Jubilant LifeSciences Ltd. BUY Target Price `647

Sensex Nifty Industry

After facing multiple headwinds which impacted business growth and 26,117 profitability, Jubilant LifeSciences Ltd. (JUBL) is all set to come out of 7,946 this tumultuous period and stage a robust recovery, the glimpses of Pharma which are already evident.

Scrip Details MktCap (` cr) BVPS (`)

6,535 154.0 15.9 3.5 455/116 0.7 1.0

O/s Shares (Cr) Avg. Vol 52 Week H/L Div Yield (%) FVPS (`)

Shareholding Pattern Shareholders

% 54.0 0.6 17.6 27.8 100.0

Promoters DIIs FIIs Public Total

We expect Jubilant’s revenues to grow at a 3-year CAGR of 9.5% over FY15 to FY18 to `7,655 crores with earnings are expected to turn the corner and report a profit of `736 crores in FY18 from a loss of `58 crores in FY15. This resurgence is expected to be driven by recovery in the Contract Manufacturing Operations (CMO), continued robust growth of the Radiopharma segment, steady state performance of the solid dosage portfolio and uptick in the nutritional products business. Rebounding margins are expected to bolster profit growth. We initiate coverage on JUBL as a BUY with a price objective of `647. At CMP of `419 the stock is trading at 10.6X and 9.1X its FY17 and FY18 earnings estimates. Our target price represents a potential upside of 54% over a period of 24 months. Our optimism stems from the fact that:

JUBL vs. Sensex

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FY17E P/E 9.1x

Revenues of the company are expected to grow at a 3-year CAGR of 9.5% from `5,827 crores to `7,655 crores while margins of the company, which have already rebounded to it steady state of 22.2% are expected to remain firm on the back of following reasons:  US FDA clearance of the Spokane facility will lead to a bounce back in CMO revenues from `448 crores in FY15 to `706 crores by FY18. Further, it will also arrest the expenditure that the company had been incurring for compliance purpose.

JUBL

 Radiopharma business is expected to sustain the growth traction over the coming years and is expected clock a growth of 25.9% over FY15-FY18. Key Financials (` in Cr) Net Y/E Mar EBITDA Sales 2015 5826.5 701.5 2016E 6062.4 1355.7 2017E 6745.5 1474.7 2018E 7655.8 1645.2 -1-

PAT

EPS (`)

-57.76 530.6 625.1 736.0

-3.6 33.3 39.2 46.2

EPS Growth (%)

NM NM 17.8 17.7

RONW (%)

ROCE (%)

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EV/EBITDA (x)

-2.3 19.8 18.9 18.2

6.4 15.3 16.1 17.3

-113.9 12.4 10.6 9.1

15.6 7.9 6.9 6.0

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STOCK POINTER

Index Details

CMP `419

 API (9.6% 3-year CAGR) and Solid dosage (7.8% 3-year CAGR) verticals are expected to witness an uptick on the back of improving demand dynamics and commercialization of newer filings.  The Drug discovery and anti - Allergic products businesses are also expected to regain the growth trajectory from exposure to newer geographies and other initiatives to generate new clientele.  Upward movement in the prices of Niacinamide is expected to drive the growth of Nutritional products and lead to an improvement in the margins of this segment. JUBL is inching closer towards getting the approval for Ruby-fill. If the approval comes as expected i.e. towards the end of FY17, we could see a sharp jump in the revenue of radiopharma segment. To keep a check on its leverage position, Jubilant has tapered its capex plans and in coming years will focus more on debottlenecking its capacities. Moreover it has also refinanced large portion of its debt into INR denomination to insulate itself from forex fluctuations. JUBL is also contemplating a QIP issue and/or listing of its pharmaceutical business in the US to garner funds which can bring down the total debt of the company by other `1,000 crores in FY18. We initiate coverage on Jubilant Lifesciences Ltd. as a BUY with a price objective of `647 representing a potential upside of 54% from the of `419 over a period of 24 months. We have used P/E multiple approach to value Jubilant LifeSciences Ltd and assigned a multiple of 14X on FY18 EPS of `46.2 to arrive at the target price.

