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MOSL: JUBILANT LIFE SCIENCES (Buy)-Better Pharma profitability offset by subdued LSI performance

Jubilant Life Sciences: Better Pharma profitability offset by subdued LSI performance

(JUBILANT IN, Mkt Cap USD1.3b, CMP INR582, TP INR685, 18% Upside, Buy)

 

On track to demerge Pharma and LSI business

• Post board approval in Oct'19, Jubilant Life Science (JLS) is on track to demerge the Life Science Ingredient (LSI) business (with shareholding similar to that of JLS) and list it on the BSE/NSE.
• JLS has been steadily improving profitability of Pharma segment, led by specialty pharma/CDMO. This, however, is being offset by muted demand for life science chemicals and higher RM cost.
• We maintain our EPS estimate and continue valuing JLS on an SOTP basis to arrive at a TP of INR685. Maintain Buy. 

In-line performance

• Revenue declined 3% YoY to INR23.2b (in-line).
• LSI revenue declined 11% YoY to IN8b (34% of sales), while Pharma revenue too grew by a muted 2% YoY to INR14.5b (63% of sales).
• Gross margin improved 340bp YoY (+70bp QoQ) to 66.6% due to a superior product mix. EBITDA margin expanded at a lower rate of 110bp YoY to 21.9% (our estimate: 21%) due to higher employee cost (+225bp YoY).
• Pharma EBITDA margin came in at 28.4%. After adjusting for one-off expense of INR340m, the margin stands at 28.6%. LSI EBITDA came in at INR1,000m, with the margin at 12.5% versus 14% in 3QFY19.
• Accordingly, EBITDA grew 3% YoY to INR5.1b (in-line). However, adj. PAT was down 13.7% YoY to INR2.3b (in-line) due to higher interest and tax rate.