Buy Jubilant Life Sciences, target Rs 965: Motilal Oswal Securities

Motilal Oswal Securities has a buy call on Jubilant Life Sciences with a target price of Rs 965.

The current market price of Jubilant Life Sciences is Rs 816.85.

Time period given by the brokerage is one year when Jubilant Life Sciences price can reach the defined target.

Investment rationale by the brokerage
Pharmaceutical – key pillars of growth in place: JLS performed much better than peers in Pharma segment, with EBITDA margin improvement of nearly 700bp in 1HFY19 v/s FY18. We expect this momentum to continue, led by (1) increase in the number of Ruby-fill installations, improved penetration through Triads distribution network spread across 1,700 customers and better demand for existing products, (2) recently enhanced capacity in Contract Manufacturing Organization (CMO) and Solid Dosage Formulation (SDF) businesses, (3) expanding market share led by superior execution in Allergy business, and (4) reduced competition in Active Pharmaceutical Ingredient (API) business, benefitting from cost efficiency and manufacturing issues for peers.

LSI – in a revival mode: After coming in at an impressive Rs 4b (the best half yearly performance) in 2HFY18, LSI segment EBITDA was subdued at Rs 2.2b in 1HFY19, largely due to demand constraints, and thus, inferior pricing in nutritional products (17 per cent of LSI sales). However, we expect the ongoing demand improvement to provide much-needed support in 2HFY19. The segment also has more catalysts in the form of own capacity expansion and ongoing slowdown in manufacturing in China (due to government crackdown on polluting companies).

Valuation and view: We continue valuing JLS on an SOTP basis (10x EV/EBITDA for Pharma and 6x EV/EBITDA for LSI) to arrive at a revised price target of Rs 965 (SOTP-based 12M forward rolling). We expect PAT CAGR of 23 per cent to Rs 10.7b over FY18-20 on the back of improved performance across business segments. Re-iterate Buy.

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