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Monday, 4 January, 2016

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 Company Background Jubilant LifeSciences Ltd. (JUBL) is an integrated global pharmaceutical & life Sciences company with a strong presence across India, North America, Europe, China and Japan. JUBL manufactures its LSI products from facilities located at Gajraula (UP), Bharuch (Gujarat), Nira and Ambernath (Maharashtra), and Samlaya (Gujarat) while it manufactures pharma products from Nanjangud (Karnataka), Roorkee (Uttrakhand), Salisbury (USA), Spokane (USA) and Montreal (Canada).

Jubilant LifeSciences business structure

Source :Jubilant LifeSciences, Ventura Research

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 Key Investment Highlights  Company to come out of the distress period and stage a recovery After years of consistent growth, FY15 brought with it a lot of hindrances which dented the growth trajectory of Jubilant. The following series of events significantly dented revenue growth. Price erosion of its key drug Methylprednisolone over the years Inability to stabilize operations at its Symtet facility which led to cost overruns USFDA warnings at the Spokane plant received in FY14 which resulted in higher expenses to correct the observations Imposition of anti-dumping duty of 25% on Pyridine and a ban of liquid Paraquat in China during FY15. This led to a very flat growth in top line (0.4%) in FY15. It also significantly impacted the margins (down from 20.4% to 12.6% in FY15) which led to the company reporting a loss.

Uptick in margins to propel profit growth

Revenues to resume growth traction 9000.0

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Source :Jubilant LifeScience, Ventura Research

However, we expect the fortunes to revive due to the following triggers; The company has received the go ahead to resume operations at its Spokane facility post US FDA approval which should propel the CMO business. Geographical diversification to de-risk the Pyridine business that has been affected after the anti-dumping duty in China -4-

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Monday, 4 January, 2016

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Expected increase in the pricing of Nutritional products and relatively slower deterioration of Methylprednisolone prices. There have been significant improvements in margins of Radiopharma and the CMO business. On the back of these positives we expect Jubilant’s revenue to witness an uptick and grow at a 3-year CAGR of 9.5% to `7,655 crores by FY18 which will be mainly led by the pharmaceutical vertical. Further, we believe that the declining trend of JUBL’s operating margin is set to reverse which can also be seen from its results of H1FY16. The blended margin (Pharma and LSI) have recouped from 12.6% to 22.5% during the first half of FY16 (mainly aided by the pharmaceuticals business whose margins have expanded by over 13% to 29.6% during the same period while margins of the LSI vertical has expanded by 650 bps to 16.7%). We expect the blended margins of the company to expand by 900 bps to 21.5% by FY18 from 12.6% in FY15. While the pharma margins are expected to improve by 930 bps (to 25.9%), the LSI margins are expected to improve by 490 bps (to 15.2%). This will translate into EBITDA growth of 33.2% CAGR to `753 crores by FY18.  Pharma business to drive top line. JUBL operates in the pharmaceutical space through various segments viz., API, generics and specialty pharmaceuticals. In FY15 the pharmaceutical vertical comprised ~46% of JUBL’s revenue and going ahead the pharma business is expected to drive the overall revenues of the company with its contribution to sales mix growing to 52%. JUBL’s pharmaceutical segment business structure

Source :Jubilant LifeScience, Ventura Research -5-

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Monday, 4 January, 2016

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Strong growth over FY10 to FY14 JUBL’s pharma revenues enjoyed robust growth of ~15% CAGR over FY10FY14 driven by solid dosage business (~55% CAGR) and API business (~17% CAGR) Radiopharmaceuticals which grew at ~21% CAGR, albeit on a lower base. US FDA warning to the Spokane facility dented the top line for FY15. However, during FY15 JUBL’s Pharma revenue dropped by ~2% to `2,682 crores. This was mainly attributable to the CMO (Contract Manufacturing Operations) business which declined by ~36% after the company received a warning letter from the USFDA for its Spokane CMO plant. JUBL had to voluntarily shut down the CMO plant which significantly affected their sales and profitability. During the year the API and Solid dosage business were also flattish due to price erosion in one of their key products and absence of approval of any blockbuster drugs. Pharma business to drive overall top line 4500.0

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Source :Jubilant LifeScience, Ventura Research

Source :Jubilant LifeScience, Ventura Research

However, we believe that the fall in pharma revenue has bottomed out and going ahead it should spearhead the overall top line of the company. We expect Pharmaceuticals revenue to grow at a 3-year CAGR of ~14% to `3,996 crores on the back of  revival in the CMO business -6-

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Monday, 4 January, 2016

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 strong growth in radiopharma and  uptick in API and solid dosage segments.

