Ajanta Pharma - Initiating Coverage - Arihant Capital Markets

Key Q3FY18 Highlights:

- Ajanta Pharma (AJP) delivered a better-than-expected 3QFY18 financial performance, with sales growing 10% YoY to Rs 587 crore.

- EBITDA margin showed a marginal improvement YoY to 33.6%. Lower other income and a higher tax outgo led to lower PAT growth of 3.4% YoY (v/s EBITDA growth of 11% YoY) to Rs 147 crore.

- Asia and the US drive growth for the quarter: Growth was led by strong sales performance in Asia (+78.9% YoY) and the US (+20% YoY), partly offset by lower YoY growth in Domestic formulation sales (+7% YoY) and a decline in Africa sales (-15% YoY). Superior product mix led to a 143bp YoY expansion in the gross margin to 81.3%, while higher employee cost and other expenses led to only 20bp YoY expansion in the EBITDA margin.

- Strong revival in Asia sales: For AJP, Asia delivered highest-ever quarterly sales of Rs 161 crore, led by new launches, enhanced marketing efforts, and a stable currency environment.

- US sales bounce back sequentially: US sales rose 20% YoY to Rs 71 crore , which can be attributed to two new launches, an increased market share in existing products, and subsiding price erosion.

- Lower institutional sales hurt overall Africa sales: Africa sales declined 14.7% YoY to Rs180 crore due to a decline in institutional sales, while branded generics remained on a strong footing.

Outlook & Valuation:

We believe that AJP's long-term fundamentals continue to remain healthy driven by strong traction in the US business (post US FDA clearance to its Dahej unit) and above industry growth in domestic business. Its Sales, EBITDA and PAT witnessed 24%, 37% and 44% CAGR, respectively through FY12-17 owing to strong growth in domestic formulation business (22% CAGR) and healthy growth in exports (21% CAGR). We have HOLD rating on the stock with a Target Price of Rs1500, valuing the stock at 25x FY19E EPS of Rs60.

Shares of AJANTA PHARMA LTD. was last trading in BSE at Rs.1370 as compared to the previous close of Rs. 1351.45. The total number of shares traded during the day was 10371 in over 576 trades.

The stock hit an intraday high of Rs. 1376 and intraday low of 1358.6. The net turnover during the day was Rs. 14196157.

Source : Equity Bulls

Keywords