Company Update

August 31, 2016

Jubilant Life Sciences (JUBLIF)

Rating matrix
Rating
Target
Target Period
Potential Upside

:
:
:
:

Buy
| 635
15-18 months
18%

Waning debt concerns +FCF generation = rerating

600

Change in methodology from EV/EBITDA to PE as profitability improves

After taking a re-look at an improved leverage situation (a legacy issue for
the company in the last five years) we have critically evaluated our earlier
methodology of applying EV/EBITDA gauge for valuation. We believe it is
the right time to change the same to PE gauge as the debt component in
EV has come down substantially as reflected in Exhibit 2, besides waning
debt stress and improved business mix (hence EBITDA margins). The
situation is likely to improve further in FY16-19E. Accordingly, we arrive at
our new target price of | 635 (from | 420 earlier) based on 10x FY19E EPS
of | 63.5. We still value Jubilant at a substantial discount to peer pharma
companies due to the blended business model (47% of revenues from
commoditised LSI segment) besides a volatile past. However, we do not
rule out a further re-rating in the stock.
Debt no more a fear factor
In its pursuit of building capacity and creating multiple revenue heads the
debt situation had got complicated over the years. As most debt had
been US$ denominated, the sharp rupee depreciation has worsened the
debt situation further. After hitting a trough in FY15, things have started to
change especially in FY16 wherein the company registered its best ever
EBITDA margins in the last 10 years. With an improvement in operational
performance, the free cash flow (FCF) situation has improved markedly.
While the net D/E ratio improved to 1.4x from 1.8x in FY15, the
debt/EBITDA has improved to 3.5x from 7.0x. As the capex cycle
moderates in the medium term, the company expects to utilise maximum
FCF for debt repayment. We expect the net D/E ratio to further go down
to 0.4x by FY19E from 1.4x in FY16 and debt/EBITDA ratio to 1.3x from
3.5x in FY16.
Improvement in sentiment resembles Aurobindo story of FY12-15
By FY12, the debt stress scenario in both Jubilant and Aurobindo was
almost identical with debt/ EV ratios at 60% and 50%, respectively.
Aurobindo registered robust growth in FY12-15 backed by an improved
operational performances and FCF generation. Note that the debt level
kept on increasing during this period. The stock galloped during this
period purely on operational performance (Exhibit 6 and 7). Although an
apple to apple comparison may not be possible (due to lower cost of debt
and robust US franchisee in Aurobindos case) we believe a similar
operational performance story is panning out in Jubilants case despite an
increase in the debt level.

400

Exhibit 1: Net debt to equity (x) and debt/EBITDA (x) trend

Whats Changed?
Target
EPS FY17E
EPS FY18E
EPS FY19E
Rating

Changed from | 420 to | 635

Unchanged
Unchanged
Introducing at | 63.5
Unchanged

Key Financials
(| crore)
Revenues
EBITDA
Net Profit
EPS (|)
Adjusted EPS (|)

FY16
5802.3
1277.8
431.5
27.1
26.0

FY17E
5970.6
1487.7
659.8
41.4
41.4

FY18E
6561.1
1689.7
840.3
52.7
52.7

FY19E
7211.5
1873.4
1011.2
63.5
63.5

FY16
19.8
23.4
10.0
2.9
14.2
12.0

FY17E
13.0
15.3
8.1
2.4
18.8
15.1

FY18E
10.2
12.0
6.7
2.0
19.6
17.0

FY19E
8.5
10.0
5.6
1.6
19.2
18.4

Valuation summary
PE (x)
Target P/E (Diluted)
Tar. EV/EBITDA (x)
Price to book (x)
RoNW (%)
RoCE (%)

Stock data
Amount
| 8556 crore
| 3814 crore
| 334 crore
| 12036 crore
553/261
| 15.9 crore
|1

Particular
Market Capitalisation
Debt (FY16)
Cash (FY16)
EV
52 week H/L
Equity capital
Face value

Price Chart
16000

1000

12000

800

8000
4000

200

0
Jul-16

Jan-16

Jul-15

Jan-15

Jul-14

Jan-14

Jul-13

Jan-13

Jul-12

Jan-12

Jul-11

CNX Pharma

| 537

Alembic Pharma

Research Analyst
Siddhant Khandekar
siddhant.khandekar@icicisecurities.com
Mitesh Shah
mitesh.sha@icicisecurities.com

8.0
7.0

7.1

7.0

6.0
5.0

4.4

4.0
3.0
2.0
1.0

3.7

3.5
2.6

1.3

1.5

1.4

1.8

1.5

1.4

1.0

0.0
FY11

FY12

FY13

FY14

FY15

Net Debt / Equity

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

4.4

FY16

FY17E

Debt / EBITDA

1.8
0.7
FY18E

1.3
0.4
FY19E

Exhibit 2: Improvement in debt/EV (%)

