Jubilant Pharmova (Previously Jubilant Life Sciences)

Stock Opportunities
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JUBILANT LIFE SCIENCES

CMP 168 (FV RS 1) MARKET CAP AROUND 2700 CRORES.

DEBT (NET) AS ON MARCH 12 3270 CRORES.

THE COMPANY IS A MAJOR PLAYER IN BULK PHARMACEUTICAL SEGMENT.

MAIN BUSINESS DIVISIONS INCLUDE

PHARMACEUTICALS

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)- APIs

)- Generics

)- Speciality pharma

)- Contract manufacturing of sterile and non sterile products (CMO)

)- Drug discovery and development solutions

)- Healthcare

LIFE SCIENCE INGREDIENTS

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)- Proprietary products and Exclusive synthesis

)- Nutrition ingredients

)- Life science chemicals

FINANCIALS

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During fy 12, pharmaceuticals division reported revenues of 2175 crores which is 51% of revenue mix. It witnessed growth of 41% y-on-y over all divisions.

API income from operations was 448 crores which showed growth of 33%. 4 products were launched which include donepezil, olanzapine, valsartan, and Irbesartan in regulated markets.

Generics reported revenues of 537 crores with growth of 161%. Company enjoys leadership position in methyl prednisolone, terazosin, and meclizine. The division has started supplies to Japan.

Speciality Pharma division generated income of 311 crores which is a growth of 25%. The company continues to have leadership position in I 131, DTPA, MAA, MDP .

CMO division showed revenues of 621 crores which has shown a growth of 17% and company has got long term contracts valued at over 160 million USD.

Drug discovery and development services income at 244 crores recorded growth of 16%.

INCOME FROM OPERATIONS AT 4278 CRORES UP BY 24%.

EBIDTA FOR FY 12 WAS AT 893 CRORES WHICH WAS AGAINST A FIGURE OF 568 CRORES FOR FY 11 WHICH IS A GROWTH OF 57%

NORMALISED PAT AT 363 CRORES WHICH WAS UP BY 34% Y-ON-Y. NORMALISED EPS FOR FY 12 AT 22.8 PER SHARE.

DURING FY 12 THE COMPANY REPORTED PAT OF 15 CRORES AFTER ADJUSTING FOR 349 CRORES OF EXCEPTIONAL ITEMS MAINLY DUE TO IMPAIRMENT OF ASSETS/INVESTMENTS AND MARK TO MARKET UNREALISED FOREIGN EXCHANGE.

FUTURE OUTLOOK AND MANAGEMENT PROJECTION

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COMPANY HAS COMMISSIONED 10000 MT PLANT FOR NIACINAMIDE . COST ADVANTAGES OWING TO SCALE , VERTICAL INTEGRATION IN BETA PICOLINE AND TAX INCENTIVES SHOULD HELP THE COMPANY GAIN MARKET SHARE. COMPANY WITH ITS CAPACITY IS AMONG THE TOP THREE MANUFACTURERS OF NIACINAMIDE GLOBALLY.

COMPANY HAS ALSO INCREASED CAPACITY OF PYRIDINE WHICH HAS STARTED CONTRIBUTING AND MANAGEMENT EXPECTS INCREASED VOLUMES DUE TO INCREASED CAPACITY UTILISATION. THIS IS ALSO LIKELY TO HELP THE COMPANY IN BACKWARD INTEGRATION FOR SYMTET AND NIACINAMIDE PRODUCTION.

COMMISSIONING OF SYMTET PLANT BY Q1 FY 13 FOR WHICH COMPANY ALREADY HAS LONG TERM SUPPLY AGREEMENT WITH A LEADING MNC.

AT FULL CAPACITY UTILISATION THE MANAGEMENT EXPECTS NIACINAMIDE TO GENERATE REVENUES OF 70 MN USD AND SYMTET TO DO 90 MN USD.

COMPANY HAS GUIDED FOR 20% CAGR GROWTH IN REVENUES OVER NEXT 3 YEARS AND IS AIMING TO REDUCE DEBT TO EQUITY AT 1 AGAINST 1.8 CURRENTLY.