•

Spokane spook over, CMO to experience an uptick

The suspension of the Spokane facility by the US FDA resulted in a sharp degrowth of the CMO business. CMO revenues collapsed by ~35% to `448 crores. However, dedicated efforts by the management helped resolve the issues and the USFDA upgraded the facility in Q4 of FY15 itself. We expect CMO revenues to resume its growth trajectory and forecast revenues to grow at a CAGR of 16.4% to `706 crores by FY18. In line with the added cost of compliance, JUBL is seeking newer contacts on their terms without compromising on margins. CMO business to get back to normalcy 800.0

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700.0 600.0 500.0 400.0 300.0 200.0 100.0 0.0 FY11

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Source :Jubilant LifeScience, Ventura Research

Radiopharma to bolster pharma business JUBL’s radiopharma business has experienced stellar growth to `525 crores in FY15 from `110 crores clocked in FY10. This has been possible due to the high quality of its specialty products. Radiopharma now accounts for 19.6% of its total pharma business from merely 6.5% in FY10. Exit of large MNCs from the radiopharma space an opportunity for JUBL The global radiopharma business market is a meager $4.5bn and expected to grow at a CAGR of 9.1% over the next 3-4 years. Global majors have been exiting this space due to the small size of the market and this represents an opportunity for smaller players like Jubilant. However, the entry barriers are high -7-

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Monday, 4 January, 2016

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in this business as it is extremely regulated and requires a lot of expertise on the part of the company. This gives Jubilant an edge over other players. Ruby-fill approval to take radiopharma’s contribution into a new orbit One of the biggest drivers of the radiopharma vertical is expected to be the USFDA nod for Ruby-fill, a potential blockbuster product. JUBL has been expecting the USFDA nod for Ruby-fill for over 3 years now. This innovative product by Jubilant is believed to significantly bring down the radio activities duration in a patient’s body from the present 24-48 hours to a mere 1-2 hours. The company is already seeing demand for this product and it is keen on commercializing it as soon as it receives an approval from the USFDA. The management expects the approval to come through towards the end of FY17. Radiopharma business to sustain strong growth traction 1200.00

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Source :Jubilant LifeScience, Ventura Research

We believe that the strong traction in the Radiopharma business will continue and going ahead we expect its revenue to grow at a 3-year CAGR of 25.9% to `1,048 crores by FY18 from `525 crores in FY15. Radiopharma’s contribution to pharma revenue will increase to 26.5% in FY18 from 19.6% in FY15. We have not built-in much revenue from the Ruby-fill and if the approval for this product goes through as expected there will be an upside risk in the radiopharma business. Consequently, the revenue can be expected to grow at a CAGR of 27.8% to `1,100 crores. •

Uptick in API business expected

Jubilant is one of the leading players globally in the Cardiovascular System (CVS), Central Nervous System (CNS), Anti-infectives and Anti-depressants and presently its API portfolio contributes to 20.2% of JUBL’s pharma revenues. -8-

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Monday, 4 January, 2016

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JUBL currently has 38 commercial APIs under its belt with a leadership position in Carbamazepine, Oxcarbazepine, Citalopram and Lamotrigine. Majority of the business in this space comes from North America, Europe and Japanese market. Operating in niche areas, JUBL enjoys very healthy margins in APIs compared to its peers. Till FY13 the company experienced a strong growth in the API business. However, the business softened in FY14 and FY15 where it grew at 3.9% and 2.5% respectively on the back of slower approvals, capacity constraints and pricing pressure on some of the drugs. However, we expect traction to resume going ahead on the back of: a) improving demand dynamics for the company’s products b) debottlenecking capex which should lead to enhanced capacities c) a healthy pipeline of filings We expect API revenues to grow at a 9.6% CAGR over FY15 to FY18 period to `711 crores. API vertical to resume growth 800.0

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700.0 600.0 500.0 400.0 300.0 200.0 100.0 0.0 FY11

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Source :Jubilant LifeScience, Ventura Research

