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Radiopharma business recovery – key for better outlook

CDMO prospects remain promising

* Jubilant Pharmova (JP) delivered lower-than-expected 4QFY21 earnings, weighed by muted performances in the Specialty Pharma and Generics segments. Particularly, the Radiopharma segment was adversely affected by lower procedures on account of COVID-19 and increased competition.

* We reduce our EPS estimate by 5%/4% for FY22/FY23, reflecting a) a slower uptick in the Radiopharma business, b) extended timelines for the turnaround of the Radiopharmacy business, and c) pricing pressure in the Generics segment. We value JP at 9x EV/EBITDA to arrive at TP of INR960 on a 12M forward basis. We remain positive on JP on the back of (a) a strong order book for Contract Development and Manufacturing Operations (CDMO), (b) new customer additions in the API segment, (c) better growth prospects for Rubyfill, and (d) a long-term pipeline for radiopharmaceutical products. Maintain Buy.

Radiopharma drags down 4QFY21 despite good show from CDMO

* Net sales declined 18% YoY to INR19.7b (est. INR21.3b). This was partly due to the de-merger of Life Science Ingredient (LSI; 20% of sales) from 1st Feb’21.

* Specialty Pharma sales declined 23% YoY to INR6b (31% of sales), Generics sales were flat YoY at INR3.1b (16% of sales), CDMO sales grew 48% YoY to INR5.8b (29% of sales), and Contract Research and Development Services revenue grew 25% YoY to INR940m (5% of sales).

* The EBITDA margin expanded 90bp YoY to 23.3% (est. 24.7%). EBITDA declined 15% YoY to INR4.6b (est. INR5.3b).

* Adj. PAT declined 18% YoY to INR2.1b (est. INR2.7b).

* FY21 sales/EBITDA/PAT declined 3%/3%/10% YoY to INR89b/INR19b/INR8b.

Excluding LSI business

* Pharma revenue was flat YoY at INR15.8b for the quarter.

* The EBITDA margin declined 490bp YoY to 24.1%. EBITDA declined 19% YoY to INR3.8b for the quarter.

* PAT declined 18% YoY to INR1.7b for the quarter.

* FY21 sales grew 2% YoY to INR61b, but EBITDA/PAT declined 11%/15% YoY to INR14b/INR5.7b in FY21

Highlights from management commentary

* In addition to INR5.4b in revenue from five CMO deals related to COVID for FY21, JP projects INR2b business in FY22 as well.

* It would launch one product in the Radiopharmaceutical category in FY22. With a favorable litigation outcome, Jubilant would enhance marketing and business development efforts for Rubyfill.

* Post the launch of Rubyfill in the EU in 3QFY21, Jubilant is now expanding its distribution network to enhance sales prospects. It would also ramp up installs in the US market from 2QFY22, subject to the COVID-19 situation.

* JP has already completed remediation measures at the Nanjangud API facility and awaits the USFDA inspection.

Valuation and view

* We have reduced our EPS estimate by 5%/4% for FY22/FY23, factoring in a) the ongoing COVID situation impacting the near-term off-take of Radiopharma and b) delay in the USFDA resolution and pricing pressure in the Generics segment.

* Excluding the LSI business, we expect a 14% EBITDA CAGR over FY21–23, led by a 7%/14% sales CAGR in the Generics/Specialty segment and better operating leverage. Adjusted for COVID-related CDMO contracts, we expect an 11% sales CAGR in CDMO over FY21–23.

* We value JP at 12M forward EV/EBITDA of 9x, factoring in a strong order book in CDMO and strong franchise in the Radiopharma segment, and arrive at TP of INR960. We remain positive on JP as it has a robust foundation in place to drive the CDMO business, a healthy product pipeline in the Radiopharma/Generics segment, and attractive valuations. Maintain Buy.

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