Radiopharma, Niacin continues to drive sales, margins October 30, 2015 Surajit Pal surajitpal@plindia.com +912266322259 Rating BUY Price Rs401 Target Price Rs578 Implied Upside 44.1% Sensex 26,838 Nifty 8,112 (Prices as on October 29, 2015) Trading data Market Cap. (Rs bn) 61.9 Shares o/s (m) 154.5 3M Avg. Daily value (Rs m) 657.4 Major shareholders Promoters 54.02% Foreign 17.56% Domestic Inst. 0.56% Public & Other 27.86% Stock Performance (%) 1M 6M 12M Absolute 10.4 168.0 174.1 Relative 6.3 169.5 175.0 How we differ from Consensus EPS (Rs) PL Cons. % Diff. 2016 34.0 26.6 27.7 2017 47.3 37.6 25.6 Price Performance (RIC: JULS.BO, BB: JOL IN) (Rs) 450 400 350 300 250 200 150 100 50 0 Oct14 Dec14 Source: Bloomberg Feb15 Apr15 Jun15 Aug15 Oct15 Volume growth, Price rise in Radiopharma, LSI boost sales, EBITDA margin: Jubilant s Rs14.5bn sales and Rs3.21bn EBITDA grew by 6% and 189%, respectively, in. The company s overall financial performance was similar to as the company has been benefitting from volume and price rise in RadioPharma and Nutritional products in H1FY16. The company s Pharma division sales grew by 22% YoY, while LSI s business declined by 5% as lower commodity prices drove both input prices as well as for LSI end products. As a result, the company maintained sequential EBITDA margin of 16.5% in LSI division in. In Pharma division, EBITDA margin was 28.8% on the back of traction in Radiopharma and normalisation of CMO business. Inlicense deal to ensure good run in Radiopharma to continue: Jubilant is in the process to inlicense Technigas from Cyclopharm for North American markets. Technigas to help Jubilant to expand its portfolio for lung imaging business in US and Canada. With development of own sales team and natural entry barrier, we believe the company plans to optimise capacity of its Radiopharma sales team along with expected approval of Rubifill in Q1FY17. ValuationsMaintain BUY, retain TP at Rs578: With management guidance for normalisation of CMO plant utilisation from Q3FY16E onwards, we believe Jubilant s sales growth to boost up with additional contribution from CMO revenues in H2FY16E. The full benefit of CMO, however, will be realised in Q4FY16E. Lower crude and ethanol prices will help to maintain 1516% LSI margin in FY16E. Limited competition and expansion in high value products continue to maintain Pharma business margin at 2729%. We maintain BUY and retain TP at Rs578. Key financials (Y/e March) 2014 2015 2016E 2017E Revenues (Rs m) 57,216 57,761 65,443 73,547 Growth (%) 11.9 1.0 13.3 12.4 EBITDA (Rs m) 9,259 6,392 13,743 16,327 PAT (Rs m) 3,235 (97) 5,417 7,532 EPS (Rs) 20.9 (0.6) 34.0 47.3 Growth (%) (3.2) NA NA 39.0 Net DPS (Rs) 3.0 3.0 3.0 3.0 Profitability & Valuation 2014 2015 2016E 2017E EBITDA margin (%) 16.2 11.1 21.0 22.2 RoE (%) 12.7 (0.4) 19.0 21.0 RoCE (%) 8.1 3.4 11.6 14.3 EV / sales (x) 1.8 1.9 1.5 1.2 EV / EBITDA (x) 10.9 16.9 7.0 5.5 PE (x) 19.1 NA 11.8 8.5 P / BV (x) 2.4 2.6 2.0 1.6 Net dividend yield (%) 0.7 0.7 0.7 0.7 Source: Company Data; PL Research Result Update 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
