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Demand prospects favorable; execution remains the key

* Jubilant Pharmova (JP) hosted an investor/analyst meet to discuss the business and strategic initiatives in key business segments.

* With the COVID disruption behind in key markets, JP expects radiopharma sales to recover in 2HFY22, supplemented by incremental sales from Ruby-Fill in Europe.

* JP is proactively undertaking expansions at Montreal and Spokane to be able to cater to future demand in the Contract Development and Manufacturing Operations (CDMO) space. Its NCE assets are expected to enter clinics within the next 6–9 months, with subsequent planned monetization, based on clinical outcomes.

* We remain positive on JP on the back of (a) a strong order book for the CDMO segment, (b) new customer additions in the API segment, (c) better growth prospects for Ruby-Fill, and (d) a long-term pipeline for radiopharmaceutical products. We expect a 9% earnings CAGR over FY21–23. FY21 had 10 Months of business from demerged LSI business segment. We value JP at a 12M forward EV/EBITDA multiple of 9x to arrive at our Target Price of INR960 per share. We maintain Buy on JP.

Radiopharma segment to bounce back over medium term

* With the COVID impact behind in the biggest market, i.e., the US, JP is embarking on new initiatives to grow the Radiopharma business.

* Ruby-Fill’s launch in Europe and strategic partnerships would drive growth in the Radiopharma business going forward. It is implementing a turnaround plan for its Radiopharmacy business as well and expects the business to achieve high-single-digit EBITDA margins over the medium term.

* I-131 MIBG therapeutic use approval post FY24 could provide an additional upside.

Aggressive capacity expansion plan for CDMO segment

* Jubilant has a strong order book in CDMO, especially for sterile products. Accordingly, JP is doubling its sterile injectable facility at Spokane (to be commercialized in CY24) via an investment of USD92m.

* Also, it is adding a high-speed isolator line at Spokane and enhancing the sterile fill-finish capacity at Montreal.

* In APIs, it is undertaking internal developments of intermediates wherein there is high dependency on China to de-risk its portfolio.

Enhancing portfolio / Expanding markets to better Generics biz prospects

* The company plans to grow the Generics business with new launches in the US and other markets, the shift to complex products, and backward integration with its own APIs. In addition to the US market, ex-US markets offer high potential.

Drug Discovery and Development Services on steady footing

* CRO / Drug Discovery Services is showing steady growth with established relationships with innovators, integrated service offerings, and niche capabilities.

* In the NCE business, JP has three assets in categories with a USD1b+ market size in each of their indications. These assets are entering a critical stage, with movement from the pre-clinical to clinical stage expected over the next 6–9 months. JP intends to take the assets through phase 1 or 2 clinical trials, depending on the potential income they can generate, and subsequently monetize these assets. JP may tap public or private equity markets for a fundraise at the subsidiary level over the next 18–24 months.

Valuation and view

* We continue to 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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