RISKS

HIGH DEBT

CURRENCY FLUCTUATIONS

**LACK OF OPTIMUM UTILISATION OF ENHANCED CAPACITIES **

INVESTMENT THEME

**THE STOCK PRICE HAS BEEN BEATEN DOWN DUE TO EXTRAORDINARIES IN THE FY 12 RESULTS MAINLY WRITE OFFS AND FOREX LOSSES. REVENUES AND EBIDTA HAS SHOWN HEALTHY GROWTH IN FY 12 AS COMPARED TO FY 11. **

WRITE OFF IS MOSTLY DONE WITH AND ONCE THE FOREX ISSUES STOP PLAYING SPOILSPORT, THE COMPANY CAN BE EXPECTED TO RETURN TO SOUND WICKET AND START POSTING STRONG NUMBERS. AND WITH ENHANCED CAPACITIES, NEW FACILITY FOR NIACINAMIDE TO START CONTRIBUTING AND BACKWARD INTEGRATION INTO BETA PICOLINE HELPING THE COMPANY IN BEING COST COMPETITIVE, JUBILANT LIFE LOOKS INTERESTING AT CMP.

STOCK PRICE HAS BEEN BEATEN DOWN FROM LEVELS OF 350-390 IN JUNE-JULY 2010 TO CURRENTLY LEVELS OF 165-170.

THE TRICK HERE SEEMS TO BE IN TAKING A CALCULATED GAMBLE AS TO HOW MUCH OF THE RECENT BAD NEWS IS FACTORED INTO THE CURRENT PRICE AND HOW MUCH APPRECIATION ONE CAN EXPECT IF THINGS FALL IN PLACE. VARIOUS BROKERAGES LIKE ENAM AND NOMURA HAVE TARGETS IN EXCESS OF 300 IN THIS ONE.

for further detailed study there is plenty of material on company website including concalls, investor presentations etc.

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1 Like
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Yes Hitesh… a Good Co. with great management…World-leadership position in many products…However debt seems to be a real issue which will hamper any significant upmove…~85 % of Debt is foreign currency debt and therefore serving it could be near term headwind because of steep INR depreciation…Further CAPEX plan of 350 cr. for FY13 and 250 cr. each in FY14 and FY15 could further strain the resources as co. has track-record of overshooting planned CAPEX…Pyridine price fall, for which company is world leader, is a minor concern…

Downsides seem limited, and almost non-existent, from current levels unless there is some company-specific concern…Upsides seem limited atleast in medium term as debt-reduction initiatives will be key monitorable…

Rgds.

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thanks mahesh for the updates.

I am looking forward to some positive surprises from the company in next 2-3 quarters with the commissioning of new capacities in new molecules and enhanced capacities in existing molecules.

lets see how things pan out. at present it seems no one wants to buy it bcos everyone wants to look at bottomline and not ebidta.

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Mahesh, Jubilant is a dollar based company. Most of its revenues and raw materials are denominated in dollars.

Plus a major part of its sales are from exports.

Therefore, it’s a natural hedge to have its debt in dollars.

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Mahesh, Jubilant is a dollar based company. Most of its revenues and raw materials are denominated in dollars.

Plus a major part of its sales are from exports.

Therefore, it’s a natural hedge to have its debt in dollars.

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Jubilant q1 fy 13 results are out.

Its a mixed bag.

Total income from operations up 31% y-on-y and up 5% q-on-q to 1240 crores.

profit after interest but before exceptional items up to 158 crores (for q1 fy 12 it was 97 crores and for q4 fy 12 it was 124 crores).

So far so good.

Now coming to bad part, exceptional items amounting to 104 crores which mainly includes unrealized mark to market book loss of 87 crores on rupee loan of 910 crores swapped into dollar loan and FCMITDA amoritisation of 17 crores.

This exceptional items have taken toll on net profits and reported net profit is at 5 crores whereas normalised net profit is 109 crores. Normalised eps for quarter (not annualised is 6.86 per share).

If one looks at sales and profit excluding extraordinaries, the figures look fantastic.

views invited.

links:

results and press release http://www.bseindia.com/stockinfo/anndet.aspx?newsid=de6406a1-8ebb-40dd-b6d1-6d62f5333ee4

q1 fy 13 presentation http://www.bseindia.com/stockinfo/anndet.aspx?newsid=4842f30b-7e06-4beb-a407-cf70457151fa&param1=1

views invited.