Continued pricing pressure on Methylprednisolone to impact solid dosage business. Solid dosage is the largest business within Jubilant’s pharmaceutical space, contributing ~32% of revenue. JUBL has a strong presence in the CVS, CNS and Steroids segments in this vertical. Methylprednisolone enjoyed high margins till FY14… Jubilant entered the Methylprednisolone market when many global players voluntarily recalled their productions. This led to a sharp uptick in pricing of -9-

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Monday, 4 January, 2016

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Methylprednisolone leading to supernormal margins for JUBL. Revenues from this business grew at a remarkable 54.9% CAGR over FY10 to FY14 to `876 crores. …however price correction to persist over forecast period impacting margins. Recently the price erosion of Methylprednisolone has been rather sharp and this has resulted in a de-growth of 2.9% in the solid dosage business in FY15. This price correction is expected to persist. Approvals for ANDAs to offset revenues from Methylprednisolone Though the downward trajectory of Methylprednisolone is expected to continue (albeit at a slower rate), approval and commercialization of newer drugs will offset the loss from the said price erosion. Currently, Jubilant has 71 ANDAs in solid dosage segment of which 32 are pending approvals. Solid dosage business to experience an uptick in growth 1,200.0

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Source :Jubilant LifeScience, Ventura Research

To accelerate procedures for new filings, Jubilant has hired Mr G.P.Singh (who earlier handled the North America business of Sun Pharma) as their CEO for the pharma business. Though none of the pending ANDAs are potential blockbuster drugs, they will help JUBL sustain modest growth in the solid dosage business. We expect revenues to grow at ~7.8% CAGR to `1,065 crores by FY18. Other specialty businesses to witness slight deceleration in growth rates The other specialty businesses comprise of - 10 -

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Monday, 4 January, 2016

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 Drug Discovery Solutions and  Allergy Therapy Products. Both these verticals together form around 10% of Jubilant’s pharma revenues. The Drug Discovery vertical is engaged in discovering new small molecules and platforms across therapeutic areas. JUBL’s business has declined over the last couple of years due to various contract terminations and delays in on-boarding of new projects. Going forward JUBL’s focus will be on deeper penetration of the US & European Union (EU) regions to win new contracts. We expect a CAGR of 8.2% in this business over FY15-FY18 period with a revenue of `156 crores in FY18. Downtrend to reverse in drug discovery vertical 300

Allergic products to grow after a period of consolidation 300

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Source :Jubilant LifeScience, Ventura Research

The Allergy products vertical currently comprises of over 200 allergenic extracts and mixes and has a major presence in the North American market. JUBL saw some slowdown in the business in FY15 owing to some USFDA audit findings which led to 6 weeks shutdown of the plant. Going ahead, the company’s focus will be on improving efficiencies and other sales force initiatives to generate new clientele. We are expecting revenues to rise from `187 crores in FY15 to `246 crores by FY18.  LifeScience Ingredients business to grow, albeit at a slower pace. The vertically integrated life science ingredients (LSI) business of JUBL contributes 54% to the overall revenues. The LSI business (which comprises of three sub-segments- Advance Intermediaries and Specialty ingredients (AISI), Nutritional products and LifeScience chemicals) experienced a strong growth of

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14.3% CAGR over FY10 to FY14 with all three business verticals contributing to the growth. Being integrated vertically LSI vertical is very cost efficient

Source :Jubilant LifeScience, Ventura Research

LSI revenue grew to `3,076 crores in FY14 from `1,801 crores in FY10. FY15 was a weak year with revenue growth of merely 2%. This was on account of a steep decline in the Advanced Intermediates and Specialty Ingredients (AISI) business which fell by 22.5%. Going ahead, we believe that the LSI business will remain under pressure and post modest growth of ~5.2% CAGR over FY15FY18 period. We expect LSI revenue to scale to `3,664 crores by FY18. Revenue mix to tilt more towards Pharma business

LSI business to grow although at a slower pace 120

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Source :Jubilant LifeScience, Ventura Research

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Monday, 4 January, 2016

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China concerns dent AISI growth The AISI business deals in Pyridine and its derivatives and related products with application in pharmaceutical, agrochemical and other life science industries. Pyridine, being a solvent and a reagent compound, is used in a wide variety of active intermediates. The AISI business contributes ~37.5% of LSI revenue and it grew at 8.9% CAGR over FY10 to FY14 to `1,328 crores. AISI business expected to remain under pressure 1,400.0

