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Jubilant Lifesciences JULS.NS
JOL IN
EQUITY: PHARMACEUTICALS
Retain Buy
Global Markets Research
CMO business and Symtet capacity utilisation to
revive in FY16F
10 March 2015
Rating
Remains
A tough FY15; expect revival in FY16F
JOL had multiple headwinds in FY15: 1) the CMO business was adversely
impacted by remediation measures and plant shutdowns; 2) pyridine prices
has corrected and are currently at USD 3.5/kg, which is at the bottom of the
range of USD 3.5-5/kg that prevailed over the past five years; and 3) capacity
utilisation for Symtet has been slow to pick up and is currently at ~15%. These
factors have impacted FY15F EBITDA by INR2.0-2.5bn, INR1.5bn and
INR350-400m (EBITDA loss of Symtet business), respectively. Hence, the
overall impact was ~INR4.0-4.5bn, which is 50-60% of FY15F EBITDA.
Factoring in the headwinds mentioned above, we cut our FY15F and FY16F
EBITDA by 15-18%. We also introduce our FY17F financials. We expect the
CMO business to revive in the near term and Symtet capacity utilisation to
gradually pick up. In our assessment, every 1% increase in Symtet capacity
utilisation adds INR20-30mn to EBITDA. We factor in Symtet capacity
utilisation to rise to 30% and 50% in FY16F and FY17F, respectively.
Management has put a tight leash on costs and capex, which we believe
should assist margin expansion and cash flows.
FY14
FY15F
FY16F
INR 157
India Pharmaceuticals
Saion Mukherjee - NFASL
[email protected]
+91 22 4037 4184
Lalit Kumar - NFASL
[email protected]
+91 22 4037 4511
FY17F
New
Old
New
58,033
63,533
57,888
71,302
62,598
69,477
Reported net profit (mn)
1,090
1,832
-353
4,905
2,250
3,683
Normalised net profit (mn)
3,235
2,332
669
5,405
2,530
3,963
FD normalised EPS
20.31
14.64
4.20
33.93
15.88
24.88
FD norm. EPS growth (%)
-20.8
-39.8
-79.3
131.8
278.2
56.6
FD normalised P/E (x)
7.7
N/A
37.5
N/A
9.9
N/A
6.3
EV/EBITDA (x)
6.5
N/A
8.7
N/A
6.9
N/A
5.6
Price/book (x)
1.0
N/A
1.0
N/A
0.9
N/A
0.8
Dividend yield (%)
2.2
N/A
2.2
N/A
2.2
N/A
ROE (%)
4.3
6.8
-1.4
16.5
8.6
12.9
149.0
125.9
174.2
101.2
161.4
139.4
Old
+42.4%
Research analysts
Old
Net debt/equity (%)
Closing price
9 March 2015
Nomura vs consensus
Our FY16F and FY17F adjusted
earnings are in line with
consensus
Actual
Revenue (mn)
INR 224
Anchor themes
JOL is a play on : 1) opportunities
in generics and specialty
pharmaceuticals (Radiopharma);
2) pharmaceutical R&D and
manufacturing outsourcing; 3)
growth opportunities in Pyridines
and Vitamin B3 on account of
cost competitiveness
Valuation
The stock currently trades at 10x FY16F adj EPS of INR15.9 and 6.3x FY17F
EPS of INR24.9. Given our expectations of improvement in EBITDA margins
and free cash flows, we find the valuations attractive. The FCF yield on FY17F
is at 8.5%. We assign a fair value range of 7-11x FY17F. Given the rise in
sector valuation multiples and a lower earnings base we raise our valuation
multiple from 7x to 9x on one-year forward earnings. We cut our TP to INR224
(from INR238 earlier). At our TP the stock would trade 6.5x FY17F
EV/EBITDA, in line with the historical trading range.
Year-end 31 Mar
Target price
Reduced from 238
Potential upside
Catalysts
Improvement in capacity utilisation of Symtet, CMO business pick up and
resolution of the warning letter.
