This Small Cap Pharma Stock Likely To Surge 18%, Brokerage Estimates Target Price of Rs 410

ICICI Securities report on Jubilant Pharmova Ltd published yesterday, recommends ADD with a target price of Rs 410 apiece. The company's specialty segment revenue grew 14.2% YoY driven by continued momentum in the allergy segment, which grew 14.0% YoY and pick up in radiopharma business with normalising environment which grew 14.3% YoY. Investors buying the stocks of the company at the current market price could witness a surge in price around 18% in 12 months, considering the brokerage's target price.

Stock outlook & Returns

Jubilant Pharmova's stock today opened at Rs 349.90 apiece, currently trading at Rs 348.30 apiece with a minor gain. Currently, it is trading Rs 66.5 above its 52-week low level of Rs 1,367.15 apiece and Rs 345.7 apiece below its 52-week high level of Rs 694 apiece.

The shares of the company in the past 1 week have fallen 1.96% and gained 1.47%, respectively. In the past 1 year, it has given a negative return of 47.36%. And In the past 3 and 5 years, the stock has given negative returns of 19.47% and 50.01%, respectively.

Its Return on Equity (ROE) is 7.78%. TTM PE ratio is 18.51. The P/B ratio is 1.05. TTM EPS is Rs 18.86. The dividend yield is 1.43% and the face value is Rs 1. The company's Debt to equity ratio is 0.55%. It is a small-cap pharma company with a market capitalization of Rs 5,566.08 crore.

Business review

Specialty segment revenue grew 14.2% YoY driven by continued momentum in the allergy segment, which grew 14.0% YoY and pick up in radiopharma business with normalising environment which grew 14.3% YoY. CDMO sterile injectables declined 29.5% YoY with covid-related deals tapering off. CDMO API business sharply improved by 54.3% YoY to Rs1.6bn due to higher volume on a low base but declined 8.0% QoQ. Generics segment declined 58.8% YoY and 19.5% QoQ due to pricing pressures in the US, especially sartan prices, import alert at Roorkee plant and lack of Remdesivir sales vs Rs1330mn/Rs40mn in Q1FY22/Q4FY22. "EBITDA margin fell 970bps/290bps YoY/QoQ to 13.3% 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 over FY23E-FY24E due to elevated costs," the brokerage has said.

Key concall highlights

1) EBITDA margin guidance: Q2 would be similar to Q1 and expects to improve margins in H2FY23. Generic business breakeven in FY23 is contingent on Roorkee plant clearance.

2) Roorkee import alert - USFDA has issued six observations post-re-inspection of plant; no data integrity or repeat observations received.

3) Guided Rs70-75bn of capex in FY23.

Outlook

Expect revenue/EBITDA/ PAT CAGR of 2.3/2.7/10.2%, respectively, over FY22-FY24E. While demand in radiopharma is witnessing a recovery, pricing pressures and import alert continue to impact the generics business. Low revenue growth is due to the absence of covid-related CMO business in FY23E.

 

Valuations and risks

According to the brokerage firm, "Jubilant Pharmova's Q1FY23 missed our estimates on the profitability front, while reported revenue was as expected. Revenues declined 11.2/5.0% YoY/QoQ to Rs14.5bn due to lower CDMO sales with covid-related deals tapering off. EBITDA margin declined 970bps/290bps YoY/QoQ to 13.3% (I-Sec: 15.5%) and adjusted PAT declined 70.7% YoY to Rs470mn. Pricing pressures in the US market, declining covid contract revenue and import alert impacted margins. We believe near to medium-term growth would remain under pressure due to pricing pressures in the US, regulatory issues, slow recovery in API business and inflated costs. While near-term margins will remain under pressure, reasonable valuation provides comfort."

Commenting on the valuation, the brokerage said, "We cut our FY23 EPS estimates by 21.5% due to elevated costs and low revenue growth impacting margins. While near-term margins will be under pressure, reasonable valuation provides comfort. Hence, we retain ADD with a revised target price of Rs 410/share based on 13x FY24E EPS (earlier: Rs 447/share based on 14xFY24E EPS)."

The key downside risks would be, according to the brokerage firm, Slower-than expected recovery in radiopharma and generics businesses, 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 taking any investment decision.