Share Trading Tips

JUBILANT ORGANOSYS
Reco price: Rs 339
Current market price: Rs 338.15
Target price: NA
Brokerage: Edelweiss Securities

Healthy order book and new contracts in Jubilant Organosys’ Pharma and Life Sciences Products and Services (PLSPS) business is expected to deliver 15 per cent overall revenue growth in 2009-10, after a healthy organic growth of 31 per cent in PLSPS in 2008-09. In FY10, Jubilant revised upwards its EBITDA guidance to 45 per cent year-on-year growth from 30 per cent earlier, based primarily on recent wins in the contract manufacturing operations that offer better margins.

Debt repayment that includes FCCBs, amounting to Rs 1,800 crore over FY10-12 is challenging. Projected cash flows are likely to cover almost 70-80 per cent of these repayments, with de-leveraging and likely asset sale of non-core assets bridging the gap. Post above repayments, Jubilant’s debt-equity will reduce substantially to around 1.1 from current 2.2 levels, accordingly.

From a peak of 17-18 times one-year forward earnings in 2007, Jubilant suffered a sharp valuation de-rating in late 2008, with market concerns on the company’s ability to finance its FCCBs. Current earnings trajectory, strength of PLSPS and cash flows suggest that concerns may be overplayed. The stock is currently trading at 11 times and 8 times its estimated 2010-11 and 2011-12 consensus earnings, respectively a sharp discount to its historical valuations.