Jupiter Bioscience: On a high growth trajectory??!!

CMP: Rs.13.18

Short term target-Rs.18-21

Incorporated in 1992, JBL’s plants are located at Medak District and in Bidar, Karnataka. It is one of the few companies in the world with competency in the synthesis of peptides starting from the basic stage to finished peptides. JBL’s 100% subsidiary, Sven Genetech, has made rapid strides in synthesis of specialty peptides, launch of new formulations and development of its capabilities in diagnostics and enzymes.

Another subsidiary in USA, Jupiter Bioscience Inc., is gearing up for manufacture of custom peptides and generic peptide APIs by the solid phase peptide synthesis. Incorporated in the State of Virginia, USA, to service customers in USA and Canada it provides a wide range of products in Synthetic Peptides, Fmoc, Boc and Z-protected L- and D-Amino Acid, Derivatives, Reagents for Peptide Synthesis, Chiral Intermediates and Speciality and Fine Chemicals.

Jupiter Biosciences AG, Switzerland, is located at Laufelfingen in Switzerland. The focus of manufacturing here includes High value peptide building blocks, Generic peptide APIs, APIs under clinical trials and Custom Peptides.

JBL’s product portfolio further includes speciality and fine chemicals, drug intermediates, bulk drugs and nutraceuticals. Its drugs are used to treat AIDS, cardio vascular diseases and cancer and to make vaccines.

JBL is positioned globally to manufacture quality products for the domestic and overseas markets. It has obtained an ISO:9001-2000 certification for its manufacturing facility located in Andhra Pradesh.

The manufacturing operations in USA are being set up to focus on solid phase peptide synthesis while the operations in Switzerland are directed towards building capabilities on solution phase synthesis. The manufacturing facilities in India focus on manufacturing the reagents and the building blocks. It also manufactures generic peptide and non-peptide APIs for the unregulated markets.

For FY11, JBL’s consolidated sales/income came out to be Rs.331.3 Cr, as against Rs.232.6 Cr in FY10.  The consolidated net profit of the company for FY11 came out to be Rs.48.8 Cr as against Rs.40.2 Cr in the same period previous year.The Book Value of the shares of the company is whopping Rs.120.73. It  has an absurd market cap of Rs.82.29 Cr (When FY11 turnover is Rs.331.3 Cr how can Rs.82.29 be the current market cap, unless there is fierce bear hammering on this scrip??!). The current EPS is Rs.3.04 and the P/E is 4.34 against the industry average of 10.71. A decent P/E of 7-8 can take the scrip to around Rs.21.

JBL had acquired a facility of Merck in Switzerland in June 2008 and forged a 5-year agreement for its peptide products with the pharma giant’s biosciences company. The acquisition of the CGMP facility of Merck would give JBL a faster entry into the regulated markets of Europe and USA.

It has also upgraded its analytical facilities and R&D infrastructure systems in line with the growth in business. It also undertook a major revamp of the unit, which it acquired from Aurobindo Pharma in FY07 to make it suitable for manufacturing peptide group of products and spent Rs.9 Cr in FY09 towards R&D.

A couple of years back, JBL had raised Rs.100 Cr through the QIP route at Rs.153 per share for meeting the cost of expansion in USA and India and for part repayment of debt. At that time the promoters also contributed Rs.25.5  (equity + premium) at a price of Rs.146 per share. The amount so raised was used for the acquisition of the Merck facility in Switzerland.

Its overseas facilities have attained critical mass and will be the key components of its business model in the years to come.
The peptide market, estimated at around $7 billion, represents a significant opportunity for generic players. It is estimated that peptide drugs worth $3 billion (at innovator’s price) will go off patent in the next 3-4 years.

Besides, at a time when the US and European generic markets continue to reel under increasing pressure and ever-rising competition, price erosion for generic peptide drugs remains relatively low.

The global peptide market is expected to continue to grow significantly in the next few years. Currently, there are 270 new peptide drugs under clinical development and 400 in pre-clinical studies globally. The global market for peptide drugs could reach $10 billion in the next three years.

JBL’s focus on business development, R&D on new products, dedicated efforts in reducing production costs, flexibility in product mix with further addition of value added (high margin, low volume) products coupled with further expansion gives visibility to future revenue & profitability.

JBL is also its expanding its business and technological focus on non-peptide generic drugs and intermediates based on organic and chiral chemistry. The non-peptide generic drug market is currently estimated at US $80 billion and is expanding rapidly with many drugs coming out of patent till 2012.

This provides opportunities for growth for Indian companies given their lower cost structure and ability to undertake process development and optimization to compete in the business. This is a good stock to buy at the current market  price of Rs.13.18.

Note: This report is adopted from a write  up in a business weekly.