Jubilant Lifesciences had multiple headwinds in FY15: a) The CMO business was adversely impacted by remediation measures and plant...
Jubilant Lifesciences had multiple headwinds in FY15: a) The CMO business was adversely impacted by remediation measures and plant shutdowns; b) Pyridine prices have corrected and are currently at $3.5/kg, which are at the bottom of the range of $3.5-5/kg that prevailed over the past five years; and c) capacity utilisation for Symtet has been slow to pick up.
These factors have impacted FY15F Ebitda by R200-250 crore, R150 crore and R35-40 crore (Ebitda loss of Symtet business), respectively.
Hence, the overall impact was R400-450 crore, which is 50-60% of FY15F Ebitda.
Factoring in the headwinds mentioned above, we cut our FY15F and FY16F Ebitda by 15-18%. We also introduce our FY17F financials.
We expect the CMO business to revive in the near term and Symtet capacity utilisation to gradually pick up. In our assessment, every 1% increase in Symtet capacity utilisation adds R2-3 crore to Ebitda. We factor in Symtet capacity utilisation to rise to 30% and 50% in FY16F and FY17F, respectively.
The stock currently trades at 10x FY16F adj EPS of R15.9 and 6.3x FY17F EPS of R24.9. Given our expectations of improvement in Ebitda margins and free cash flows, we find the valuations attractive. The FCF yield on FY17F is at 8.5%. We assign a fair value range of 7-11x FY17F.
Given the rise in sector valuation multiples and a lower earnings base, we raise our valuation multiple from 7x to 9x on one-year forward earnings. We cut our TP to R224 (from R238 earlier).