Currency (INR)
Buy
New
2.2
Source: Company data, Nomura estimates
Key company data: See page 2 for company data and detailed price/index chart
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Nomura | Jubilant Lifesciences
10 March 2015
Key data on Jubilant Lifesciences
Relative performance chart
Cashflow statement (INRmn)
Source: Thomson Reuters, Nomura research
Notes:
Performance
(%)
Absolute (INR)
Absolute (USD)
Rel to MSCI India
1M 3M 12M
-0.7 19.1 12.4
-1.4 17.7 9.6
-3.6 16.2 -18.7
M cap (USDmn)
Free float (%)
3-mth ADT (USDmn)
400.2
0.4
1.8
Year-end 31 Mar
EBITDA
Change in working capital
Other operating cashflow
Cashflow from operations
Capital expenditure
Free cashflow
Reduction in investments
Net acquisitions
Dec in other LT assets
Inc in other LT liabilities
Adjustments
CF after investing acts
Cash dividends
Equity issue
Debt issue
Convertible debt issue
Others
CF from financial acts
Net cashflow
Beginning cash
Ending cash
Ending net debt
FY13
10,633
416
-3,733
7,316
-4,641
2,675
-54
-728
264
FY14
10,075
-4,451
-943
4,681
-2,908
1,773
640
407
64
FY15F
7,927
-1,669
-5,142
1,115
-3,934
-2,819
0
-1,579
0
FY16F
10,012
-872
-4,603
4,537
-3,500
1,037
0
0
0
FY17F
11,975
-1,359
-5,001
5,615
-3,500
2,115
0
0
0
846
3,002
-548
0
-1,566
0
0
-2,114
888
2,672
3,560
34,348
-547
2,337
-552
0
-553
0
3
-1,103
1,235
3,560
4,795
39,135
0
-4,398
-545
0
4,570
0
-111
3,914
-483
4,795
4,312
44,188
0
1,037
-545
0
0
0
0
-545
492
4,312
4,804
43,696
0
2,115
-545
0
-2,000
0
0
-2,545
-430
4,804
4,375
42,126
FY13
3,560
FY14
4,795
FY15F
4,312
FY16F
4,804
FY17F
4,375
7,100
11,149
7,709
29,519
256
54,044
8,059
13,414
6,286
32,554
340
55,712
8,192
13,926
7,173
33,604
340
56,619
8,859
14,705
7,173
35,541
340
56,960
9,832
15,928
7,173
37,308
340
57,169
83,819
88,606
90,562
92,841
94,816
10,562
6,549
17,112
37,908
7,181
7,279
14,460
43,930
7,045
7,279
14,324
48,500
7,618
7,279
14,897
48,500
8,455
7,279
15,734
46,500
2,740
57,760
1,115
2,371
60,761
1,579
2,371
65,195
0
2,371
65,768
0
2,371
64,605
0
159
24,784
155
26,111
155
25,213
155
26,919
155
30,057
24,944
83,819
26,265
88,606
25,368
90,562
27,073
92,841
30,211
94,816
1.73
3.4
2.25
2.2
2.35
1.3
2.39
1.8
2.37
2.3
3.23
137.7
3.88
149.0
5.57
174.2
4.36
161.4
3.52
139.4
9.59
25.64
25.64
156.60
3.51
6.84
20.31
20.31
164.90
3.42
-2.22
4.20
4.20
159.26
3.42
14.13
15.88
15.88
169.97
3.42
23.12
24.88
24.88
189.67
3.42
48.2
190.1
168.5
69.7
47.7
183.6
132.6
98.6
51.2
197.0
102.5
145.7
49.8
195.2
100.0
145.1
49.1
188.6
98.9
138.7
Balance sheet (INRmn)
Income statement (INRmn)
Year-end 31 Mar
Revenue
Cost of goods sold
Gross profit
SG&A
Employee share expense
Operating profit
EBITDA
Depreciation
Amortisation
EBIT
Net interest expense
Associates & JCEs
Other income
Earnings before tax
Income tax
Net profit after tax
Minority interests
Other items
Preferred dividends
Normalised NPAT
Extraordinary items
Reported NPAT
Dividends
Transfer to reserves
FY13
51,610
-20,500
31,109
-13,392
-9,622
8,095
10,633
-2,538
FY14
58,033
-24,421
33,612
-15,297
-11,052
7,264
10,075
-2,812
FY15F
57,888
-25,331
32,558
-16,606
-11,052
