The outlook for the Pharmaceuticals and Life Science Ingredient (LSI) segments remains positive. Within Pharmaceuticals, we believe specialty pharma remains on a strong footing, led by superior execution in the radio-pharma, allergy and CMO businesses. LSI segment is expected to deliver a robust performance, driven by better demand and a favourable price environment. We roll forward our price target to Rs 957 (on an SOTP basis) from Rs 861. We re-iterate our Buy rating on the stock.
Radio-pharma, allergy and CMO businesses driving growth in Pharmaceuticals: We expect specialty pharma to grow at a 16% CAGR (adjusting for Triad business) over FY17-20.
Reduced supply from Chinese competitors to aid growth in LSI: In the LSI segment, the business scenario has improved for specialty intermediates and nutritional products due to lower supply from Chinese competitors.Outlook: We expect JLS to deliver a CAGR of 17% in revenue to Rs 93 bn, 14% in Ebitda to Rs 19.8 bn and 20% in PAT to Rs 10 bn over FY17-20e. We are positive on JLS due to (i) superior growth in specialty pharmaceuticals and LSI, (ii) improved profitability due to better operating margin/lower interest outgo and (iii) attractive valuation.