80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
-

Exhibit 3: Expects to generate ~| 2500 crore of FCF in next three years

1,500.0

71.3

68.2

61.8

56.7

70.2

787.7 754.8

1,000.0
500.0

41.8
31.7

27.4

38.1

17.4

22.9

(500.0)
(1,000.0)

FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E

(92.9)
(463.6)
(949.0)

(1,500.0)

Free Cash Flow (| cr)

Debt/EV

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com, Research

Exhibit 4: Improvement in return ratios (%)

Exhibit 5: Margins performance

25.0

30.0

20.0

10.0
5.0

15.6
12.5

10.2

15.1
11.5

14.2
12.0

12.3
9.7

6.1

18.8
15.1

19.6
17.0

19.2
18.4

25.0
15.0
5.0

FY11

FY12

FY13

FY14

-0.4
FY15 FY16 FY17E FY18E FY19E
RoCE

ROE

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

20.3

20.0
10.0

5.8

0.0
-5.0

60.0

FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E

15.0

925.0

20.0

16.1
7.9

8.4

22.0

FY11

FY12

FY13

26.0

FY14

11.0

12.8

14.0

7.1

5.6

0.0
-5.0

25.8

17.4
11.8

7.3

24.9

-0.2
FY15 FY16 FY17E FY18E FY19E

EBITDA margins (%)

PAT margins (%)

Source: Company, ICICIdirect.com, Research

Page 2

Exhibit 7: Aurobindo stock price in FY 10-15

1.8
1.0

1.3

1.7
0.9

0.0
FY10

FY11

FY12

FY13

Debt / Equity

FY14

FY15

Aurobindo Stock Price (|)

Debt / EBITDA

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com, Research

Exhibit 8: Jubilants leverage ratios in FY12-16

Exhibit 9: Jubilant stock price from FY12 till date

600
7.0

Debt / Equity

ICICI Securities Ltd | Retail Equity Research

Aug-16

Apr-16

Dec-15

Apr-15

Series1

Debt / EBITDA

Source: Company, ICICIdirect.com Research

Dec-14

FY16

Aug-14

FY15

100
0
Apr-14

FY14

1.6

Dec-13

FY13

2.0

300
200

Aug-13

FY12

1.7

1.5

3.5

Apr-13

1.6

4.4

3.7

Dec-12

4.4

500
400

Aug-12

8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0

Apr-15

1.3

Oct-14

1.0

Apr-14

1.2

Oct-13

2.5

Aug-15

1.0

2.6

Apr-13

2.0

3.9

Oct-12

3.0

Apr-12

4.0

Oct-11

5.0

700.0
600.0
500.0
400.0
300.0
200.0
100.0
0.0
Apr-11

5.1

Oct-10

6.0

Apr-10

Exhibit 6: Aurobindo Pharmas leverage ratios in FY10-15

Source: Company, ICICIdirect.com, Research

Page 3

Financial summary
Profit and loss statement

| Crore

(Year-end March)
FY16
Revenues
5,802.3
Growth (%)
-0.4
Raw Material Expenses
2,126.3
Employee Expenses
1,126.7
Selling & Admin expenses
904.8
Power cost
366.7
Total Operating Expenditure
4,524.5
EBITDA
1,277.8
Growth (%)
85.4
Depreciation
346.0
Interest
378.6
Other Income
13.6
PBT before EO
566.9
Less: Exceptional Items
-17.5
Total Tax
152.9
Minority Interest
0.0
PAT
431.5
Growth (%)
LP
EPS
27.1
Adjusted PAT
414.0
EPS (Adjusted)
26.0
Source: Company, ICICIdirect.com Research

FY17E
5,970.6
2.9
1,952.2
1,251.6
887.0
392.1
4,482.9
1,487.7
16.4
314.6
317.3
14.8
870.6
-0.1
210.8
0.0
659.8
52.9
41.4
659.7
41.4

FY18E
6,561.1
9.9
2,145.3
1,345.0
932.1
449.0
4,871.4
1,689.7
13.6
341.7
255.3
13.0
1,105.6
0.0
265.3
0.0
840.3
27.3
52.7
840.3
52.7

FY17E
15.9
3,497.6
3,513.5
3,814.0
358.6
0.0
163.2
7,849.2
5,559.4
2,368.2
3,191.2
145.1
3,336.3
2,434.0
36.1
1,256.1
835.5
408.4
334.1
63.5
2,897.6
715.6
209.4
339.4
1,264.4
1,633.3
0.0
409.5
7,849.2

FY18E
15.9
4,281.9
4,297.9
3,114.0
398.4
0.0
175.2
7,985.4
5,859.4
2,596.7
3,262.7
145.1
3,407.8
2,420.8
36.1
1,375.9
915.2
408.4
302.9
63.5
3,065.9
783.8
209.4
443.4
1,436.6
1,629.3
0.0
491.4
7,985.4