4,900
7,927
-3,027
FY16F
62,598
-26,845
35,753
-17,074
-11,825
6,853
10,012
-3,159
FY17F
69,477
-29,650
39,827
-18,490
-12,653
8,683
11,975
-3,291
8,095
-2,415
7,264
-3,237
4,900
-3,882
6,853
-3,880
8,683
-3,800
289
5,969
-1,524
4,445
-361
191
4,217
-696
3,521
-286
400
1,418
-638
780
-111
400
3,373
-843
2,530
0
400
5,283
-1,321
3,963
0
4,085
-2,557
1,527
-559
968
3,235
-2,145
1,090
-545
545
669
-1,022
-353
-545
-898
2,530
-280
2,250
-545
1,705
3,963
-280
3,683
-545
3,138
16.4
6.1
6.1
2.2
3.4
1.0
5.7
7.5
60.3
20.6
15.7
3.0
25.5
36.6
6.3
10.4
23.0
7.7
7.7
2.2
5.4
1.0
6.5
9.1
57.9
17.4
12.5
1.9
16.5
50.0
4.3
8.9
na
37.5
37.5
2.2
22.5
1.0
8.7
14.1
56.2
13.7
8.5
-0.6
45.0
na
-1.4
5.8
11.1
9.9
9.9
2.2
5.5
0.9
6.9
10.0
57.1
16.0
10.9
3.6
25.0
24.2
8.6
7.9
6.8
6.3
6.3
2.2
4.5
0.8
5.6
7.7
57.3
17.2
12.5
5.3
25.0
14.8
12.9
9.7
19.9
20.4
9.5
9.5
12.4
-5.2
-20.8
-20.8
-0.2
-21.3
-79.3
-79.3
8.1
26.3
278.2
278.2
11.0
19.6
56.6
56.6
Valuations and ratios
Reported P/E (x)
Normalised P/E (x)
FD normalised P/E (x)
Dividend yield (%)
Price/cashflow (x)
Price/book (x)
EV/EBITDA (x)
EV/EBIT (x)
Gross margin (%)
EBITDA margin (%)
EBIT margin (%)
Net margin (%)
Effective tax rate (%)
Dividend payout (%)
ROE (%)
ROA (pretax %)
Growth (%)
Revenue
EBITDA
Normalised EPS
Normalised FDEPS
As at 31 Mar
Cash & equivalents
Marketable securities
Accounts receivable
Inventories
Other current assets
Total current assets
LT investments
Fixed assets
Goodwill
Other intangible assets
Other LT assets
Total assets
Short-term debt
Accounts payable
Other current liabilities
Total current liabilities
Long-term debt
Convertible debt
Other LT liabilities
Total liabilities
Minority interest
Preferred stock
Common stock
Retained earnings
Proposed dividends
Other equity and reserves
Total shareholders' equity
Total equity & liabilities
Liquidity (x)
Current ratio
Interest cover
Leverage
Net debt/EBITDA (x)
Net debt/equity (%)
Per share
Reported EPS (INR)
Norm EPS (INR)
FD norm EPS (INR)
BVPS (INR)
DPS (INR)
Activity (days)
Source: Company data, Nomura estimates
Days receivable
Days inventory
Days payable
Cash cycle
Source: Company data, Nomura estimates
2
Nomura | Jubilant Lifesciences
10 March 2015
Fig. 1: Jubilant Lifescience sales mix
Business segment
Comments
Pharmaceuticals
FY15 Sales (INR mn)
% contribution
26602
46%
5405
9%
API
Pharmaceutical raw material
Generics
Finished dosage in US, Europe and other markets
10396
18%
Specialty Pharma
This includes Radiopharmaceuticals and Allergenic
extracts
4805
8%
4159
7%
1836
3%
31286
54%
11621
20%
4797
8%
14869
26%
57888
100%
Contract Manufacturing (CMO)
Discovery services
Discovery services to innovator pharma companies
Life Science Ingredients
Proprietary product and exclusive synthesis
Pyridine products
Nutritional Ingredients
Vit B3 business
Life science chemicals
Includes organic chemicals like acetic acid, acetic
anhydride etc
Total
Source: Nomura estimates
Four challenges to the ingredient business
The Life science ingredient business (accounting for 54% of revenues in FY15F) is
facing four key challenges at the moment.