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However, in FY15 this business faced some headwinds after the Chinese government imposed an anti-dumping duty of 25% on Pyridine and also banned the use of liquid Paraquat, another product of Jubilant, leading to a sharp decline in JUBL’s volume in China. ~30% of Jubilant’s total production of Pyridine was exported to China. This translated into a 22.5% decline in AISI business in FY15 to `1,179 crores. Though the company’s petition against the said anti-dumping duty has been accepted by Chinese authority MOFCOM, the final judgment is yet awaited. Hence, we expect pricing pressure to continue in the near to medium term. In order to mitigate the losses in China and de-risk the business model, Jubilant has started exploring newer markets to pitch its products. We expect the AISI business to remain under pressure going ahead and have modeled a 4.6% over FY15-FY18 to `1,023 crores.

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Monday, 4 January, 2016

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• Nutritional product to see strong traction Under this vertical, Jubilant primarily manufactures and markets Vitamin B3 which has application in food, animal feed, pharmaceuticals and personal care. JUBL is the second largest manufacturers of Vitamin B3 (Niacinamide and Niacin) in the world. JUBL’s integrated approach of manufacturing helps it in cost optimization. Beta Picoline manufactured under the AISI business is captively consumed for the production of Niacin and Niacinamide. After the setting up of its plant in 2011, the prices of Niacin crashed from $14 to ~$4 due to a supply glut. Jubilant, being a vertically integrated company was able to sustain even at these low prices. However, these prices are not sustainable and going forward we expect prices to rebound. Nutritional products to witness robust growth 800.0

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700.0 600.0 500.0 400.0 300.0 200.0 100.0 0.0 FY11

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Source :Jubilant LifeScience, Ventura Research

Nutritional products is the fastest growing component of JUBL’s LSI segment and has clocked revenue growth of 19.8% over FY10-FY15. The company is operating at full capacity and going ahead, the growth is expected to come more from pricing than volume. We expect this business to post revenue of `733 crores by FY18, implying a 3-year CAGR of 14.7%. •

Crude oil prices to weigh on LifeScience Chemicals business.

LifeScience Chemicals was the primary business segment with which Jubilant was established. This business is engaged in the production of various organic intermediates including Acetic Anhydride, Ethyl Acetate, Monochloroacetic Acid and Sodium Monochloroacetate. - 14 -

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Monday, 4 January, 2016

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Jubilant is India’s largest producer of Acetyls which is the largest business in the LSI segment (contributing ~47%). The LifeScience chemicals business has experienced robust growth of 17.6% CAGR over FY10 to FY15 and revenue for the same period has grown from `659 crores to `1,480 crores. LifeScience chemicals business to witness a modest growth 2500

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Being a commodity business, the company is facing some pricing pressure due to declining crude oil prices, which is affecting the top line and profitability. Further, demand for the Acetyl products is weak due to the pessimistic global scenario. We expect these headwinds to persist in the near to medium term and have therefore modeled a conservative growth of 9.6% CAGR over FY15 to FY18 to `1,950 crores.

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Monday, 4 January, 2016

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 Financial Performance In Q2FY16, JUBL’s total income from operations increased by 6.7% YoY to `1,463.1 crores, led by an increase in the pharmaceutical business by 21.8% YoY to `748 crores with specialty, covering radio-pharmaceuticals, and APIs leading the growth. However, the lifescience ingredients segmental revenue degrew by 5.8% YoY to `715 crores, hit by continued pricing pressure. EBITDA increased to `320.6 crores in Q2FY16 compared to Rs. 111 crores in Q2FY15 led by a superior product mix and a decrease in total expenditure by 9.3% YoY to Rs. 1,142.5 crores. EBITDA margin also improved by 1380 bps YoY to 21.9% led by increase in pharmaceutical EBITDA margins by 1755 bps YoY to 28.8% and increase in life science ingredients margins by 840 bps YoY to 16.5%. Profit after tax stood at `115.8 during the quarter on the back of better operational performance compared to a loss of Rs. 87.7 crores reported by JUBL in Q2FY15. Jubilant’s financial performance for Q2FY16 Particulars Net Sales Growth % Total Expenditure EBITDA (ex OI) EBITDA Margin % Depreciation EBIT Other Income EBIT Margin % Interest Exceptional items PBT Margin % Provision for Tax PAT PAT Margin % Minority Interest Consolidated PAT

