Jubilant Life: New Covid drug, value unlocking potential to lead to upside

Life sciences, pharma segments offer investors value-unlocking opportunities

Shares of Jubilant Life Sciences, which scaled to a 52-week high on Wednesday, are up over 200 per cent since March lows. 

Strong prospects in both pharmaceuticals and life sciences ingredients (LSI) segments — led by the specialty business, an agreement with Gilead Sciences for the domestic launch of remdesivir, recovering supplies of active ingredients, and others after easing of the lockdown, and a strong March quarter performance — have boosted sentiment. The company’s plan of demerging its pharmaceuticals and LSI segments could also lead to value unlocking for investors.

The launch of remdesivir — expected this month — remains the key near-term trigger, say analysts. The company’s backward integration for ingredients is a key positive, points out Ranvir Singh at Sunidhi Securities.

Meanwhile, the specialty business-driven growth in both verticals is keeping most analysts bullish on Jubilant. The specialty business (radio diagnostics and others) in the pharma segment has grown 22 per cent annually during FY18–20, led by better traction, as well as inorganic growth (acquisition in the US), point out analysts, while superior execution has led to a regular improvement in margins over the past three years.

 

 

Despite disruptions, the March quarter saw consolidated earnings before interest, tax, depreciation, and amortisation (Ebitda) growing 58 per cent year-on-year (YoY). While the pharma segment (62 per cent of revenue) saw margins improve 830 basis points YoY to 28.9 per cent, the LSI segment (32 per cent of revenue) saw margins at 14.4 per cent, up 340 bps despite some decline in revenues. Strong volume and price increases in the pharma segment — specialty and US generics — helped in the March quarter. 

The company also has a pipeline of 38 pending new drug approvals in the US.

In the LSI segment, nutritional products, such as vitamin B, saw 50 per cent growth in the March quarter and the company highlighted an improved pricing scenario for the June quarter. Specialty chemicals for crop protection and life sciences chemicals for other user industries, however, saw subdued demand in that quarter. But, after dropping in April, they are now witnessing improvement.

While the LSI segment is seeing some disruption, drug discovery and development solutions (the smaller verticals) is likely to see stronger growth, led by expanding capacities and opportunities.

Overall, target prices of brokerages, such as Anand Rathi, indicate upside of 23 per cent. Anand Rathi’s analysts say the pharma business is well positioned in the current environment. Though analysts at Nomura had cut their FY21 earnings by 10 per cent due to the lockdown, they see FY22 earnings growing 30 per cent over FY21.