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MOSL: JUBILANT PHARMOVA (Buy)-Radiopharma on a gradual recovery path

JUBILANT PHARMOVA: Radiopharma on a gradual recovery path

(JUBLPHAR IN, Mkt Cap USD1.5b, CMP INR697, TP INR830, 19% Upside, Buy)

 

• JP delivered in line earnings, despite a better than expected revenue in 1QFY22. The COVID-related business led to a strong YoY revenue growth. However, reduced number of lung procedures in the Radiopharma segment, increased price erosion in the Sartans portfolio, and price erosion in the base portfolio in the Generics segment led to lower-than-expected profitability, offsetting benefits of higher revenue. 
• We have reduced our FY22E/FY23E EPS estimate by 14% each to factor in: a) delay in potential products on account of the import alert at Roorkee, b) higher competitive pressures in the Generics portfolio, c) gradual recovery in Radiopharma sales, and d) lower operating leverage. We continue to value JP at 8x 12-month forward EV/EBITDA to arrive at our PT of INR830. We remain positive on JP due to its attractive valuation and improving outlook in the Specialty segment. We maintain our Buy

 Low base, COVID-19, and Radiopharma drive YoY growth in earnings

• Net sales grew 41% YoY to INR16.3b (est: INR13.6b), led by a 70%/54%/55% growth in CDMO/Generics/Contract Research and Development Services revenue (29%/27%/5% of sales; INR4.7b/INR4.4b/INR880m). Specialty Pharma sales grew 18% YoY to INR6.3b (39% of sales).
• Gross margin contracted by 120bp YoY to 77.9% in 1QFY22 due to the reduced share of Specialty Pharma. EBITDA margin, however, expanded by 750bp YoY to 23% (est: 26%) due to better operating leverage. Employee expense fell 1,070bp YoY as a percentage of sales, partially offset by higher other expense (+210bp YoY as a percentage of sales).
• EBITDA almost doubled to INR3.8b (est: INR3.5b).
• Adjusted PAT grew ~4.5x YoY to INR1.6b (in line) on a lower base of 1QFY21, which was severely impacted by the COVID-19 outbreak.