JM Financial

Jubilant Life (Buy)

Target: ₹1,030

CMP: ₹866.30

As per media reports, Jubilant HollisterStier (Jubilant Life Sciences’ arm) has commenced the contract manufacturing of Covid vaccines at its Spokane and Montreal facilities. Jubilant is currently manufacturing vaccines for 3 companies and has a capacity of around 5,00,000 vials (doses of 2 mL vial) per day.

Jubilant had earlier stated that it has entered into five clinical and commercial supply agreements for Covid vaccine candidates with the annualised revenue potential of these agreements (subject to approvals) expected to be ₹500 crore and margins likely to be higher than the company average.

We note that the contribution from the Covid vaccine manufacturing opportunity is not currently a part of consensus estimates and Jubilant’s CMO performance could meaningfully surprise on the upside.

While the radiopharma (excluding DTPA given its use in lung ventilation/perfusion scans) and allergy therapy businesses have recovered to pre-Covid levels, the management has guided for a double-digit revenue growth in the LSI business in FY21. Jubilant continues to trade at a significant discount to its pharma peers even as its pharma margin profile is better than the industry average.

The company’s continued focus on debt reduction and the unlocking of value post-business reorganisation (NCLT approval expected any time soon) should result in the valuation gap getting bridged going forward.

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