The Hindu Business Line : Jubilant Organosys: Hold

INVESTORS may retain their holdings in the stock of Jubilant Organosys. The company's improving fundamentals, its export thrust and focus on pharmaceuticals and life-science chemicals business augurs well for its earnings growth.

Growth drivers in place: The company's operations are structured into three business segments — pharma and life-science chemicals, performance chemicals and industrial chemicals. The company's strategy to focus on pharma business (custom research and manufacturing services (CRAMS) and active pharma ingredients (API)) is likely to bolster its earnings growth. The company's CRAMS business undertakes contract research for the pharma and agrochemicals industry. This segment has sound prospects for growth, given the low cost advantage as well as the expertise in the area of chemistry of Indian companies.

The company has recently set up a fully-owned subsidiary in China to get tax subsidies and also to reduce raw materials costs for its pharma and life-science business. For its API business, Jubilant has also tied-up with several generic manufacturers in Europe and the US for filing ANDAs (abbreviated new drug application). The acquisition of two Belgian firms will also help the company launch dossiers to trigger the DMFs already filed by the company.

Industrial chemicals contributes about 45 per cent of the revenue. The company is vertically integrated, as organic intermediates form the raw materials for its performance chemical business and CRAMS. This offers them the flexibility to make organic intermediates locally if raw material imports become expensive. Performance chemical business makes food polymers, latex, industrial emulsions, consumer products and speciality gases.

The demand for solid poly vinyl acetate (PVA), which is a key ingredient in chewing gums, appears to be stable, as the company has clients, including Wrigley and Perfetti, among others. The demand for latex it produces will predominantly depend on the tyre industry. As there is still steam in the auto industry, this segment has good prospects for growth. Sharp increase in key raw materials appears to have put a dent on this segment's margins.

Exports, which contribute about 27 per cent of the company's sales, grew 16 per cent to Rs 228.5 crore. The increase in exports is primarily driven by the sales of API, CRAMS and solid PVA.

Jubilant's thrust to improve its exports to the regulated markets is likely to augur well for its growth prospects. However, the growth in earnings will also hinge on how well it manages to ward off competition in unregulated markets. Any sharp appreciation of the rupee vis-à-vis the dollar will also impact export earnings.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Investment Quiz

Ultratech Cemco: Accept

Overdraft on car

Adding mystique to the Qualis

Question `n' Auto

Why expenses can make or break fund returns

Understanding fund costs

Mutual fund IPOs: Contrasting styles on offer

Taking stock of TCS

Sundaram Growth: Hold

Staying cautious is advisable