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Stock name: Jubilant Life
Jubilant Life Sciences is an integrated global pharmaceutical & life Sciences company with a strong presence across India, North America, Europe, China and Japan. We initiate coverage on JUBL as a BUY with a price objective of Rs 647.
After facing multiple headwinds which impacted business growth and profitability, Jubilant LifeSciences Ltd. (JUBL) is all set to come out of this tumultuous period and stage a robust recovery, the glimpses of which are already evident.
We expect Jubilant’s revenues to grow at a 3-year CAGR of 9.5% over FY15 to FY18 to `7,655 crores with earnings are expected to turn the corner and report a profit of `736 crores in FY18 from a loss of `58 crores in FY15. This resurgence is expected to be driven by recovery in the Contract Manufacturing Operations (CMO), continued robust growth of the Radiopharma segment, steady state performance of the solid dosage portfolio and uptick in the nutritional products business. Rebounding margins are expected to bolster profit growth.
We initiate coverage on JUBL as a BUY with a price objective of Rs 647. At CMP of Rs 418.65 the stock is trading at 10.5X and 8.9X its FY17 and FY18 earnings estimates. Our target price represents a potential upside of 58% over a period of 24 months.
Our optimism stems from the fact that:
Revenues of the company are expected to grow at a 3-year CAGR of 9.5% from `5,827 crores to `7,655 crores while margins of the company, which have already rebounded to it steady state of 22.2% are expected to remain firm on the back of following reasons:
US FDA clearance of the Spokane facility will lead to a bounce back in CMO revenues from Rs 448 crores in FY15 to `706 crores by FY18. Further, it will also arrest the expenditure that the company had been incurring for compliance purpose.
Radiopharma business is expected to sustain the growth traction over the coming years and is expected clock a growth of 25.9% over FY15-FY18.
API (9.6% 3-year CAGR) and Solid dosage (7.8% 3-year CAGR) verticals are expected to witness an uptick on the back of improving demand dynamics and commercialization of newer filings.
The Drug discovery and anti - Allergic products businesses are also expected to regain the growth trajectory from exposure to newer geographies and other initiatives to generate new clientele.
Upward movement in the prices of Niacinamide is expected to drive the growth of Nutritional products and lead to an improvement in the margins of this segment.
JUBL is inching closer towards getting the approval for Ruby-fill. If the approval comes as expected i.e. towards the end of FY17, we could see a sharp jump in the revenue of radiopharma segment.
To keep a check on its leverage position, Jubilant has tapered its capex plans and in coming years will focus more on debottlenecking its capacities. Moreover it has also refinanced large portion of its debt into INR denomination to insulate itself from forex fluctuations.
JUBL is also contemplating a QIP issue and/or listing of its pharmaceutical business in the US to garner funds which can bring down the total debt of the company by other `1,000 crores in FY18.
We initiate coverage on Jubilant Lifesciences Ltd. as a BUY with a price objective of Rs 647 representing a potential upside of 56% from the of 418.65 over a period of 24 months. We have used P/E multiple approach to value Jubilant LifeSciences Ltd and assigned a multiple of 14X on FY18 EPS of `46.2 to arrive at the target price.