Will Jubilant Life Live Up To Bullish Forecasts As Key Segment Slows?
A 20 percent decline in the share price of Jubilant Life Sciences Ltd. from its February high and a slowing life sciences business that drove sales in the previous quarter haven’t dampened analysts’ confidence in the company.
The drugmaker’s consensus 12-month target price of analysts tracked by Bloomberg stands at Rs 1,017 apiece—a potential upside of 25 percent. Twelve out of 13 analysts that cover the stock have a ‘Buy’ rating on the stock. It’s trading lower than the worst target price estimate of Rs 861 by Prabhudas Lilladher.
Macquarie, which has the third-highest target that implies a potential jump of about 34 percent, is betting that a ramp-up of the specialty business will drive growth for the company. As growth in life sciences ingredients business begins to wane, Macquarie expects the company to shift the focus back on pharmaceuticals, particularly radiopharma and contract manufacturing.
Multiple brokerages had raised Jubilant Life’s target price after robust life sciences sales in the quarter ended December. The segment grew 39 percent year-on-year, almost driven equally by a pick-up in prices and volumes, according to the company’s management.
Macquarie’s channel checks, however, found that the current prices of key life sciences products are down 20 percent from their last peak in the quarter ended December.
The impact of that will linger for the next two quarters, it said. That, however, will be offset by improved demand, new products and debottlenecking of capacity as well as strong traction in the pharma business, it said.
“As CMO (contract manufacturing) order backlog is cleared and Ruby Fill (an imaging technology) installations increase as existing contracts are reworked, we expect specialty pharma revenues to pick up,” Alankar Garude, pharma analyst at Macquarie, wrote in a note. “Led by the aftereffects of LSI (life sciences) and a pickup in specialty pharma, we expect a solid 4Q FY18 (ended March) for Jubilant Life.”
After its results for three months ended December, Surajit Pal, an analyst at Prabhudas Lilladher, had lowered Jubilant Life’s sales and operating income estimates for the fourth quarter due to lower growth and margin in pharma sales as well as high life sciences base in year-ago quarter.