Q2FY16 1463.1 6.7% -1142.5 320.6 21.9% -75.1 245.5 4.5 250.0 17.1% -97.4 2.3 154.8 10.6% -39.0 115.8 7.9% 0.0 115.8

Q2FY15 1371.1 NA -1260.1 111.0 8.1% -69.2 41.8 26.4 68.2 5.0% -96.0 4.6 -23.1 -1.7% -64.5 -87.7 -6.4% -6.5 -94.1

FY15 5826.2 0.4% -5124.7 701.5 12.0% -288.0 413.6 42.5 456.0 7.8% -367.6 -48.1 40.3 0.7% -80.5 -40.2 -0.7% -17.6 -57.8

FY14 5803.4 NA -4782.4 1021.0 17.6% -281.2 739.8 19.1 758.9 13.1% -337.1 -214.5 207.3 3.6% -69.6 137.6 2.4% -28.6 109.0

Source :Jubilant LifeScience, Ventura Research

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 Financial Outlook We expect Jubilant’s top line to grow at a 3-year CAGR of 9.5% to `7,655 crores by FY18. This will be mainly driven by the Pharmaceutical segment which is expected to clock a growth rate of 13.8% CAGR. EBITDA is expected to grow at ~32.9% to `1,645 crores which will be aided by margin expansion. EBITDA margin is expected to expand by 890 bps to 21.5% by FY18. At the PAT level, the company is expected to turn around and report a profit of `736 crores (by FY18) from a loss of `58 crores in FY15. Revenues to resume growth traction 9000.0

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Monday, 4 January, 2016

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 Key Risks and concerns Excessive debt on the books: Jubilant has one of the highest Debt-to-Equity (D/E) ratios amongst its peers at 2.0 times. As at H1FY16 they had a debt of `4,710 crores on their balance sheet and the figure is not expected to go down drastically over the forecast period. However, the company is tapering its capex plans and focusing more on de-bottlenecking capacities which should reduce the pressure on the liquidity front. D/E ratio expected to improve going ahead 6000.0

Debt serviceability of the company to improve 2.5

` in crores

8.0

No. of times

7.0

5000.0

2.0

4000.0

1.5 3000.0

6.0 5.0

4.0 1.0

2000.0 0.5

1000.0

3.0 2.0 1.0

0.0

0.0 FY11

FY12

FY13

FY14

Total Debt

FY15 FY16E FY17E FY18E D/E Ratio

Source :Jubilant LifeScience, Ventura Research

0.0 FY10

FY11

FY12

FY13

Debt/EBITDA

FY14

FY15 FY16E FY17E FY18E

Interest coverage

Source :Jubilant LifeScience, Ventura Research

To insulate itself from forex volatility, JUBL has refinanced a large portion of its debt into INR denominated loans. From $652 mn in FY14, the dollar denominated loans has come down to $417 mn as at H1FY16. This will reduce the forex losses that the company was incurring up till now. JUBL is also contemplating a QIP issue and listing of its pharmaceuticals business in the US stock exchanged. If both these events go through JUBL will be able to pare its debt by another ~1000 crores by FY18. Delay in approval for Ruby-fill: The management expects the approval for Ruby-fill to come through by the end of FY17. A delay in the approval can result in lower growth in its radiopharma business.

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 Valuation We initiate coverage on Jubilant Lifesciences Ltd. as a BUY with a price objective of `647 representing a potential upside of 54% from the CMP of `419 over a period of 24 months. We have used P/E multiple approach to value Jubilant LifeSciences Ltd and assigned a multiple of 14X on FY18 EPS of `46.2 to arrive at the target price. Though the company has high debt on its book, we believe that the multiple we have assigned is justifiable given that: Clearance of Spokane facility is expected to propel CMO business Strong pipeline of ANDA in API and Solid dosages lends visibility to forward earnings. Radiopharma business is expected to witness a strong traction. Restoration of operating margins to steady state (from 12.6 to 22.8% in Q2FY16) Planned listing of the pharma business in the US and/or a QIP issue in FY18 should help garner funds which would be help in de-leveraging the balance sheet and consequently improve the D/E ratio and RoE. We estimate that a ~1,000 crore inflow would help lower interest cost by 26.0% and profits by 7.6% for FY18. Obtaining approval for Ruby-fill (a patented product) would positively impact profits and result in steady cashflows for substantial period of time which should improve earnings outlook and boost valuation.

