Nomura Financial Advisory and Securities has reiterated 'Buy' on Jubilant Lifesciences with revised target price of Rs 226 as against current market price (CMP) of Rs 170 in its report.

Commenting on the investment rationale, Nomura said, "JOL's sales/EBITDA in Q4 were ~4%/24% ahead of consensus expectations, but in line with our expectations. Management has guided for capex of Rs 3-3.5 billion (ex product development) in FY16F. This coupled with product development costs of ~Rs 1-1.25 billion would imply capex of ~Rs 4.5 billion in FY16F, vs Rs 3.54 billion in FY15. Capex guidance is higher than our earlier estimate of Rs 3.5 billion and would be a drag on FCF generation in FY16F, in our view. JOL's net debt has increased from ~Rs 39.1 billion (FY14) to Rs 43.9 billion (FY15), on account of acquisition of the minorities in Jubilant Cadista (USD 33 million).

JOL faced multiple headwinds in FY15, which hurt sales/EBITDA margin. We remain bullish on JOL as we expect business to revive in FY16F on account of: a) the sales ramp in the CMO business, which was adversely impacted in FY15 by a warning letter at the Spokane facility and shutdown for remediation measures, b) improved utilization at the Symtet facility, which is currently loss making, c) commissioning of its Zinc Pyrithione plant, which will increase internal consumption of Pyridine and move JOL up the value chain, d) launch of new products and expansion to new geographies in the generic business. We expect EBITDA margin to improve ~360 bps over FY15-17F. 

We value the stock based on 9x (unchanged) FY17F adj EPS of Rs 25 to arrive at our target price of Rs 226. We assign a fair value range of 7-11x FY17F EPS. The stock is currently trading at 6.6x FY17F adj EPS of Rs 25, which is attractive in our view."

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