Stock Review: Jubilant Lifesciences

 

If demerging of Jubilant Lifesciences agri and polymers business had raised investors' hopes in the company, its December quarter performance dashed them. With lower-than expected performance of its service business, the company is yet again a 'wait and watch' for investors. On a like-to-like comparison, Jubilant Life sciences reported flat revenues and a drop in operating profit. The operating profit margin stood at 15.3% — significantly lower than 24% posted a year ago.

The company, which is engaged in contract-manufacturing and services business, earns 70% of its revenues from outside India. Thus, rupee appreciation during the quarter hit the company's realisations. The company's products business contributing 80% to the total revenues did well, registering a growth of 13%. However,the margins from this business were affected due to strengthening rupee and pricing pressures.

Its services business, constituting the remaining 20% of the revenues, proved to be the major spoilsport. Revenues from this business dropped by 32% YoY. With orders for the high margin H1N1 vaccine not repeating, the company had to de-stock the inventory of the swine flu vaccine due to a falling demand.

There have been deferrals and slowdown in order flows in this business segment. The drug discovery business also suffered delays in get-ting order approvals from the customer and postponement of milestone payments. Due to this, there was non-alignment between costs and revenues. Terming it as short-term volatility in the business, the management expects the situation to improve and is confident of registering growth in the quarters, going ahead. A healthy order book, capacity expansion and new product launches in the products business are likely to be the growth drivers. In case of the services business, some of the delayed orders and milestone payments are likely to be registered in the current quarter and the first quarter of the next fiscal. The company wants to improve profit margins in the coming quarters. Towards this, it's taking price increases on certain products and aligning costs with revenues.