a)
Pricing pressure: The pyridine prices have come down to USD3.5/Kg currently from
approx. USD4.0-4.5/ Kg a year ago. Correction in the pyridine prices has resulted
from competition of new entrants in China. Current prices are towards the lower end
of the price range of USD 3.5-5/kg that prevailed over the past five years.
b)
The Chinese Government has imposed an anti-dumping duty on pyridine imports
from India in FY14. The duty is at the rate of 24.6% for JOL. The duty makes JOL
less competitive to the local Chinese players.
c)
Drop in volume of pyridine sales in China due to ban on production of liquid
Paraquat. Paraquat is an herbicide and uses pyridine as a raw material. The ban on
Paraquat has resulted in over-supply of pyridines.
d)
Slower-than-expected ramp up in Symtet facility. Jubilant has put up a 24000MT
capacity for production of Symtet, an ingredient used for production of Chlorpyrifos,
an insecticide. The production of Symtet uses pyridine as raw materials. The
capacity utilisation of the Symtet facility is only at ~15%. Higher utilisation should
lead to greater value addition as low-value Pyridines is diverted to production of
high-value Symtet.
As a result of these challenges, the EBITDA margins for the Life Science Ingredient
business have come down from mid-teens to ~8%, the lowest recorded in the recent
past.
3
Nomura | Jubilant Lifesciences
10 March 2015
Fig. 2: Fall in EBITDA margin in the ingredient business in the recent past
EBITDA margin (%)
20.0%
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
Q3FY15
Q2FY15
Q1FY15
Q4FY14
Q3FY14
Q2FY14
Q1FY14
Q4FY13
Q3FY13
Q2FY13
Q1FY13
Source: Company
We believe the fall in pyridine sales volume to China, price contraction and anti-dumping
duty has impacted EBITDA by ~INR2bn on an annualised basis (~INR1.5bn in FY15F),
which is ~20% of the Q3FY15 EBITDA, as per our analysis. In addition, due to lower
capacity utilisation of the Symtet plant, the facility is incurring an EBITDA loss of
~INR350-400m as per management. Therefore, the overall impact is at INR2.3-2.5bn,
based on our estimates at the EBITDA level.
Fig. 3: Contraction in China sales
Both volume and prices have been adversely impacted
1800
1600
1400
1200
1000
800
600
400
200
0
China sales
Source: Company data
4
Nomura | Jubilant Lifesciences
10 March 2015
Increase in Symtet capacity utilisation is key
We believe improvement in Symtet capacity utilisation is key for improvement in
ingredient business financials. JOL has put up 24000MT Symtet capacity and the
utilisation rate is currently only at 15%. At current utilisation levels, JOL is incurring a loss
of INR350-400m at the EBITDA level, as per management. With the increase in capacity
utilisation of Symtet, pyridine will be diverted for production of Symtet. Based on the
current prices of pyridine and Symtet, we believe that every 1% increase in capacity
utilisation could add INR20-30mn to EBITDA, which is 0.8-1.3% of Q3FY15 EBITDA.
Management expects to raise capacity utilisation from the current 15% to 40% by
FY16F. Thus, a 25% increase in capacity utilisation has the potential to raise EBITDA by
INR500-750mn, based on our estimates.
Contract Manufacturing business – On a recovery path
The company shut down the Spokane facility, which caters to its contract manufacturing
business (9% of Q3FY15 sales) for implementation of the remediation measures.