Balance sheet
(Year-end March)
Equity Capital
Reserve and Surplus
Total Shareholders funds
Total Debt
Deferred Tax Liability
Minority Interest
Other Non CL & LT Provisions
Total Liabilities
Gross Block - Fixed Assets
Accumulated Depreciation
Net Block
Capital WIP
Total Fixed Assets
Total Intangible Assets
Investments
Inventory
Debtors
Loans and Advances
Cash
Other current Assets
Total Current Assets
Creditors
Provisions
Other Current Liabilities
Total Current Liabilities
Net Current Assets
Deferred Tax Assets
LT L & A, Other Non CA
Application of Funds

FY19E
7,211.5
9.9
2,346.2
1,478.4
1,020.0
493.5
5,338.0
1,873.4
10.9
359.3
197.9
14.2
1,330.5
0.0
319.3
0.0
1,011.2
20.3
63.5
1,011.2
63.5

| Crore
FY16
15.9
2,893.6
2,909.6
4,514.0
326.9
0.0
152.1
7,902.6
5,259.4
2,157.8
3,101.7
145.1
3,246.7
2,438.2
36.1
1,216.1
929.7
362.6
344.5
48.5
2,901.3
599.6
209.4
235.4
1,044.5
1,856.9
0.0
324.6
7,902.6

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

FY19E
15.9
5,237.2
5,253.1
2,414.0
446.3
0.0
188.2
8,301.6
6,159.4
2,836.9
3,322.5
145.1
3,467.6
2,401.8
36.1
1,512.3
1,005.9
408.4
434.6
63.5
3,424.7
861.5
209.4
547.4
1,618.3
1,806.4
0.0
589.7
8,301.6

Cash flow statement

(Year-end March)
Profit/(Loss) after taxation
Add: Depreciation
(Inc)/dec in Current Assets
Inc/(dec) in CL and Provisions
CF from operating activities
(Purchase)/Sale of FA
Deferred Tax Liability
Minority Interest
Investments
Other Investing Activities
CF from investing activities
Inc/(Dec) in Equity Capital
Proceeds/(Repayment) of/from Lo
Dividend & Dividend tax
Others
CF from financing activities

| Crore
FY16
431.5
346.0
-223.3
2.5
556.7
-496.7
88.9
0.0
3.4
-96.8
-501.3
0.0
397.8
-57.5
(97.2)
243.1

FY17E
659.8
314.6
-6.7
219.9
1,187.7
-400.0
31.6
0.0
0.0
41.4
-327.0
0.0
-277.8
-55.9
54.2
-279.6

FY18E
840.3
341.7
-199.5
172.2
1,154.8
-400.0
39.8
0.0
0.0
-82.0
-442.2
0.0
-700.0
-55.9
-755.9

FY19E
1,011.2
359.3
-227.1
181.7
1,325.0
-400.0
47.9
0.0
0.0
-78.0
-430.1
0.0
-700.0
-55.9
-755.9

Net Cash flow

298.5
Opening Cash
394.3
Closing Cash
692.8
Free Cash Flow
60.0
Source: Company, ICICIdirect.com Research

581.2
344.5
925.7
787.7

-43.3
334.1
290.8
754.8

139.0
302.9
441.9
925.0

FY16

FY17E

FY18E

FY19E

27.1
26.0
182.6
3.6
21.6

41.4
41.4
220.6
3.5
21.0

52.7
52.7
269.8
3.5
19.0

63.5
63.5
329.8
3.5
27.3

63.4
22.0
7.1
76.5
58.5
37.7
0.7
43.6

67.3
24.9
11.0
76.8
51.1
43.7
0.8
79.8

67.3
25.8
12.8
76.5
50.9
43.6
0.8
68.3

67.5
26.0
14.0
76.5
50.9
43.6
0.9
70.7

14.2
12.0
12.3

18.8
15.1
15.6

19.6
17.0
17.5

19.2
18.4
19.2

19.8
10.0
2.2
1.5
2.9

13.0
8.1
2.0
1.4
2.4

10.2
6.7
1.7
1.3
2.0

8.5
5.6
1.5
1.2
1.6

1.6
3.5
2.4

1.1
2.6
2.0

0.7
1.8
1.9

0.5
1.3
1.8

Key ratios
(Year-end March)
Per share data (|)
Reported EPS
Adjusted EPS
BV per share
Dividend per share
Cash Per Share
Operating Ratios (%)
Gross Profit Margins
EBITDA Margins
PAT Margins
Inventory days
Debtor days
Creditor days
Asset Turnover
EBITDA conversion Rate
Return Ratios (%)
RoE
RoCE
RoIC
Valuation Ratios (x)
P/E
EV / EBITDA
EV / Net Sales
Market Cap / Sales
Price to Book Value
Solvency Ratios
Debt / Equity
Debt / EBITDA
Current Ratio

Source: Company, ICICIdirect.com Research

Page 4

RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;

Pankaj Pandey

Head Research

pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai 400 093
research@icicidirect.com

ICICI Securities Ltd | Retail Equity Research

Page 5

ANALYST CERTIFICATION
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accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s)
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Page 6