Key takeways from Conference call China sales declined by 17% YoY on the back of lower export of Pyridines. With strong pricing pressure along with lower demand of Pyridines due to ban on production of liquid Paraquat, Jubilant consciously lowered its exports in China. Management expects Paraquat producers in China to upgrade technology to produce nonliquid (powder/gel) form of Paraquat, which will improve demand scenario of pyridine, going forward Global Pyridine prices are stable though prices in China are still down visavis global prices The price hike of 10% in nutritional products (Niacinamide/Niacin) in was one of the major contributors of the company s 16.5% EBITDA margin in LSI segment Jubilant received benefit of higher prices and volume of Radiopharma in North America. Management expects the favourable pricing scenario to continue in FY16E, while new launches (Rubifill, Magnevist) will boost its sales growth further in FY17E US FDA upgraded Jubilant s CMO plant in US (Spokane, Washington) to VAI (voluntary action intended) and expects to receive complete resolution on the plant in the near term. While CMO business received partial recovery in, we expect there will be gradual improvement in CMO revenues in Q3FY16E onwards Jubilant launched two generics, while it has 32 ANDA pending for approval in US. The company plans to file 810 ANDA annually The company plans Rs3bn (Rs2bn for Pharma + Rs1bn for LSI) capex and Rs1bn product development in FY16E October 30, 2015 2
Exhibit 1: Result Overview (Rs m) Y/e March YoY gr. (%) H1FY16 H1FY15 YoY gr. (%) Net Sales 14,631 13,711 6.7 14,586 29,216 28,442 2.7 Raw Material 6,296 7,063 (10.9) 6,480 12,776 15,245 (16.2) % of Net Sales 43.0 51.5 44.4 43.7 53.6 Personnel Cost 2,851 2,712 5.1 2,742 5,593 5,434 2.9 % of Net Sales 19.5 19.8 18.8 19.1 19.1 Others 2,277 2,826 (19.4) 2,070 4,347 5,198 (16.4) % of Net Sales 15.6 20.6 14.2 14.9 18.3 Total Expenditure 11,425 12,601 (9.3) 11,291 22,716 25,877 (12.2) EBITDA 3,206 1,110 188.8 3,294 6,500 2,565 153.4 Margin (%) 21.9 8.1 22.6 22.2 9.0 Depreciation 751 692 8.6 702 1,453 1,422 2.2 EBIT 2,455 418 487.1 2,592 5,047 1,143 341.7 Other Income 45 264 (83.1) 38 83 306 (72.9) Interest 974 960 1.5 964 1,938 1,739 11.5 PBT 1,525 (278) NA 1,666 3,191 (290) NA ExtraOrd. Inc./Exps. 23 (18) NA (19) (43) 251 Total Taxes 390 645 (39.5) 405 795 352 125.9 ETR (%) 25.6 NA 24.3 24.9 NA Reported PAT 1,158 (941) NA 1,281 2,439 (893) (373.0) Exhibit 2: Major Sources of Revenues (Rs m) Y/e March YoY gr. (%) H1FY16 H1FY15 YoY gr. (%) Pharmaceuticals 7,468 6,143 21.6 7,409 14,877 12,185 22.1 % of Net Sales 51.0 44.8 50.8 50.9 42.8 Life Science ingredients 7,163 7,568 (5.4) 7,177 14,339 16,267 (11.8) % of Net Sales 49.0 55.2 49.2 49.1 57.2 Total Sales 14,631 13,711 6.7 14,586 29,216 28,452 2.7 October 30, 2015 3
Exhibit 3: Pharma sales and growth 18,000 16,000 1 1 10,000 8,000 6,000 35.0 3 25.0 2 15.0 1 5.0 5.0 1 Exhibit 4: LSI Sales and Growth 10,000 8,000 6,000 4 3 2 1 1 2 Exhibit 5: US Sales and Growth 7,000 6,000 5,000 3,000 6 5 4 3 2 1 1 2 October 30, 2015 4