Remediation measures are being implemented as the USFDA issued a warning letter in
Nov 2013. After the shutdown, when the facility was restarted, it took considerably longer
to stabilise the plant. Hence, the lower productivity has adversely impacted CMO
revenues in 9MFY15, particularly in 1QFY15 and 2QFY15, as indicated in Fig 4. We
believe from a Quarterly sales run rate of INR1.6-1.8bn in FY14, the sales for the CMO
business declined to ~INR800mn and ~INR600mn in Q1FY15 and Q2FY15,
respectively. The sales recorded in 3QFY15 increased to ~INR1.3bn. Revenues are still
lower than the FY14 quarterly average and we see scope for improvement in the
ensuing quarters. As per management there is a significant order backlog at the
Spokane facility. Further, we expect resolution of the warning letter over the next six
months which should help firm up volumes from this facility.
Fig. 4: CMO sales recovering from the lows of 2QFY15
CMO Qtrly sales is based on our ests
Source: Company data, Nomura estimates
Besides the loss of sales, the EBITDA margins were adversely impacted by remediation
costs. For 9MFY15, the company has incurred remediation costs of INR1.07bn. Some of
these expenses can sustain in 4QFY15. However, from 1QFY16F, the company expects
no additional remediation expenses. We believe the overall impact of loss of sales and
remediation measures in FY15F is approx. INR2.0-2.5bn. The impact in 3QFY15 was
~INR800mn.
5
Nomura | Jubilant Lifesciences
10 March 2015
Financials- Project improvement in FY16F and FY17F
We project our FY17F estimates for JOL. We believe the key challenges as discussed
above in both the ingredient and pharmaceutical businesses are behind us. The 3QFY15
does indicate revival particularly in the pharmaceutical business.
Fig. 5: Pharma business has recorded improvement in EBITDA margins in recent past
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Q3FY15
Q2FY15
Q1FY15
Q4FY14
Q3FY14
Q2FY14
Q1FY14
Q4FY13
Q3FY13
Q2FY13
Q1FY13
Source: Company data
We expect overall revenue growth to accelerate to ~10% over the next two years,
compared to 0% projected for FY15F. We expect most growth over the next two years to
be driven by the Pharmaceutical segment as we do not project any significant revival in
prices of the ingredient business.
Fig. 6: Sales projection (INR mn)
Pharmaceuticals
API
Generics
Specialty Pharma
Contract Manufacturing
Discovery Services
FY13E
26,576
5,081
8,315
3,856
7,052
2,082
FY14E
27,276
5,285
8,756
4,247
6,963
1,836
FY15E
26,602
5,405
10,396
4,805
4,159
1,836
FY16E
31,314
5,709
12,368
5,585
5,675
1,976
FY17E
36,229
5,980
14,024
7,908
6,243
2,075
CAGR (FY15-17)
17%
5%
16%
28%
23%
6%
Life Science Ingredients
Prop product & Exclusive synthesis
Nutritional Ingredients
Life science chemicals
25,030
11,211
2,648
11,171
30,757
13,280
3,960
13,517
31,286
11,621
4,797
14,869
31,284
10,936
5,034
15,315
33,247
12,317
5,156
15,774
3%
3%
4%
3%
Total Net Sales
51,606
58,033
57,888
62,598
69,477
10%
Source: Company, Nomura ests
CMO- set for a revival from lows of FY15F
Within Pharmaceuticals, we expect the CMO business to revive as volumes pick up at
the Spokane facility. We expect resolution of the USFDA warning letter in FY16F. As
indicated earlier, the CMO business is likely to have contracted by ~40% in FY15F yoy
and on the low base, we expect a strong revival in FY16F. There is scope for increasing
capacity utilisation and increase in service offerings. As indicated in Fig 5 above, we
project the CMO to revive to a level slightly lower than recorded over FY12-14, when
capacity utilisations hovered ~70%.
