Jupiter Bioscience Ltd - Rs 60.00

Established in 1985, Jupiter Bioscience Ltd (JBL) is a reputed pharmaceutical company specializing in niche areas of peptides, advanced organic chemistry, chiral chemistry, and biotechnology. Led by Mr. Venkat R Kalavakolanu, today JBL ranks among global top 10 players in the peptide chemistry and the only one in India with a distinction of integrated model of peptide pharmaceuticals. Along with its subsidiaries, company is an end to end peptide solution provider covering the entire spectrum from key peptide raw materials to finished formulation. It has strong expertise in the manufacturing 700 different varieties of amino acids and its derivatives which constitute the peptide building blocks. It produces Fmoc-, Boc-, Z-protected aminoacids at large scale. Apart from offering a wide range of coupling reagents used for the synthesis of peptides, JBL also provides Generic peptide API’s for the unregulated market. It has the cost advantage in the large scale manufacturing of generic peptide APIs, as the peptide building blocks are produced in-house. Notably, it has capabilities in both - solution and solid phase strategies for peptide synthesis. Synthesis of cyclic peptides of variable sizes is the specialty of the company which makes it different from other players in the peptide market. Secondly, it is also one of the few international players manufacturing unnatural amino acids.

Under the non peptide segment, it manufactures a several organic APIs covering a wide range of therapeutic segments including antihypertensives, antidepressants, antispasmodics, antiallergics and antiulcer drugs. It also produces dozens of drug intermediates & fine chemicals which are eventually supplied to reputed pharmaceutical company on regular basis. It even supplies two veterinary (animal) drugs in the antihelmintics segment. Besides, company is active in lucrative and rapidly growing CRAMS segment, as API manufacturing companies in the developed countries are looking for contract R&D and manufacturing partners to take the cost advantage. Moreover, JBL has the capabilities to undertake customized synthesis of amino acid derivatives, bulk peptides and new chemical entities for its clientele. Broadly, company has segmented its product profile in three groups namely ‘Peptides’, ‘Drug Intermediaries’ and ‘Special & fine chemicals’ with around 55% revenue coming from the first, 25% from second and the rest 20% comes from the third segment. In near future, JBL intends to take the peptide share to above 65% and then gradually to more than 80%. It aims to become a leading integrated global peptides company.

Presently JBL is having four domestic manufacturing facilities – one in Karnataka (Bidar) and three in Andhra Pradesh (Cheriyal, Medak & Cherlapally) with a combined installed capacity of 472 TPA as on March 2008. However the capacity utilization stands at nearly 50% which means it can easily double its topline without any capital expenditure. Apart from above, company has last year acquired a high end GMP approved manufacturing facility of Merck, located in Switzerland which has given it a competitive edge. Besides, JBL has set up another two wholly owned subsidiaries to cater the higher segment of peptide value chain. For specially catering to the regulated market like USA, Europe, Japan etc, its US subsidiary is in the process of implementing a cGMP manufacturing facility in Maryland, USA for the manufacture of custom and clinical peptides and peptide based generic active pharmaceutical ingredients (APIs). The plant is expected to commence commercial operation shortly in the current fiscal. On the other hand its Indian subsidiary namely Sven Genetech is mainly into the business of development of process capabilities for several products that are pre-cursors to new generation drugs in the fields of AIDS treatment, Cardiology, Oncology, Immunology, Endocrinology, vaccines and others. In short it is enaged in R&D of peptide raw materials, peptide bulk actives and formulations, unnatural amino acids, custom peptide synthesis, nutraceuticals and enzymes. Importantly, till March’08 JBL has already invested whopping Rs 125 cr in these subsidiaries, which are expected to boost the topline as well as bottomline in future years. Infact, JBL has now started reaping the fruit of all the investments in R&D and global marketing made in the past. It is now being recognized in several parts of the world as the highly focused and competent player in the peptides arena.

Being a technology & R&D driven company, JBL has to regularly invest considerable amount in research and technology development. Roughly between 5~8% of sales are spent on R&D activities every year which are capitalized and generally written off in five years. In the last couple of years, JBL has made significant investments to upgrade and modernize the manufacturing facilities & quality assurance system to meet the expectations of international customers. The result of which is Gross block has almost doubled to Rs 260 cr by FY08. This was funded by raising Rs 100 cr thru QIB placement @ Rs 153 per share in 2007. Because of all these initiatives, last year company won a long term contract from Merck, Germany to supply peptide raw materials and intermediates. Besides, many leading pharmaceutical companies in Europe and USA became its regular clients in the last two years. Moreover, company had entered into a 10 year product purchase agreement with Ranbaxy to leverage the latter's vast global market reach and put its upcoming peptide products on a fast-track. Accordingly, Ranbaxy was supposed to take 15% stake @ Rs 147 per share and was already allotted the convertible warrants. But unfortunately, due to management change at Ranbaxy the deal didn’t take off. At the same time company issued 40 lakh warrants @ Rs 182 to few strategic investors which may lapse in July 2009. Importantly, JBL has been investing and creating facilities for its subsidiaries, although they have still not started to contribute significantly. So once the subsidiaries start working at optimum level, they will give a huge fillip to company’s financials.

Even on a standalone basis its fundamentals are quite strong with operating margin in the range of 45-50% and NPM of whopping 20~25%. For FY09 it recorded 10% growth in topline to Rs 143 cr but PAT was marginally up to Rs 32 due to 100% rise in interest cost. This works out to an EPS of Rs 20 on current equity of Rs 16.13 cr. Remarkably, company was able to improve its OPM by 200 basis points to 49% for FY09. Considering the company’s future plans and various initiatives it is expected to end FY10 with total revenue of Rs 175 cr and PAT of Rs 38 cr leading to an EPS of Rs 24 on current equity. Looking the current market sentiment, no equity dilution is expected in near future. Considering its R&D capabilities, company deserve much better discounting and hence investors are strongly advised to buy at current levels as scrip can very easily double to Rs 120 within a year. If we include subsidiaries valuation as well, then JBL is trading grossly cheap at current market cap of Rs 100 cr and can turn out to be multi bagger if held for 3~5 years.

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