1-Yr Fwd P/E Band 700

600 500 400 300 200

.

100 0 Mar-07 -100

Mar-09

Mar-11

Mar-13

Mar-15

-200

CMP

8X

12X

16X

20X

24X

Source :Jubilant LifeScience, Ventura Research

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Peer comparison (` in crores) Y/E March Sales Jubilant LifeSciences 2015 5826.5 2016E 6062.4 2017E 6745.5 2018E 7655.8 Aurobindo Pharma 2015 12043.2 2016E 14354.4 2017E 16623.7 2018E 18459.0 Ajanta Pharma 2015 1453.0 2016E 1749.0 2017E 2121.5 2018E 2474.2 Strides Shasun 2015 1132.0 2016E 3319.0 2017E 4309.1 2018E 5098.0 Suven LifeSciences 2015 520.9 2016E 522.9 2017E 727.2 2018E 870.6

EBITDA

PAT

EBITDA Margin

PAT Margin

ROE(%)

P/E

P/BV

EV/EBITDA

701.5 1355.7 1474.7 1645.2

-57.8 530.6 625.1 736.0

12.0 22.4 21.9 21.5

-1.0 8.8 9.3 9.6

-2.3 19.8 18.9 18.2

-113.9 12.4 10.5 8.9

2.7 2.3 1.8 1.5

15.6 7.9 6.9 6.0

2605.8 3285.3 3989.2 4489.1

1575.8 2037.5 2527.3 2977.7

21.6 22.9 24.0 24.3

13.1 14.2 15.2 16.1

35.4 33.0 30.6 27.1

32.2 24.8 20.0 16.7

9.9 6.7 5.1 4.2

19.7 15.4 16.6 13.6

505.3 578.0 704.5 838.5

309.9 389.7 497.1 612.0

34.8 33.0 33.2 33.9

21.3 22.3 23.4 24.7

43.2 35.2 33.1 31.6

38.2 30.5 23.9 19.5

14.1 10.2 7.5 5.7

23.1 20.2 16.6 13.9

229.0 596.9 911.9 1099.2

843.4 338.0 542.1 703.9

20.2 18.0 21.2 21.6

74.5 10.2 12.6 13.8

78.5 24.2 31.5 41.4

9.2 31.1 19.4 15.0

6.8 4.6 4.3 3.9

51.7 19.8 13.0 10.8

172.2 146.9 242.0 292.8

108.9 105.8 176.6 216.5

33.1 28.1 33.3 33.6

20.9 20.2 24.3 24.9

26.4 18.0 23.6 23.9

29.6 33.9 19.2 15.7

6.1 5.5 4.7 3.6

25.2 22.1 13.4 11.1

Source :Jubilant LifeScience, Ventura Research

D/E ratio vs. EV/EBITDA

2-Yr growth vs. FY18E P/E Suven

50

1

0.9

40

Jubilant

0.8

Strides

0.7

35 D/E Ratio

2-Yr growth (FY16-FY18)

45

Ajantha

30

25 20

Aurobindo

15

0.6

10

0.2

5

0.1

0

0

5

10

15

FY18E P/E Ratio

Source :Jubilant LifeScience, Ventura Research

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Aurobindo

0.4 0.3

Jubilant

0

Strides

0.5

20

25

Ajantha

Suven 5

7

9

11

13

FY18 EV/EBITDA

Source :Jubilant LifeScience, Ventura Research

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15

Financials and Projections Y/E March, Fig in ` Cr

FY15

FY16E

FY17E

FY18E

Net Sales

5826.2

6062.4 4.1%

5124.7

4706.6 -8.2%

% Chg. Total Expenditure % Chg. EBDITA

Y/E March, Fig in ` Cr

FY15

FY16E

FY17E

FY18E

Per Share Data (Rs)

