Jubilant Pharmova (Previously Jubilant Life Sciences)

Stock Opportunities
21

Hi Excel Monkey,

Even if the rupee falls by 1rupee more i.e closes around 56.61 levels or less than 57 … they can post a bottom-line of around ( 110 -20 =90 cr atleast ) which will be treated as positive by market… Personally i do not see rupee falling much from these levels may be upto 57 can be possible in the next 1-2 qr which will have a marginal forex m2m loss of 25-30 cr… It should be on radar for the next 1-2 months and on any declines to 170 levels can be bought …

22

The stock started moving after their AGM so there must have been some trigger there.

On Mcap/Sales compared to peers this is quiet cheap. This was one factor which had driven Wockhardt earlier.

Also the debt repayment does not kick off till FY14. Would that mean anything here?

23

What a run from 160 to 220

Maza aa Gaya except as always could not buy enough

24

Technically script will reach much higher levels on crossing its 225 resistance… targets can be somewhere around 340-360 … Dollar movement and Q2 results are extremely important…If PAT is around 110-120 cr… see blockbuster rally…

25

Up 10% today. Edelweiss recently initiated jubilant. http://www.edelresearch.com/rpt/showPdf.aspx?id=21560&reportname=/CRAMS_-_sector_update-Oct-12-EDEL.pdf

26

Hi Hitesh and Excel,

How would you read Jubilant Life’s Q2 results… Why Markets are reacting negatively to it? I do not see any reason for down side here as the company is on the verge of making about 1050cr EBIDTA for this year. EV/EBIDTA is damn cheap around 6.8. Please comment .

27

I think the stock has reacted negatively as the margins have comedown in LSI segment and it is correcting a bit after a run up of good 35-40% from 165 levels

The stock should look up once they convince the market that they can keep their guidance of 20% growth with stable margins

28

Hitesh bhai,

What’s your reading of jubilant s numbers?

Thanks in advance.

Regards,

29

I think till the markets get over the concerns of 1. high debt and 2. forex problems, there is unlikely to be a big thumbs up to the stock.

For me stocks with very high debt is a big no no – no matter how good the story.

I dont have to kiss every girl so will give this one a miss.

30

Here I come to know the secret about Hitesh’s success in stocks - he thinks a stock is a girl and whenever he buys the stock, he feels like kissing that girl.Success Mantra for successful Stock Investor -one need to fall in love with the stocks to be successful.

31

Good one Manish bhai :)BTW, what you said is also very true :slight_smile:

32

girl.Success -one

the secret is to have a short affair with the temperamental ones and marry the steady ones.

3 Likes
33

Hitesh bhai, too many affairs can lead to trouble also :wink:

34

HItesh Bhai,

Need your valuable advice here… bought Jubilant life at 220rs… now its down to 175 and it has been issued a warning letter from USFDA. What would be your advise to me now. I know that the price i enetered is a good price from longterm perspective but these short term movements are scaring me … How would you rate cmp for this script…??? Its a good hold from 2yrs point of view??

35

sandeep,

the canadian plant contributes around 2% to the overall revenues. so there should be no major impact.

You entry point is high but if you can have a view of around 2 years, I think stock can give good returns provided there are no other issues and no major currency fluctuations.

hitesh.

36
Conference Call by Capital Market

Highlights of the call:


  • The revenues grew by 18% for the quarter ended March 2013 was driven by 14% Volume growth coupled with 7% positive exchange variation during the quarter.
  • The revenue grew by 21% for the year ended March 2013, driven by 16% volume growth and positive exchange variation of 11% during the year.
  • The exceptional items includes â 1) Provision of Rs 57 crore related to the molecules which invests carry value was not ascertained or demonstrated 2) The write-off of Rs 6 crore related to the ANDAs economic value 3) Rs 16 crore inventory write-down in process of implementation of the SAP in the North America.
  • The Utilizations were 65-70% in the CMO and Niacinamide capacities during the year. The Symetet current capacity utilization is at 20-25% and implementing some changes at the plant. This expected to be improving to 30-35% in FY'14.
  • The lower margins in Pharma business during the quarter is on the back of 1) the margins in Drug Discovery were just at break even and 2) Also, lower margins from generic business during the year.
  • It expects the approval for Radiopharma products in Canada market in FY'14 and US market in the FY'15.
  • There are temporary revenue deferrals at the Montreal facility due to USFDA Warning Letter. However, Warning letter has been responded well in time. Further, the FDA has indicated their agreement with the majority of corrective actions identified and No major revenue impact is expected.
  • The Capex was Rs 360 crore for the FY'13 and expected to be Rs 250 crore for the FY'14.
  • The tax rate expected to be 30% for the FY'14.
  • It expects to repay debt of Rs 408 crore in the FY'14
  • The Company expects the H2'FY 14 will be better than H1'FY14 due to the better capacity utilizations of the Life Science Ingredients'.
  • It expects the growth momentum in revenue and EBITDA to continue for FY'14. In the Pharmaceuticals segment, strategy of new product launches and geographic expansion will continue to drive growth while the key driver in the Life Science Ingredients segment will be higher capacity utilization in the Nutrition Ingredients and Crop Science intermediates supported by backward integration of Pyridine.
  • The Strong operational results to lead to robust balance sheet with Debt to EBITDA multiples below 2.5 times in medium term
37

