PL’s Recommendation Nomenclature
46.1%
50% 40%
38.3%
30% 15.7%
20% 10%
0.0% 0% BUY
Accumulate
Reduce
BUY
:
Over 15% Outperformance to Sensex over 12‐months
Accumulate
:
Outperformance to Sensex over 12‐months
Reduce
:
Underperformance to Sensex over 12‐months
Sell
:
Over 15% underperformance to Sensex over 12‐months
Trading Buy
:
Over 10% absolute upside in 1‐month
Trading Sell
:
Over 10% absolute decline in 1‐month
Not Rated (NR)
:
No specific call on the stock
Under Review (UR) :
Sell
Rating likely to change shortly
DISCLAIMER/DISCLOSURES ANALYST CERTIFICATION We/I, Mr. Surajit Pal (PGDBA, CFA, M.Com), Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & conditions and other disclosures: Prabhudas Lilladher Pvt. Ltd, Mumbai, India (hereinafter referred to as “PL”) is engaged in the business of Stock Broking, Portfolio Manager, Depository Participant and distribution for third party financial products. 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July 05, 2016
RADHAKRISHNA N SREESANKAR
Digitally signed by RADHAKRISHNAN SREESANKAR DN: c=IN, o=Personal, cn=RADHAKRISHNAN SREESANKAR, serialNumber=8859da2df03122989b585ad520865a4f59 be69fbc1b7ba2c5315941f987f41de, postalCode=400104, st=MAHARASHTRA Date: 2016.07.05 10:01:41 +05'30'
15