It seems markets also dont seem to know what to make of these numbers. Stock was quoting at around 170 before results were announced and then tanked to 159 at around 3 pm… with heavy volumes and then by close it came back up again with even heavier vols to close at 172.

1 Like
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Hi Hitesh,

Really wonder how you pick most of the scripts at such a Wonderful prices. This is seems like a WOCKHARDT in making…( Remember it was at 300 levels…and sudden jump to 950 levels now…and i expect no price less than 1800 in the next year and half).

Wockhardt also faced similar balance sheet problems and its bottom line got effected badly due to forex loses and Huge debt. Now the management acted very prudently and their measures are paying.

Coming back to Jubilant life sciences, i believe the worst seems to be over for the script. But there will be no major upside at-least for a quarter as the rupee has to stabilise. I anticipate rupee not to cross 57 levels in this year as govt. and RBI is on its way to take some measures to contain the fall. Management have already booked the Mark to Market losses for the rupee value of 55.81 rs. Hence i suspect there will not be any major mark to market losses going ahead.( Correct me if i am wrong ). Also for their debt in INR, interest rates are not going to raise any further and can only be coming down eventually which will be helpful for them to reduce the finance cost. As per the your information if the management can make use of the enhanced capacities and act according in line with projected 20% CAGR revenue growth for the next three years with sustainable EBITDA margins at 21%, i smell a EBIDTA levels of around 1350 crores EBITDTA by FY14. And for a company of its caliber it can command a EV/EBIDTA ratio of 10 as the high endcompanieslike LUPIN,CIPLA etc are trading at or above 13 times EV/EBIDTA. In that scenario the EV of Jubilant can go up to 13500 whichimpliesa Market cap of 10000crore( astraight3 bagger in 2 years ). Please correct me if any of my above analysis is wrong as i am not an expert like you inanalyzingthe upside potential of the script.

Concerns:

1.Rupee value should not cross and sustain at levels higher than 56-57.

2). RBI should be lean towards the market and consider reducing interest rates atleast by a 125-150 basis points by FY14.

Doubts:

I request you to explain how this mark to market losses works for the company. I am really poor in understanding this and facing trouble in analysing many scripts. Is it a notional or real loss. What if suddenly rupee appreciates to 53 levels by the end of next quarter… Then the company can deploy back the amount( as they have marked losses upto 55.81 a dollar and if rupee appreciates they will be able to pay back the loan with less INR) into its bottomline. If this is true then its going to be an icing on the cake as the amount gained due to rupee appreciation coupled with their normal profits can take the script to much higher levels in lesser time.

http://www.bseindia.com/stockinfo/anndet.aspx?newsid=de6406a1-8ebb-40dd-b6d1-6d62f5333ee4 Link: http://www.bseindia.com/stockinfo/anndet.aspx?newsid=de6406a1-8ebb-40dd-b6d1-6d62f5333ee4 http://www.bseindia.com/stockinfo/anndet.aspx?newsid=4842f30b-7e06-4beb-a407-cf70457151fa&param1=1 Link: http://www.bseindia.com/stockinfo/anndet.aspx?newsid=4842f30b-7e06-4beb-a407-cf70457151fa&param1=1

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Hi,

Yes, the m-to-m loss will get reversed if INR appreciates to <55.6 as per the Q-1 result presentation.

Buy since >70% of their income is earned in $/euro hasnt that helped in the 37% revenue growth from the foreign market? In that case when the INR appreciates the revenue will be affected.

We need to understand how exactly the currency change affects both revenue and m-to-m loss on the loans.

Cheers

Vinod

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I recall having read in one of the quarterly presentations that each rupee change affects company’s net profits by 17 crores.

dont know which way. my guess is that rupee depreciation increases profits by 17 crores per 1 rupee depreciation.

but they seem to have cooked their own goose by converting the rupee loans to us dollar loan in a bid to reduce interest rate payments. the way things are going on the rupee dollar front, they already may be down by 10% in terms of currency movements.

Now with the hole they have dug up, if rupee appreciates, the exports will suffer from problems and the dollar loan will show appreciation in terms of forex profits. but markets might treat them as extraordinaries and still punish them. as it is they are being punished for extraordinaries bcos markets dont like net profits to be in negative even though ebidta shows good growth.