6
Nomura | Jubilant Lifesciences
10 March 2015
Generics: Filing intensity is high; though no big impact product in sight
In generics almost 60% of revenues are derived from the US. As of Dec’14, JOL had a
US revenue run rate of USD 100m/yr. As of Dec’14, the company had 27 ANDAs
approved and this implies sales of USD3.8mn per approved ANDA. However, there is
considerable contribution from methylprednisolone, which contributes ~USD40mn in
annual sales. Hence ex methylprednisolone, sales per approved ANDA stand at USD
2.3mn. The company has received a spate of approvals in the US (four approvals in
4QFY15) in the recent past. However, in most cases, JOL will be a late entrant and
hence we do not expect any significant impact from these new launches. JOL has 35
pending ANDAs, but we are not aware of any high impact ANDA in the pipeline yet. We
note that overall the filing intensity is high, as the number of global filings has more than
doubled over the past three years. The ROW markets (ex US and Europe), which is
addressed through partnerships, can record a stronger growth on the low base.
Fig. 7: Product filing intensity is high
No of filings
FY12
FY15E
US
48
~75
EU
35
46
RoW
273
~680
Total
356
~800
Source: Company, Nomura ests
API- Established track record
The company has ~37 commercialised products currently. Over the past three years, the
company has commercialised ~5 new products and we expect a similar momentum to
sustain. In the US, JOL has 75 DMFs of which 45 are pending approval. Aripiprazole and
esomeprazole are some of the known DMFs that can be of high value. The company has
already started supplying aripiprazole to the US in 3QFY15F.
Radiopharma- Interesting new launches in next two years
Radiopharma growth is likely to be driven by two generic approvals: Rubyfill and
Magnevist, which have brand sales of USD60mn and USD 155mn, respectively. The
company expects to gain approval for Rubyfill in FY16F/FY17F. The application for
generic Magnevist was submitted in Q1FY14 and an approval is a possibility in FY17F,
in our view.
Venturing into domestic formulation market
JOL started domestic formulation sales in FY15, with a field force of 200+. We are not
factoring in any material upside from the business at this stage. We expect the business
to take more than three years to scale up.
Lifescience ingredients- Pricing assumed stable at current levels; assume
increase in Symtet capacity utilisation
For the ingredient business, we have not factored in any change in the current pricing
environment. For Pyridines, we do not factor in any revival after the correction in prices
in 2HCY14. The Niacinamide prices have remained stable at USD5.5/Kg over the last
two years and we do not factor in any material change. Niacinamide prices were at
USD8.5-9/kg before significant capacity additions in 2011. We believe the supply
overhang is largely over in this segment.
For Symtet, we factor in 30% and 50% capacity utilisation in FY16F and FY17F,
respectively, an improvement from 15% currently.
In organic chemicals or Life science chemicals, we expect the pricing environment to be
stable as the operating ratio (ratio of demand to supply) globally is estimated to improve
for basic chemicals like acetic acid over the next five years as per IHS. Acetic acid is the
key ingredient in the life science chemical business. For India, Net imports of acetic acid
account for 81% of the domestic acetic acid consumption and the import prices have
largely remained stable over the past two years. We note that pricing is still 25% lower
from the highs recorded in FY08.
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Fig. 8: Acetic acid import prices
700
600
500
400
300
200
100
0
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14
Acetic acid import prices (USD/MT)
Source: Chemical and Petrochemical Statistics, Government Of India
Scope for EBITDA margin to improve
As discussed, FY15 was a challenging year and there is scope for EBITDA margins to
improve from FY15 levels. The impact of lower sales in CMO business and remediation
measures is INR2.0-2.5bn in FY15F. This is likely to reverse in FY16F. In addition, a
25% increase capacity utilisation of Symtet should improve EBITDA by ~INR500-750mn,
in our view. The CMO business is likely to improve in the near term; the symtet capacity
utilisation is expected to gradually improve. These two factors alone can potentially
increase FY15 EBITDA by ~30-40%.
Further, launch of new products in Generics, API and Radiopharma has the scope to
improve margin, driven by increased capacity utilisation.
A tight leash on costs will also assist margin improvement. In FY15F, we estimate that
staff costs is largely flat Y-Y and other fixed overheads ex professional and legal
expenses (which increased due to remediation measures) have increased by a moderate
6%.
Controlling Capex
For the 9M period in FY15, JOL has incurred capex of INR1.7bn and additional product
development spent (which is capitalised) of INR 740mn. Therefore the overall capex of
INR2.5bn over 9mFY15 compares well to the guidance of INR4bn for FY15F. With one
quarter to go, we expect JOL to hold capex below the guidance. We expect capex to
remain at current levels and free cash flow to improve over the next two years.
