Ajanta Pharma Ltd
(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.