MOSL: JUBILANT LIFE SCIENCES (Buy)-Specialty Pharma and LSI outlook remains promising

​Jubilant Life Sciences: Specialty Pharma and LSI outlook remains promising; Pricing pressure and deferred sales in Pharma impact 2Q results

(JUBILANT IN, Mkt Cap USD1.6b, CMP INR640, TP INR861, 35% Upside, Buy)

• Jubilant Life Sciences (JLS) delivered sales of INR16.4b, lower than our estimate of INR17.3b. EBITDA margin came in at 19.8% (est. of 21.6%), led by the deferment of some Pharma business to 2HFY18. Accordingly, PAT of INR1.3b came in lower than our estimate of INR1.7b.
  
• LSI drives growth in 2QFY18: LSI sales grew 20.5% YoY to INR7.2b, driven by better pricing in the Nutritional segment and better demand across segments. As a result, EBITDA margin improved 110bp YoY and 300bp QoQ.
  
• Lower generics business affects Pharma growth: Pharmaceutical sales (52% of total revenue) grew 11.9% YoY to INR8.6b. Adjusting for one-month Triad business, Pharma sales dipped 1% YoY. This is largely due to the deferment of API sales and manufacturing constraint in the CMO business.
  
• Management guides for strong H2 v/s H1: Management has guided for a strong 2HFY18 compared to 1HFY18 on the back of execution of deferred sales in the API segment, strong momentum in Specialty Pharma and robust growth in LSI.
  
• Valuation and view: We raise revenues for FY18/19/20E to incorporate the Triad business. We marginally lower PAT for FY18/19/20E to factor in pressure on margins due to supply chain consolidation in the US market. We remain positive on JLS, given the robust outlook in Specialty Pharmaceuticals and Advanced Intermediates, lower financial leverage, and attractive valuation. Maintain Buy with a revised TP of 861, on an SOTP basis.