Jubilant Pharmova's (Jubilant) Q4FY21 performance was below our estimates with miss of 12/25/21% in revenue/EBITDA/PAT. The Life Science Ingredients business got demerged into Jubilant Ingrevia Ltd from Feb'21. Pharma business revenue grew remained flat at Rs15.8bn, EBITDA margin dropped 420bps YoY to 23.7% and adj. PAT declined 13.7% to Rs1.8bn. The CDMO business benefited from the manufacturing of potential COVID-19 drug and vaccines which contributed Rs5.4bn revenue in FY21. However, this business would come down to Rs2bn in FY22E with no certainty of continuity. We believe near to medium term growth would remain under pressure due to slow recovery in radiopharma business and potential decline in CMO and generics business on high base.

Revenue recovery lags expectations: Specialty segment (radiopharma & allergy therapy) revenue continued its decline with revenue dropping 23.5% YoY due to lower patient footfalls for radiology tests. Lung imaging products DTPA and MAA volumes remained very low, while allergy therapy business has come back to pre-COVID levels. CDMO business (CMO and API) grew strong 47.9% on a low base and incremental revenue from COVID-19 related manufacturing which would taper-off going forward. Generics segment remained flat YoY on lack of new launches and lower sales of Remdesivir in Q4FY21. Ongoing USFDA issues would keep growth in generics and API segments under check.

Lower revenue impacted the margins: Reported EBITDA margin at 23.7% was down 420bps YoY and 410bps QoQ due to lower revenue and costs remained unabsorbed. Though, gross margin improved YoY as well as QoQ. We believe EBITDA margin would remain at current levels in FY22E despite expected pick-up in radiopharma sales due to decline in COVID-19 related CMO business which would have been at higher margins in FY21, in our view. We expect EBITDA margin to improve to ~25% in FY23E with normalisation of radiopharma sales.

Outlook: We estimate revenue, EBITDA and PAT CAGRs of 7.9%, 12.9% and 24.2% respectively over FY21-FY23E. Demand in specialty pharma remains below pre-COVID levels, while other businesses have reverted to normal levels. Higher earnings growth is due to low FY21 base and expectation of reduction in tax rate. Company guided for higher capex of ~Rs7-8bn in FY22E.