Exhibit 6: India Sales and Growth 4,500 3,500 3,000 2,500 1,500 500 3 25.0 2 15.0 1 5.0 5.0 1 Exhibit 7: China Sales and Growth 1,800 1,600 1,400 1,200 800 600 400 200 6 4 2 2 4 6 Exhibit 8: EU, Japan: Sales and Growth 3,500 3,000 2,500 1,500 500 8 6 4 2 2 4 October 30, 2015 5
Exhibit 9: Overall Sales and Growth 18,000 16,000 1 1 10,000 8,000 6,000 35.0 3 25.0 2 15.0 1 5.0 5.0 1 Exhibit 10: EBITDA and Margin: Pharma and LSI EBITDA (Rs m) Margin (%) (RHS) 3,500 3,000 2,500 1,500 500 25.0 2 15.0 1 5.0 October 30, 2015 6
Income Statement (Rs m) Net Revenue 57,216 57,761 65,443 73,547 Raw Material Expenses 24,421 26,617 25,130 27,948 Gross Profit 32,796 31,144 40,313 45,599 Employee Cost 11,052 10,903 12,041 13,238 Other Expenses 12,485 13,850 14,528 16,033 EBITDA 9,259 6,392 13,743 16,327 Depr. & Amortization 2,812 2,880 3,277 3,527 Net Interest 3,237 3,553 4,178 3,703 Other Income 1,008 926 935 944 Profit before Tax 4,218 884 7,222 10,042 Total Tax 696 805 1,806 2,511 Profit after Tax 3,521 79 5,417 7,532 ExOd items / Min. Int. (4,004) (786) Adj. PAT 3,235 (97) 5,417 7,532 Avg. Shares O/S (m) 154.5 159.3 159.3 159.3 EPS (Rs.) 20.9 (0.6) 34.0 47.3 Cash Flow Abstract (Rs m) C/F from Operations 8,026 7,833 11,591 13,965 C/F from Investing (1,744) (3,433) (4,466) (4,466) C/F from Financing (4,447) (5,027) (5,520) (9,150) Inc. / Dec. in Cash 1,834 (628) 1,605 348 Opening Cash 2,786 4,735 3,916 5,521 Closing Cash 4,735 3,916 5,521 5,870 FCFF 1,115 256 9,353 6,253 FCFE 2,616 4,234 (1,242) 305 Key Financial Metrics Growth Revenue (%) 11.9 1.0 13.3 12.4 EBITDA (%) (7.7) (31.0) 115.0 18.8 PAT (%) (6.2) NA NA 39.0 EPS (%) (3.2) NA NA 39.0 Profitability EBITDA Margin (%) 16.2 11.1 21.0 22.2 PAT Margin (%) 5.7 (0.2) 8.3 10.2 RoCE (%) 8.1 3.4 11.6 14.3 RoE (%) 12.7 (0.4) 19.0 21.0 Balance Sheet Net Debt : Equity 1.5 1.8 1.0 0.6 Net Wrkng Cap. (days) 145 125 139 128 Valuation PER (x) 19.1 NA 11.8 8.5 P / B (x) 2.4 2.6 2.0 1.6 EV / EBITDA (x) 10.9 16.9 7.0 5.5 EV / Sales (x) 1.8 1.9 1.5 1.2 Earnings Quality Eff. Tax Rate 16.5 91.0 25.0 25.0 Other Inc / PBT 23.9 104.7 12.9 9.4 Eff. Depr. Rate (%) 3.8 3.9 4.2 4.3 FCFE / PAT 80.9 NA NA 4.0. Balance Sheet Abstract (Rs m) Shareholder's Funds 26,265 24,535 32,377 39,334 Total Debt 43,953 47,931 37,336 31,389 Other Liabilities 6,260 3,449 3,891 4,450 Total Liabilities 76,478 75,915 73,604 75,172 Net Fixed Assets 55,712 55,079 56,302 57,276 Goodwill Investments 340 395 407 419 Net Current Assets 17,153 16,872 13,290 13,945 Cash & Equivalents 4,795 3,943 5,521 5,870 Other Current Assets 24,485 23,336 24,048 25,209 Current Liabilities 12,128 10,407 16,278 17,134 Other Assets 3,274 3,569 3,604 3,532 Total Assets 76,478 75,915 73,604 75,172 Quarterly Financials (Rs m) Y/e March Net Revenue 14,455 15,365 14,586 14,631 EBITDA 1,853 2,474 3,294 3,206 % of revenue 12.8 16.1 22.6 21.9 Depr. & Amortization 795 662 702 751 Net Interest 858 792 927 924 Other Income (42) (4) 1 (6) Profit before Tax 158 1,017 1,666 1,525 Total Tax 202 251 405 390 Profit after Tax (112) 427 1,281 1,158 Adj. PAT (112) 427 1,281 1,158 Key Operating Metrics (Rs m) Pharmaceuticals 27,274 26,820 31,040 36,970 LSI 30,760 31,442 34,403 36,577. October 30, 2015 7
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