Jubilant Lifescience’s (JOL) sales/Ebitda in Q4 were 4%/24% ahead of consensus expectations, but in line with our expectations. Key points to note in the Q4 results are: a) the sales ramp for the Spokane facility (CMO business), b) strong growth in radiopharmaceutical business, c) Ebitda margin expansion in the pharmaceutical as well as life science ingredient businesses. Management has guided for capex of R3-3.5bn (ex product development) in FY16f, which is higher than our earlier estimate of R350 crore and would be a drag on FCF generation.
We remain bullish as we expect business to revive in FY16f on account of: a) the sales ramp in the CMO business, b) improved utilisation at the Symtet facility, which is currently loss making, c) commissioning of its zinc pyrithione plant, which will increase internal consumption of Pyridine and move JOL up the value chain, d) launch of new products and expansion to new geographies in the generic business. We expect Ebitda margin to improve 360 bps over FY15-17f.
We value the stock based on 9x (unchanged) FY17f adjusted EPS of R25 to arrive at our target price of R226. We assign a fair value range of 7-11x FY17f EPS. The stock is currently trading at 6.6x FY17f adjusted EPS of R25, which is attractive.
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