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Tuesday, August 25, 2009

Jubilant Organosys Ltd:Future growth prospects and outlook

Scripscan:Jubilant Organosys Ltd
cmp:221
Traded in:Nse-bse

Story:Jubilant Organosys Ltd. (JOL) is an integrated pharma playerwith presence in Industrial & Performance products,manufacturing organic chemicals, specialty and finechemicals, and APIs. The company has a presence across the pharmaceutical value chain for products and services such asproprietary products, exclusive synthesis, activepharmaceutical ingredients, contract manufacturing ofsterile injectables (liquids and lyophilized) products, non-steriles (ointments, creams and liquid) andradiopharmaceuticals, drug discovery services, medicinalchemistry services, clinical research services, generic dosage form and healthcare.JOL is the only Indian company present across the CRAMS spectrum from drug discovery to manufacture ofintermediates and finished dosages for innovators. We believe that Jubilant stands to benefit significantlyfrom the trend towards increased outsourcing because of its presence across the CRAMS spectrum vis-à-visits peers, as innovators prefer to deal with fewer players.JOL has a strong order book position of USD 259 mn, USD$149mn and USD 104mn in the PLSPS, Non-Sterile and Sterile segment respectively. Besides the above it has 7 projects (Proprietary Products &Exclusive Synthesis) in the Phase III which may get commercialized in next 1-2 years. The Company is filingaround 8-10 DMFs each year and is to file 13 DMFs in FY10 and intends to increase its DMF portfolio by 3xfrom FY09-12. We expect a strong traction in revenue in the DDDS segment as an outcome of its severalcollaborations existing and new contracts.The company has shown exceptional growth over the years to transform itself from a chemical company to apharmaceutical play. The company has recorded a CAGR of 32% over the last four years in sales led by thePLSPS business. We expect the company to continue to show good growth in the future recording a CAGR of13% over the next 3 years in sales.Jubilant has been delivering steady growth in its CRAMS operation and we expect similar trend goingahead. JOL is the only Indian company that encompasses the entire spectrum in CRAMs. We thereforeexpect it to benefit from higher outsourcing to India, given its integrated services basket. The company hashinted on divesting the low margin Polymer business, which would help the company in reducing the debtlevel from current Debt/Equity levels over 3x.We value the Pharma business at 14x FY10E EPS translating to a price of Rs. 260/share, as we expect the contribution of the pharmaceutical business to increase from 72% of the total revenue to 75% in FY10 andto 78% in FY11. On the other hand we value the Industrial Chemical business at 5x FY10E translating to aprice of Rs. 37/ share. Given that the return ratios for the company is expected to show rise in future, werecommend BUY on Declines rating to the stock with a SOTP target of Rs.297.

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