This looks interestingly poised. The management is serious about debt reduction. The recent price hikes augurs well from FCF generation over FY14-16.

The current downtrend from overhang of FDA warning can present a good entry point with considerable upside for next 12-18 months.

The Big debt will still weigh it’s pressure on the stock price but given the current lows (trading at 5 yr low forward multiple of 5x FY14E as compared to 18-20 times forward during good times) this could be a good opportunity as a turnaround bet.

Views invited.

38

Don’t remember if I mailed you a detailed research on jubilant.

I think the most critical issue for them is the pricing pressure they have been seeing in their key products ie niacinamide and symtet etc

but overall I think risk reward is favourable

Let me know of you need a recent initiation on the name

39

Highlights of the Concall by Capital Market:

  • Consolidated Income from operations rose 17% to Rs 1435.62 crore in Q2FY’14 compared to Q2FY’13 led by 30% growth in life sciences ingredients revenues to Rs 745 crore and 6% growth in pharmaceuticals revenues to Rs 691.29 crore
  • International revenues during Q2FY’14 stood at Rs. 1,070 crore, contributing 75% to the overall mix and up 21% YoY
  • EBITDA margins during Q2FY’14 stood at at 19.2% and Normalized PAT margins was at 4.9%
  • For H1FY’14 Consolidated Income from operations rose 13% to Rs 2793.24 crore compared to H1FY’13 led by 24% growth in life sciences ingredients revenues to Rs 1452.36 crore and 4% growth in pharmaceuticals revenues to Rs 1342.58 crore
  • International revenues stood at Rs. 2,069 crore during H1FY’14 compared to H1FY’13, contributing 74% to the overall revenues
  • EBITDA margins stood at 18.5% during H1FY’14 and Normalized PAT margins at 4.6%
  • In Q2FY’14, Income from operations of the Pharma business stood at Rs. 691 crore, showing growth of 6% YoY and contributing 48% to the revenue mix. The Pharma business EBITDA was at Rs. 175 crore with EBITDA margins at 25.3%.
  • For H1FY’14 the Income from operations of the pharma business stood at Rs. 1,343 crore, growing 4% YoY and contributing 48% to the overall revenue mix. The segment EBITDA stood at Rs. 323 crore with EBITDA margins at 24.1%.
  • In Q2FY’14, Income from operations for the Life Science Ingredients segment was at Rs. 744 crore, thus improved by 30% YoY and having 52% of share in total revenues. The segment EBITDA stood at Rs. 125 crore with EBITDA margins at 16.8%.
  • In H1FY’14 the Income from operations of the for the Life Science Ingredients segment was at Rs. 1,451 crore, up 24% YoY and contributing 52% to the revenue mix. The segment EBITDA came in at Rs. 234 crore with EBITDA margins at 16.1%.
  • Products and services of the Company reach out to clients in 99 countries of the world. International revenues contribute 75% of the revenue mix at Rs. 1,070 crore with the share of regulated markets at Rs. 865 crore.
  • In Q2FY’14 revenues from North America stood at 9% improved YoY at Rs. 559 crore, contributing 39% in the overall revenues; revenues from Europe and Japan stood at Rs. 306 crore, up 28% with a share of 21% to the revenue mix. Domestic revenues grew 9% YoY at Rs. 366 crore thus giving a 25% share to the revenue mix. Revenues in ROW including China came in at Rs. 205 crore, better by 52%, with a 14% contribution to the revenue mix.
  • In H1FY’14 the Revenue from North America was at Rs. 1,079 crore, up 6% with a contribution of 39% to the revenue mix. Revenue from Europe and Japan was at Rs. 579 crore contributing 21% to the revenue mix with a growth of 18% YoY. The Domestic revenue was at Rs. 724 crore up 8% YoY, contributing 26% to the revenue mix. Revenue from ROW including China was at Rs. 411 crore, up 44% and giving 15% contribution to the revenue mix.
  • The company expects revenues and EBIDTA are expected to continue the uptrend and meet the growth targets set for FY2014. This is on account of improved capacity utilizations in Sterile Injctables and OCL, Nutrition Ingredients, Symtet and 3CP and backward integration of Pyridine and expansion to newer markets.
  • The company expects the price uptrend in Pyridine and Nutrition Ingredients to continue.
  • Jubilant Life sciences have a strong pipeline in API’s and Solid Dosage Formulations. The company expect new product launches, expansion in newer geographies and robust order book in Sterile Injectables to improve outlook in H2FY’14, which it expect to be better than H1FY’14.
  • During the quarter company launched 8 generic products across the globe. Currently Jubilant has 40 products in all these markets, including 16 in USA. Jubilant cumulative filings stand at 678 across the world, including 58 in USA.
  • The company expects Rubifil launch in FY15 across many markets including US

