MOSL: JUBILANT LIFE SCIENCES (Buy)-Profitability driven by Pharmaceutical biz

Jubilant Life Sciences: Profitability driven by Pharmaceutical biz

(JUBILANT IN, Mkt Cap USD1.4b, CMP INR651, TP INR917, 41% Upside, Buy)

• Operationally in-line: Jubilant Life Sciences’ (JLS) revenue increased 38% YoY to INR22.6b (our estimate: INR20.9b) in 2QFY19, led by a favorable base (Triad business not included in year-ago period numbers). Adjusting for the same, revenue was up 17% YoY, supported by 20% YoY growth in Life Science Ingredient (LSI; 39% of net sales) and 17% YoY growth in Pharmaceutical (44% of net sales, Ex-Triad) segment. For 1HFY19, sales/EBITDA/PAT were up 34%/37%/49% YoY to INR43.4b/8.8b/4.1b. Given the high base of past year, we expect sales/EBITDA/PAT growth to moderate to 5%/15%/20% YoY in 2HFY19.
• Generics, Specialty Pharma impress on margins front: EBITDA margin of 19.8% came in below estimate of 21.6% in 2QFY19. Excluding Triad business, EBITDA margin expanded 460bp YoY to 23%. Segment-wise EBITDA margin: (a) up 1,800bp YoY in API/Generics (32% of Pharma sales), led by product rationalization, (b) up 600bp YoY to 40% in Specialty Pharma (58% of Pharma business) ex. Triad and (c) down 540bp YoY in LSI. On an absolute basis, EBITDA grew 47% YoY to INR4.5b (our estimate: INR4.5b) in 2QFY19. Accordingly, PAT grew 64% YoY to INR2.1b (our estimate: INR2.2b) in 2QFY19.