1 Like
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Hitesh, you are right they had actually indicated in Q4 concall that 1 rupee depreciation results in 12-15 cr in loss. Last 2 qtrs the $ value has gone from 45-50 and 50-55 and hence m to m losses booked. If $ goes higher losses will again be booked else things should be fine.

The numbers otherwise look good.

1 Like
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Report by Emkay, targets of 340

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Hi Saurab,

Could you provide the link of the concall? I think Emkay had come out with a report ater with lower target.

Cheers

Vinod

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Con-call details by Capital Market.

Jubilant Lifesciences
Tax rate expected to be 25% for FY'13
Jubilant Lifesciences announced the financial results for the quarter ended June 2012 and held a conference call 23rdJuly 2012 to discuss the results and its future growth strategies. The key takeaways of the call are as follows:Financial Information:
Net sales grew by robust 31% YoY to Rs 1235.89 crore in Q1'FY 13 driven by the sharp growth from the Pharmaceuticals (45%) and good growth from Life sciences businesses (18%). Also, margins expanded by 230 bps YoY to 22.1% on the back of fall in costs across the business and accordingly there was robust 46% growth in operating profit to Rs 273.66 crore. After the 26% growth in other income to Rs 3.08 crore, PBIDT growth was 46% YoY to Rs 276.74 crore. Event after rise in interest cost by 36% to Rs 59.34 crore and 19% increase in depreciation to Rs 59.06 crore, PBT before EO grew by sharp 64% to Rs 158.34 crore. After adjusting for Rs 104.24 crore EO/forex loss (as against mere Rs 4.18 crore), PBT fell by 42% YoY to Rs 54.10 crore. Further, with the sharp rise in effective tax rate by 890 bps YoY to 24.5% there was 80% fall in PAT to Rs 15.23 crore.
Highlights of the Call:
  • Total revenues grew by 31% YoY to Rs 1240.30 crore for the quarter ended June 2012 on the back of 23% volume growth and 8% positive exchange variation.
  • Revenues from Pharmaceuticals business (52% of sales) grew by sharp 45% YoY to in Q1'FY 13 to Rs 641.24 crore driven by the robust growth from generics and specialty Pharmaceuticals. Also, after the steep rise in EBITDA margins by 1210 bps YoY to 31.1% and accordingly there was 138% jump in the EBIDTDA to Rs 200 crore.
  • Revenues from Life sciences Ingredients business grew by 18% YoY to Rs 599.74 crore for the year ended June 2012 driven by strong volumes in Nutrition Ingredients from newly added capacities. However, EBIDTA margins fell by 520 bps YoY to 18.5% and after this there was 8% decline in the EBIDTA to Rs 111 crore.
  • Revenues from the International business (73% of sales) grew by robust 37% YoY to Rs 905 crore for the quarter ended June 2012 driven by the robust growth from North America (43%) and Europe & Japan (38%). Also, domestic business grew by 15% to Rs 335 crore on the back of healthy traction in Life Science Chemicals and APIs.
  • The rise in Power & Fuel costs as percentage to sales was due to higher manufacturing activity during the quarter.
  • The US business grew on the back of strong growth from Generic business (31% Q-o-Q) and as well good growth from the Specialty and Radiopharma business. Further, the generics business driven by new product launches and as well good growth from existing product portfolio. Also, growth mainly driven by volumes.
  • In Generics business, it had witnessed favorable volume environment for key products in core markets. The revenues were driven by the strong performance in regulated markets. Also, it has launched 5 products in CNS, 1 each in GI and Anti-infective therapies across geographies. The total commercial products increase to 29 with 18 of them in focus TA of CVS and CNS.
  • It has received Valacyclovir tablets approval form the US FDA during the quarter. Also, received approval for the 2 dossiers from EU in CNS category and 11 approvals in ROW across CNS, GI and other therapies.
  • The Specialty Pharmaceuticals business witnessed strong growth due to launch of Sestamibi, a radiopharmaceutical product in the emerging market. Also, the Radiopharma business won over USD 5 million orders including a tender from a key hospital. The expansion into the ENT market drives revenue growth for Allergy Therapy products.
  • Notably, The Company recently won 5-year term multiple contracts valued at over USD 35 million in the CMO services of injectibles and Non-sterile products.
  • The milestone payment received from the Biosys was USD 650000 during the quarter.
  • The API business contributes 9% of total sales during the quarter.
  • In API business, it has filed 2 DMFs in Canada in CNS and Anti-Migraine therapies and 1 in RoW markets during the quarter. Also, it has launched Galantamine (CNS) in EU & Canada, taking total commercial products to 25, of which 16 are in focus therapeutic areas of CVS and CNS.
  • It has filed 1 dossier in EU in CVS, 3 dossiers in Canada of which 2 were in CNS therapy and 28 filings in ROW during the quarter.
  • The Company has 48 cumulative US ANDA filings, of which 20 are approved, 36 dossier filings in the EU of which 33 are approved, 12 filings in Canada and 297 in ROW of which 49 are approved. It also has 58 DMF filings in the US, 28 CEPs in Europe, 31 in Canada and 6 in Japan in addition to 76 filings in ROW.
  • The Capex was Rs 108 crore in Q1'FY 13 and expected to be Rs 350 crore for FY'13.
  • The tax rate expected to be 25% for FY'13.
  • The unrealized Mark to Market book loss was Rs 87 crore during the quarter. This due to the currency movement of INR vs. USD from Rs 50.88 as on March 31st2012 to Rs 55.61 as on 30thJune 2012 and also this with respect to Rupee loan of Rs 910 crore (taken to pay FCCBs) swapped into the USD loan. Also, Foreign Currency Monetary Item Translation Difference Accounts (FCMITDA) was at Rs 17 crore.
  • The net debt increased to Rs 3675 crore as on 30th June 2012 (at Rs 55.61) from Rs 3548 crore (at Rs 50.88) as on 31stMarch 2012. However, the net debt moves down by Rs 81 crore after adjusting for exchange fluctuations to Rs 3466 crore (change on account of exchange rate difference was Rs 208 crore) as on 30thJune 2012 mainly on account of improved cash position and reduction in Rupee loans outstanding. It has clarified that there is no loan repayment up to 2014.
  • The average interest rate for outstanding loans at 5.8% per annum with outstanding rupee loan at an average of 12.1% per annum and outstanding foreign currency loans at an average of 3.8% per annum.
  • The Outstanding forward contracts were USD 303 million as on 31stMarch 2012 has come down to USD 278 million (average rate of Rs 53.72) as on 30thJune 2012.
  • It maintained earlier guidance of achieving 20-22% revenue growth with EBIDTA margins sustainable at about 21%. It is confident of achieving this growth on account of new product launches and expansion in new territories by the Pharmaceutical products business of APIs, Generics and Specialty Pharma followed by higher utilization of new capacities in Life Sciences and CMO business.