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Fig. 9: Free cash flow (INR mn)
Free cash flow Is negative in FY15F, due to acquisition of minority stake
5000
0
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15F FY16F FY17F
-5000
-10000
-15000
-20000
Free cash flow
Capex (including acquisitions)
Source: Company, Nomura estimates
Valuations
The stock currently trades at 10x FY16F adj EPS of INR15.9 and 6.3x FY17F EPS of
INR24.9. Given our expectations of improvement in EBITDA margin and free cash flows,
we find the valuations attractive. The FCF yield on FY17F estimates is at 8.5%. We
assign a fair value range of 7-11x FY17F. Given the rise in valuation multiples in the
sector and a low earnings base (due to price reduction in pyridines), we raise our
valuation multiple from 7x to 9x one-year forward earnings. We arrive at our target price
of INR 224, based on 9x FY17F adj EPS of INR 24.9. On our target price, the stock
would trade at EV/EBITDA of 6.5x FY17F. As indicated in Fig 11, the stock has
historically traded between 6x and 8x one-year forward EBITDA.
Fig. 10: One year forward P/E chart
Stock trades at ~10x one year forward EPS
45
40
35
30
25
20
15
10
5
Nov-14
May-14
Nov-13
May-13
Nov-12
May-12
Nov-11
Nov-10
May-11
May-10
Nov-09
May-09
Nov-08
May-08
Nov-07
May-07
Nov-06
May-06
Nov-05
May-05
0
Source: Bloomberg, Nomura estimates
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Fig. 11: One year forward EV/EBITDA
On EV/EBITDA stock has traded in the range of 6-8x
18
16
14
12
10
8
6
4
2
Nov-14
May-14
Nov-13
May-13
Nov-12
May-12
Nov-11
Nov-10
May-11
May-10
Nov-09
May-09
Nov-08
May-08
Nov-07
May-07
Nov-06
May-06
Nov-05
May-05
0
Source: Bloomberg, Nomura estimates
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Appendix A-1
Analyst Certification
We, Saion Mukherjee and Lalit Kumar, hereby certify (1) that the views expressed in this Research report accurately reflect our
personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of our
compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this
Research report and (3) no part of our compensation is tied to any specific investment banking transactions performed by
Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.
Issuer Specific Regulatory Disclosures
The term "Nomura Group" used herein refers to Nomura Holdings, Inc. or any of its affiliates or subsidiaries, and may refer to one or more
Nomura Group companies.
Materially mentioned issuers
Issuer
Jubilant Lifesciences
Ticker
JOL IN
Price
INR 157
Jubilant Lifesciences (JOL IN)
Price date
Stock rating Sector rating Disclosures
09-Mar-2015 Buy
N/A
INR 157 (09-Mar-2015) Buy (Sector rating: N/A)
Rating and target price chart (three year history)
Date
06-Aug-14
28-May-14
07-Feb-14
21-Oct-13
08-May-13
04-Feb-13
24-Jul-12
Rating Target price
238.00
248.00
191.00
281.00
333.00
375.00
330.00
Closing price
187.40
181.25
138.70
72.55
162.40
210.35
170.80
For explanation of ratings refer to the stock rating keys located after chart(s)
Valuation Methodology Our Mar 2016 target is based on 9x Mar-16 adjusted EPS of INR 24.9/sh. The benchmark index for
this stock is MSCI India.
Risks that may impede the achievement of the target price a) pricing pressure in pyridines and others products in the
ingredient business; b) delay in new approvals and ramp up in generic business ; c) failure for new approval for Radiopharma
business and d) adverse currency movements
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by a research analyst account.
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The rating system is a relative system, indicating expected performance against a specific benchmark identified for each individual stock,
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target price, defined as (target price - current price)/current price.
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'N/A' are not assigned ratings. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging
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Explanation of Nomura's equity research rating system in Japan and Asia ex-Japan prior to 21 October 2013
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Stock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price,
subject to limited management discretion. In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock,
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A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive
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