Q3 performance: Multiple growth triggers for Jubilant Life Sciences

Further gains for stock will depend on listing of subsidiary, debt reduction

The Jubilant Life Sciences stock, which gained 11 per cent in two trading sessions on a strong December quarter (Q3), has sustained the high levels since then. The robust outlook for the March quarter and the next fiscal year are other factors that are keeping the Street’s sentiment elevated. Analysts have upgraded the stock and revised their sales and profitability estimates for the next two years as well. However, the stock might not see significant gains in the near term, given the recent rally.

The company, operating in the life sciences ingredients and pharmaceutical segments, reported a 42 per cent year-on-year (y-o-y) gain in revenue during Q3 at Rs 20.67 billion. The performance was led by the life sciences business (45 per cent of sales), which grew about 46 per cent on higher volumes and improved pricing.

The pharma segment (53 per cent of revenues), too, posted a strong 41 per cent growth in sales at Rs 11 billion, led by the specialty business. Within specialty, the acquisition of the Triad Isotype radio pharma business in May last year aided the performance. This helped to neutralise the weakness in generic revenues, which were down 10 per cent y-o-y due to pricing pressure in the US. Adjusted for Triad, the top line still grew 20 per cent y-o-y.

Analysts at Nirmal Bang say the lacklustre growth in the pharmaceutical business is worrying, as the company is citing high demand and adding capacity across business segments (allergy immunotherapy, solid dosage, active pharma ingredient and contract manufacturing). The worries for the generic segment (24 per cent of pharma sales) are also likely to continue, given the ongoing pricing pressures in the US formulation market.

 

The management, however, expects good performance in the specialty business to continue on the back of growth in the radio pharma and allergy therapy business. A healthy order book, new customers and higher volumes in the contract manufacturing business are also expected to help. Analysts say the contract manufacturing order book, which is growing every quarter, now stands at $693 million compared to  $630 million in Q2. It will start reflecting in sales, but with a lag. These should hopefully help offset the pressures in the generics business.

Momentum in the life sciences segment is also seen sustaining, given growth in demand as well as strong pricing environment. This, coupled with product launches and commercialisation of new capacities, will boost the prospects of the business in the coming quarters.

Overall, the prospects of Jubilant remain strong. But, analysts at HDFC Securities said further re-rating for the stock would depend upon the ramp up in the radio pharma business, value unlocking from listing of the company’s subsidiary, Jubilant Pharma, in Singapore, and balance sheet de-leveraging. Given the 40 per cent uptick in the stock since November, long-term investors could await some correction for a good entry point.