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http://www.jubl.com/pdfs/jll-q1fy2013-concall-transcript.pdf

The Emkay report came after the call on July 23rd and has details of the q1 call. Don’t know if Emkay updated this later.

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Motilal has a target of 191 and they have raised concerns on balance sheets and the debt.

http://smartinvestor.business-standard.com/BSCMS/PDF/jol_250712.pdf

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Vinod, Emkay’s earlier report of 07 May 2012 also had a target of 340 so they haven’t changed their view.

http://breport.myiris.com/ESSBL/VAMORGCH_20120507.pdf

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Looking at 11 year chart of jubilant life

From Rs.6 to Rs.380 and now even at 165 they have created immense wealth

this excludes the free shares the shareholders got as a result of the hive off of jubilant industries

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Hi Hitesh…

Seems Jubilant started its upward Journey … if the rupee dont play spoil sports they are highly likely to make a bottomline more than 400 crores in the next 4 quarters… And the hence the potential seems more than 100% return in a year… whats your call… technically it will face hurdle at 205-215… i think only after q2 …it wil break 220 depending on the results… for me it is a buy on any declines to 175-180… and looking for a target of 210 by Q2…

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sandip

I agree with you that the journey seems to have started for jubilant.

But markets will have a keen eye on this one based on quarterly results. in between there will be these spurts and corrections.

hitesh.

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Only 31 days left before the quarter ends

If rupee stays where it is till the end of September they are most likely to post good results as there has been nothing wrong with the core business both sales and EBITDA has been growing

It is the rupee depreciation which has been playing spoilsport