Stock Review: JUBILANT LIFESCIENCES

One of the largest pharma companies engaged in contract research and manufacturing services, . 3,725-crore Jubilant Lifesciences didn't perform well in FY11.

Investors have preferred its smaller peer Divi's Labs on the bourses. Divi's Labs has been the top gainer in the BSE Healthcare Index, gaining 21% in the past six months while Jubilant Lifesciences has emerged as the top loser, down by 42% during the same period. The company's products business, contributing 78% to the total revenues, grew by a muted 9% YoY. Its service business, contributing the remaining, witnessed degrowth of 19%. Jubilant's net profit for FY11 fell by 45% over the previous year. Significant underperformance of its services business and pricing pressure in case of its products business led to the drop in revenues.

Through the fiscal 2011, the company faced reduction in the estimated business from key clients. The research services related to drug discovery in the US faced pressure on account of market slowdown and pharma consolidation through the year. The results for the fourth quarter ended March 2011 while being disappointing when compared year-on- year the results were encouraging sequentially. Jubilant is commissioning of additional capacities for producing its profitable ingredients like pyridine, niacinamide and sartans. It is also working on spreading its geographical reach and auguring its order book in the services business. However, the company's management refrained from giving any guidance on net sales growth and operating margin for FY12. This signals investors to bear certain amount of caution. Delay in executing projects on the part of the company may further act as a deterrent for growth.

Its stock is now trading at a consolidated price to earnings multiple of 11.4 in line with the P/E multiple of 11.6 of the BSE Healthcare Index. At . 165, the stock is trading close to its 52-week low of . 147. Investors can look at accumulating it, but with a clear eye on whether there is improvement in performance in the June quarter.