Profit & Loss Statement 6745.5

7655.8

Adj. EPS

-3.6

33.3

39.2

46.2

11.3%

13.5%

Cash EPS

14.5

51.1

58.3

67.0

5270.8

6010.6

DPS

3.0

4.0

4.0

4.0

12.0%

14.0%

Book Value

154.0

182.7

233.5

275.1

701.5

1355.8

1474.7

1645.2

Capital, Liquidity, Returns Ratio

12.0%

22.4%

21.9%

21.5%

Debt / Equity (x)

2.0

1.6

1.1

0.9

42.5

54.6

60.7

68.9

Current Ratio (x)

1.3

1.3

1.3

1.4

PBDIT

744.0

1410.4

1535.5

1714.1

-2.3

19.8

18.9

18.2

Depreciation

288.0

284.0

303.2

331.2

ROCE (%)

6.4

15.3

16.1

17.3

Interest

367.6

366.9

325.6

300.0

Dividend Yield (%)

0.73

0.97

0.97

0.97

Exceptional items

48.1

52.0

56.1

60.6

Valuation Ratio (x)

PBT

40.3

707.5

850.5

1022.2

-113.9

12.4

10.5

8.9

Tax Provisions

80.5

176.9

225.4

286.2

P/BV

2.7

2.3

1.8

1.5

Reported PAT

-40.2

530.7

625.1

736.0

EV/Sales

1.9

1.8

1.5

1.3

15.7

7.9

6.9

6.0

EBDITA Margin % Other Income

Minority Interest Adj. PAT PAT Margin (%) Other opr Exp / Sales (%) Tax Rate (%)

ROE (%)

P/E

17.6

0.0

0.0

0.0

-57.8

530.7

625.1

736.0

Efficiency Ratio (x)

-1.0%

8.8%

9.3%

9.6%

Inventory (days)

176.6

199.1

197.9

193.0

0.8%

0.6%

0.6%

0.5%

Debtors (days)

50.8

52.1

52.5

52.6

199.6%

25.0%

26.5%

28.0%

Creditors (days)

74.1

77.9

77.8

76.2

15.9

15.9

15.9

15.9

1022.2

2437.6

2894.8

3703.1

4365.7

0.0

0.0

0.0

0.0

Balance Sheet

EV/EBIDTA

Cash Flow Statement

Share Capital Reserves & Surplus Minority Interest Long Term Borrowings

Profit Before Tax Depreciation Working Capital Changes

40.3

707.5

850.5

288.0

284.0

303.2

331.2

96.4

-82.6

-78.6

-202.1

3691.3

3396.7

2662.1

2667.5

Others

-79.3

-123.8

-157.8

-200.4

Deferred Tax Liability

238.0

268.0

297.7

330.2

Operating Cash Flow

783.3

1203.9

1299.1

1311.6

Other Long Term Liabilities

106.8

122.7

140.4

154.1

Capital Expenditure

-349.1

-307.7

-400.6

-636.4

Total Liabilities

6489.7

6698.1

6819.3

7533.5

Change in Investment

Gross Block

7362.1

7721.3

8121.9

8758.3

Cash Flow from Investing

Less: Acc. Depreciation

2450.8

2734.7

3038.0

3369.2

Proceeds from equity issue

0.0

0.0

0.0

0.0

Net Block

4911.3

4986.5

5083.9

5389.1

Debt and Interest Payments

46.4

-764.9

-775.7

-562.6

596.6

610.4

508.1

684.1

39.5

42.7

46.1

49.8

585.4

688.8

796.4

1021.1

Capital Work in Progress Investments Net Current Assets Long term Loans & Advances Total Assets

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Dividend and DDT

-4.2

-3.2

-3.4

-3.7

-343.3

-303.7

-395.5

-629.8

-53.8

-73.5

-73.5

-73.5

-502.7

-838.4

-849.1

-636.1

Net Change in Cash

-62.8

61.9

54.4

45.7

Cash Flow from Financing

356.9

369.7

384.9

389.5

Opening Cash Balance

473.5

391.6

453.5

507.9

6489.7

6698.1

6819.3

7533.5

Closing Cash Balance

410.7

453.5

507.9

553.6

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