Ajanta Pharma Ltd

Money Times - - Stock Watch - By Amit Ku­mar Gupta

(BSE Code: 532331) (CMP: Rs.1212.90) (FV: Rs.2) (TGT: Rs.1400+)

Ajanta Pharma Ltd (APL) is a hold­ing com­pany and a spe­cial­ity phar­ma­ceu­ti­cal com­pany that de­vel­ops, pro­duces and mar­kets a range of branded and generic for­mu­la­tions. Its busi­ness in­cludes branded gener­ics in the emerg­ing mar­kets of Asia and Africa; gener­ics in the de­vel­oped mar­kets of USA; and In­sti­tu­tional sales. Its branded gener­ics busi­ness is spread across In­dia and over 30 emerg­ing coun­tries across Africa, Com­mon­wealth of In­de­pen­dent States (CIS), the Mid­dle East and South East Asia. It serves a range of ther­a­peu­tic seg­ments such as anti-bi­otic, anti-malar­ial, an­tidi­a­betic, car­di­ol­ogy, gy­ne­col­ogy, or­tho­pe­dics, pe­di­atric, res­pi­ra­tory and gen­eral health prod­ucts. It has four man­u­fac­tur­ing plants lo­cated in and around Au­rangabad in Ma­ha­rash­tra. Its sub­sidiaries in­clude Ajanta Pharma (Mau­ri­tius) Ltd, Ajanta Pharma USA Inc., Ajanta Pharma Philip­pines Inc. and Ajanta Pharma Nige­ria Ltd. With its ag­gres­sive launches and im­proved sales force pro­duc­tiv­ity, APL’s do­mes­tic for­mu­la­tion busi­ness, which accounts for ~32% of its total sales, grew at 22% CAGR to Rs.5.3 bn (higher than IPM) over FY12-17. De­spite the chal­leng­ing reg­u­la­tory en­vi­ron­ment and loss of sales due to the GST roll-out, we ex­pect steady growth momentum to con­tinue go­ing for­ward, driven by im­proved sales force pro­duc­tiv­ity and new prod­uct launches (15-20 prod­ucts per year). We en­vis­age its do­mes­tic for­mu­la­tion busi­ness to report 12.5% CAGR over FY17-19E. APL’s ex­port busi­ness grew at 25% CAGR over FY12-17 led by Emerg­ing Mar­kets (Africa and Asia). With >713 front-end work­force in both mar­kets, APL of­fers cus­tom­ized prod­ucts in each mar­ket. How­ever, we ex­pect the growth to re­main muted in Africa (1% CAGR) and Asia (10%) over FY17-19E ow­ing to re­duc­tion in in­sti­tu­tional busi­ness (anti-malar­ial) in Africa and cur­rency head­wind in Asia. De­spite be­ing a late en­trant into USA, APL’s sales in US zoomed to Rs.1.85 bn in FY17 from Rs.24 mn in FY14. With ~15 ANDAs pend­ing for ap­proval, APL plans to file 12-15 ANDAs in FY18E. We es­ti­mate US sales at $40 mn and $52 mn in FY18E and FY19E re­spec­tively from $27.6 mn and $2 mn in FY17 and FY16 re­spec­tively.

APL’s long-term fun­da­men­tals con­tinue to re­main healthy driven by strong trac­tion in the US busi­ness (post USFDA clear­ance to its Da­hej unit) and above av­er­age in­dus­try growth in its do­mes­tic busi­ness. Its sales, EBITDA and PAT wit­nessed 24%, 37% and 44% CAGR re­spec­tively through FY12-17 ow­ing to strong growth in its do­mes­tic for­mu­la­tion busi­ness (22% CAGR) and healthy growth in ex­ports (21% CAGR). We ex­pect over­all sales to clock 9% CAGR over FY1719E with EBITDA mar­gin at 30-31% and return ra­tios to re­main healthy (RoCE and RoE seen at 30% and 23% in FY19E). We believe that the cur­rent val­u­a­tion (P/E of 25x FY18E and 20.5x FY19E EPS) of­fers an at­trac­tive en­try point.

Tech­ni­cal Out­look: The APL stock looks very good on the daily chart for medium-term in­vest­ment. It has formed a down­ward chan­nel pat­tern on the daily chart and taken strong sup­port at the lower chan­nel line. The stock faces strong re­sis­tance at its 200 DMA level.

Start ac­cu­mu­lat­ing at this level of Rs.1212.90 and on dips to Rs.1157 for medium-to-long-term in­vest­ment and a pos­si­ble price tar­get of Rs.1400+ in the next 12 months.

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