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

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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 complete revenue from the operations stood at Rs 1,892.92 crore for the quarter under review, as against Rs 2,181.86 crore for a similar period a year ago.


“Overall, barring unexpected circumstances, we expect strong performance in our Pharma, Life Science Ingredients (LSI) and Drug Discovery and Development Solutions (DDDS) commerce in the remaining three quarters of FY21,” the management said in a observation.


Individually, pharmaceuticals revenue used to be 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 used to be 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 and products commerce as against Rs 48 crore for the first quarter of the preceding fiscal, the company said.


Motilal Oswal Financial Services and products believes that Jubilant Life Sciences (JLS)’s 1QFY21 performance used to be adversely impacted because of Covid-19-led slowdown in demand for its Radiopharma and Life Science Chemicals (LSC) segment. But even so, the transitory 2M shutdown of its Nanjangud plant (used for the CDMO commerce) worsened the situation.


“We minimize our earnings estimate by 14 per cent/2 per cent for FY21/FY22 to factor the Covid-19-led have an effect on on the commerce. 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 commerce and 4x EV/EBITDA for the LSI commerce. While the uptick in earnings growth is gradual (partly dented by Covid-19 in FY21), we remain positive on JLS on an appealing valuation of 7x FY22 EV/EBITDA,” the brokerage said in a post-result update. It has ‘buy’ call on the inventory with a target price of Rs 975.


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


“While 1Q used to be an exceptional quarter with the specialty pharma commerce now having retrieved to pre-Covid levels, Jubilant continues to commerce at a remarkable reduction 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 outline.


The pace of debt discount, 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) must result in the valuation hole getting bridged going forward, they said. The brokerage, too, has ‘buy’ call on the inventory with a target price of Rs 920.


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

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