Analysts positive on Jubilant Life despite 52% dip in Q1 profit; here's why

Barring unforeseen circumstances, the management expects strong performance in their Pharma, Life Science Ingredients, and Drug Discovery and Development Solutions business

Shares of Jubilant Life Sciences skid as much as 6.8 per cent to hit a low of Rs 773 on the BSE on Monday after the company's June quarter profit more-than-halved to Rs 88 crore.

The pharmaceutical firm's consolidated net profit came in at Rs 88.01 crore, down 52.42 per cent from Rs 184.98 crore reported in the year-ago period. Consolidated total revenue from the operations stood at Rs 1,892.92 crore for the quarter under review, as against Rs 2,181.86 crore for the same period a year ago.

"Overall, barring unforeseen circumstances, we expect strong performance in our Pharma, Life Science Ingredients (LSI) and Drug Discovery and Development Solutions (DDDS) business in the remaining three quarters of FY21," the management said in a statement.

Individually, pharmaceuticals revenue was at Rs 1,096 crore for the quarter ended June this year as against Rs 1,328 crore in the first quarter of the financial year 2020. While LSI revenue was at Rs 737 crore, as against Rs 805 crore in the year ago fiscal period, Drug Discovery & Development Solutions revenue increased to Rs 60 crore, led by growth in Drug Discovery Services business as against Rs 48 crore for the first quarter of the previous fiscal, the company said.

Motilal Oswal Financial Services believes that Jubilant Life Sciences (JLS)’s 1QFY21 performance was adversely impacted due to Covid-19-led slowdown in demand for its Radiopharma and Life Science Chemicals (LSC) segment. Besides, the temporary 2M shutdown of its Nanjangud plant (used for the CDMO business) worsened the situation.

"We reduce our earnings estimate by 14 per cent/2 per cent for FY21/FY22 to factor the Covid-19-led impact on the business. We remain positive on JLS on the back of strong demand recovery in Specialty Pharma, CDMO, and Specialty Intermediates, new product additions, and improved operating leverage... We value JLS at 9x EV/EBITDA for the Pharma business and 4x EV/EBITDA for the LSI business. While the uptick in earnings growth is gradual (partly dented by Covid-19 in FY21), we remain positive on JLS on an attractive valuation of 7x FY22 EV/EBITDA," the brokerage said in a post-result update. It has 'buy' call on the stock with a target price of Rs 975. 

The key positive for the quarter, according to analysts at JM Financials, was the management guiding for a double-digit revenue growth in the LSI business in FY21 with the business posting strong sequential improvement in margins for the third consecutive quarter.

"While 1Q was an exceptional quarter with the specialty pharma business now having recovered to pre-Covid levels, Jubilant continues to trade at a significant discount to its pharma peers even as its pharma margin profile is better than the industry average and the contribution of pharma to overall EBITDA is now greater than 70 per cent," they said in a recent report.

The pace of debt reduction, continued improvement in the balance sheet position, the expected recovery in earnings from 2Q and the unlocking of value post-business reorganization (expected by Dec’20-Jan’21) should result in the valuation gap getting bridged going forward, they said. The brokerage, too, has 'buy' call on the stock with a target price of Rs 920.

At 10:12 am, the stock was quoting at Rs 792 per share, down aorund 4.5 per cent on the BSE. In comparison, the S&P BSE Sensex was down 0.1 per cent.