Corporate Actions

With the objective of consolidating the Pharmaceuticals business under one entity and raise money to reduce the overall debt of the company, the board has resolved to transfer the following to its wholly-owned subsidiary in Singapore

  1. The API and Dosage Form businesses of the Company in India by way of a slump sale on a going concern basis
  2. Also, part of the shares held by the Company directly in US and European subsidiaries to enable the Singapore subsidiary to hold 100% of the business in Europe and US

The consideration for above transfer is Rs 1145 crore (net of debt of Rs 583 crore) subject to the approval of the shareholders of the company and such other approvals and permissions as may be deemed necessary. Jubilant Pharma Limited, Singapore has received approval from the Foreign Investment Promotion Board (FIPB) for above transfer. This will enable the Company to consolidate its API, Solid Dosage Forms, Radiopharmaceuticals, Allergenic Extracts, Sterile Injectibles and Ointment, Cream and Liquid business (Pharma Business) under the Singapore subsidiary.

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40

Highlights of the Call by Capital Mkt:

The 10% revenue growth is on the back of 1% volume growth and 9% exchange gain during the quarter.

The Life Science Ingredients segment drives revenue growth led by better price and higher volumes during the quarter.

The reduction in the EBIDTA is mainly on account of sterile injectibles during the quarter.

The Pharmaceuticals segment revenue at Rs 675 Crore, 2% higher YoY for the quarter ended December 2013. This was driven by Strong volumes growth in Solid Dosage Formulations. Also, there were Price corrections in a few key products in formulations as expected during the quarter.

The LSI segment revenue at Rs 767 Crore, up 20% YoY for the quarter ended December 2013. There is better price realization across all businesses and Volume buoyancy in Vitamins and Acetyl products during the quarter.

During the quarter, it has Launched Escitalopram in the US and Esomeprazole in Europe, Sildenafil & Donepezil in Canada respectively.

It has total 60 ANDA’s filed, received approval for 28 and 32 are pending approvals with US FDA as on 31stDecember 2013.

It received four approvals in emerging markets (Risedronate, Repaglinide, Sildenafil and Azithromycin) â Expected launch in Q4 FY 14.

It is conducting detailed review of quality systems for both Spokane and Montreal sites to resolve the FDA Warning Letter (WL) issues. The Montreal issues have been responded and expect early closure. It also responded to WL on Spokane with the FDA and awaits FDA response.

The Pharmaceuticals business order off take by customers in the sterile injectibles badly impacted due to the warning letter at the Spokane and Montreal sites. It was expected that in Q3 the warning letter may be lifted, but that has not happened as it asked for more clarification. However, it expects the good thing may happen any time soon. Also, there is price reduction in formulations which impacted the margins.

The Symtet facility is not stabilized which has impacted the LSI margins during the quarter. The unabsorbed costs are higher due to some trials during the quarter.

The Q4 expected to be slightly better than the Q3.

It expects the margins to be around similar levels for the Q4.

The revenues and EBIDTA are expected to improve in the coming quarters led by improved capacity utilizations in Sterile Injectables and OCL, Nutrition Ingredients, Symtet and 3CP and backward integration of Pyridine and expansion to newer markets. It expects revenue growth due to strong pipeline in APIs and Solid Dosage Formulations, new product launches, expansion in newer geographies in API and Formulations, and robust order book in Sterile Injectables.

The Prudence in Capital Expenditure to continue and focus will be to generate cash and reduce the debt levels.

It expects the tax rate to be around 18% for the FY’14.

The Consolidated Net debt is at Rs 3589 Crore as on 31stDecember 2013 compared to Rs 3623 Crore as on 30thSeptember 13 post adjustments for fx difference. The Average interest rate for outstanding loans is at 5.8% pa â Re loans @ 12% pa, $ loans @ 4%.

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