Jubilant Life in recovery mode; share price at 52-week high JUBILANT LIFE SCIENCES

Jubilant Life Sciences, a Bhartia family-promoted pharmaceutical company, is on a revival path. Having settled most of the issues raised by drug regulators, the company is now eyeing a growth in revenue and profitability on account of improved margins, launches and expansion of markets.

“The business is showing signs of recovery. We expect a strong recovery in FY16 in the top line and bottom line. Our revenue growth is expected to be driven by the pharmaceuticals segment. Our life science ingredients segment is expected to deliver better results due to improved operational efficiency, higher profitability and growth in nutritional products and fine ingredients businesses,” said Chairman Shyam S Bhartia in an investor call in May. The company clocked sales of ~5,826 crore in the last financial year, with ~40 crore loss, almost half the revenues coming from the pharma and the rest from the life sciences business.

The stock price was trading at ~170 when Bhartia addressed the investors. Since then, it has appreciated 64 per cent, touching a fresh 52week high almost every day for the past few days. It touched a 52-week high of ~278 on Tuesday and closed the day at ~266.60. “We have a 'buy' rating on the stock. There has been an improvement in the business. The company has successfully addressed issues of the US FDA (Food and Drugs Authority) warning letters in its two overseas manufacturing facilities. It has taken a price increase in some segments,” said Saion Mukherjee, health care analyst at Nomura Securities. Other brokerages like Prabhudas Lilladher also have a ‘buy’ rating on Jubilant.

The company received warning letters from the US FDA for its two plants in Quebec (Canada) and Spokane (US) in February 2013 and November 2013, respectively. This has led to comprehensive remediation measures, especially in Spokane, which was shut for

BSE Price in ~ three-four months. The plants also took longer than expected time to stabilise after-remediation and impacted productivity in the contract manufacturing business. The business is normalising and the company has also set up a second production line at Spokane that will lead to higher revenue.

Apart from beefing up its operations, the company has successfully refinanced debt. It had net debt of ~4,396 crore as of March 31, of which ~3,165 crore is a long-term debt and the rest working capital loans. Loans that were falling due in FY15 and FY16 have been refinanced, with a new maturity period of five to seven years.

Prabhudas Lilladher’s Surajit Pal said in a report last month that the achievement of milestones in key business verticals will narrow the high discount at which the company is being valued vis-a-vis peers. It upgraded its recommendation from ‘accumulate’ in a May report to ‘ buy’ in July. “With the completion of majority of correction measures and addressing concerns, the company is expected to improve revenues in business verticals, which have been the key reasons for its worst sales growth and operating margin in FY15,” said Pal in the report.

The company’s Roorkee facility was successfully inspected by US FDA recently. Exports to Japan have also resumed in Q4 of last year post-receipt of approval from regulatory authority. It launches new products like Solifenacin in Europe and Valsartan in US, besides many others in emerging markets.