Stock To Buy: Small Cap Pharma Stock Grew More Than 7% In A Week, Brokerage Sees 19% Potential Upside

The brokerage firm ICICI Securities has a buy call on Jubilant Pharmova Limited with a target price of Rs 417 per share to get a return of 19% on the investments.

Jubilant Pharmova's (Jubilant) Q2FY23 performance was a mixed bag with revenue declining 3.5% YoY to Rs16bn due to generics business and tapering of covid-related revenues but ahead of our estimated sales of Rs15bn.

Jubilant Pharmova is an integrated global pharmaceuticals company having three business segments i.e. pharmaceuticals, contract research and development services and proprietary novel drugs. It has a market cap of Rs 5,537.41 crore.

Stock outlook & Returns On Investments

On the NSE, Jubilant Pharmova's Current Market Price (CMP) is Rs 347.65 per share, trading 3.2% up from its previous close. The stock's 52-week high is at Rs 626 recorded on November 09, 2021, while its 52-week low was at Rs 281 recorded on June 01, 2022.

The stock has given 7.37% in the past 1 week, whereas, in the past 1 month it surged by 6.23%, respectively. Over the past 1 year, it gave 42.24% negative returns on investments. In 3 years, it gave 36.13% negative returns and in 5 years, the stock gave 45.7% negative returns. Returns on investments over the past 5 years indicate that the stock has performed well in the past 1 year, whereas, on long-term investments, the stock didn't perform well.

Business review

Specialty segment revenue grew 25% YoY driven by higher volumes in the radiopharma business with normalising environment. CDMO sterile injectables declined 29.6% YoY with covid-related revenues tapering off but grew 13.7% sequentially led by higher volumes. CDMO API business was up 13.3% (4.9% QoQ) to Rs1.7bn. Generics segment witnessed a sharp decline of 51.7% YoY (-9.6% QoQ) due to continued pricing pressures in the US, import alert at Roorkee plant and lack of Remdesivir sales vis-a-vis Q2FY22. EBITDA margin fell 680bps (+40bps QoQ) to 13.7% due to US pricing pressures, tapering off of covid-driven opportunity in the CMO segment, change of mix and negative operational leverage. We expect EBITDA margin to remain under pressure in the near term but improve over FY23E-FY25E with operating leverage and cost control initiatives.

 

Key concall highlights

1) Roorkee plant - CAPA has been submitted and expect USFDA response by mid-November.

2) generics - company is looking at structural reorganisation and cost optimisation, which includes the rationalisation of the R&D portfolio.

3) API - plant upgradation and capacity unlocking took longer than expected. Jubilant expects a jump in volumes and margins from Q3FY23.

4) management guides for radio pharmacy breakeven in FY24.

5) capex stood at Rs2.3bn in H1FY23.

 

Outlook & Valuations:

"We introduce FY25 estimates and expect revenue/EBITDA/PAT CAGR at 4.7/4.5/11.3% over FY22-FY25E. While demand in radiopharma is recovering, pricing pressures and import alert continue to impact the generics sales. Low revenue growth is due to the absence of covid-related CMO business," the brokerage has said.

Commenting on the valuation and risks, the brokerage has said, "We cut our FY23 EPS estimates by ~10-11% due to continuous pricing pressures in the US business and decline in margins of the CDMO API business. While near term margins will likely be under pressure, continuous correction in stock price (~42% in past 6 months) makes valuations attractive. Hence, we upgrade to BUY from Add with a revised target price of Rs417/share based on 13xSep'24E EPS (earlier: Rs410/share based on 13xFY24E EPS)."

According to ICICI Securities, the Key downside risks to the buy call are Slower-than-expected recovery in generics, and regulatory hurdles."

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.