Hold Jubilant Pharmova Ltd For Target Rs.625 - ICICI Direct
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Numbers miss; CDMO below par, Generics drag…
About the stock: Jubilant Pharmova is engaged in specialty pharmaceuticals, CDMO, generics, drug discovery and proprietary novel drug businesses.
* In specialty pharmaceuticals, it is the third largest radiopharmaceutical manufacturer with second largest commercial radio pharmacy network in US. It is the second biggest player in the allergenic extract market in the US
* In CDMO (CMO and APIs) Jubilant is an integrated contract manufacturer of sterile injectables, ophthalmics, otics and ointments (sterile and non-sterile), creams and liquids
* Formulations - 24% of FY21 revenues, Radiopharma and allergy therapy – 38% and CDMO & API – 33% of sales
Q2FY22 Results: Below I-direct estimates, especially on the CDMO front.
* Sales were up 4.2% YoY to | 1657.5 crore
* EBITDA was at | 339.5 crore, down 2.9% YoY with margins at 20.5%
* Consequent PAT was at | 142.8 crore (down 2.7% YoY)
What should investors do? Jubilant’s share price has grown by ~1.9x over the past five years (from ~| 314 in June 2016 to ~| 591 levels in October 2021) even after considering demerger of life science ingredients business into Jubilant Ingrevia.
* We change our rating from BUY to HOLD on the stock due to less than expected traction in CDMO and specialty pharma besides volatility
Target Price and Valuation: We value Jubilant at | 625 i.e. 10x P/E on FY23E EPS
Key triggers for future price performance:
* Expand capacity of sterile fill & finish at Spokane by 50% by CY24 and new ophthalmic line at Montreal in FY23
* CDMO execution visibility beyond order book of | 3,600 crore (including vaccine opportunities) to be serviced over the next three years
* Embarking on executing turnaround plan in radio pharmacies with a target to achieve mid to high single digit EBITDA
* Resolving regulatory concerns over Roorkee and Nanjungud facility
Alternate Stock Idea: Apart from Jubilant, in CRAMs space we like Divi’s.
* Divi’s stays a quintessential play on Indian API/CRAMs segment with its product offering, execution prowess
* BUY with a target price of | 5815
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