Ajanta Pharma - Wealth in health
Suparna / 05 Dec 2011
In the last quarter when the rupee started depreciating, many companies reported poor half yearly numbers. However, Ajanta Pharma (APL), which is our Choice Scrip pick for the fortnight, has shown an extremely decent performance in the first half of this fiscal despite adverse currency fluctuations, posting a 43% YoY growth in its half yearly profits. We believe that APL offers a good opportunity in the current market conditions. On a YTD basis, this scrip has yielded 61% returns so far.
APL is a consistent performer, and in the last three years, it has grown at a CAGR of 18% and 31% in its topline and bottomline respectively. R&D is fundamental to the company, which is reflected in its pipeline of 1323 product registrations.
There are many reasons that make us recommend this scrip. The company has changed its business mix from OTC to specialty drugs, which promise more growth opportunities for pharma companies. One can see a strong volumes growth in all of the company’s formulations. Its market share in the three main therapeutic segments that it operates in is also increasing.
The spurt in lifestyle diseases is a major growth driver for pharma companies. The 2 ANDA approvals that APL has recently received from the USFDA will be key to its growth, as this gives it the company access to the largest pharma market in the world. Entry into the US market will boost APL’s revenues, as has been seen in the case of many Indian companies. Due to rising exports, its foreign exchange inflows have remained strong as compared to the outflows. The company also wishes to launch 15 new products this year, most of which are developed by its R&D unit. All these factors promise good growth opportunity, which is evident from its historical performance. In addition, it enjoys a strong pricing power, being the first to launch innovative products in the market.
APL manufactures and markets specialty formulations, which are sold in more than 30 countries. Its subsidiaries and manufacturing facilities are located in different countries. The company derives its income from 3 key therapeutic segments, including ophthalmology (22%), dermatology (27%) and cardiology (21%). Institutional buyers contribute about 23% and OTC drugs contribute about 7% to its revenues. APL has recently sold its brand ‘30-Plus’ to Dabur India for a realisation of about Rs 1.5 cr, against the estimates of Rs 50 cr.
On the financials front, for FY11, the company posted a 23% and 49% growth in its revenues and net profits respectively. Its domestic business grew by 23%, while exports grew by 24% on a YoY basis. Its EBITDA margins have also improved from 17% to 20% over a period of 3 years. In the first half of this fiscal, APL suffered forex losses of Rs 6 cr, despite which it posted a 43% rise in its net profits. The company doesn’t have any exposure to FCCBs, but it has a foreign currency working capital loan amounting to Rs 48 cr. Its total debt remains in excess of Rs 189 cr, and its borrowing cost is about 10%. The interest coverage ratio remains very strong, and at its EBIT level, it can cover its interest expenses for more than 4x, which is quite comfortable.
On the valuations front, the counter looks attractive at a PE of 8x its annualised EPS of Rs 39.67 and an EV/EBITDA of 5.6x, vis-à-vis its peer group company Indoco Remedies, which is available at PE of 9.37x and EV/EBITDA of 7.6x. We advise our readers to enter the counter with 15%-20% expected returns from the scrip.
APL is a consistent performer, and in the last three years, it has grown at a CAGR of 18% and 31% in its topline and bottomline respectively. R&D is fundamental to the company, which is reflected in its pipeline of 1323 product registrations.
There are many reasons that make us recommend this scrip. The company has changed its business mix from OTC to specialty drugs, which promise more growth opportunities for pharma companies. One can see a strong volumes growth in all of the company’s formulations. Its market share in the three main therapeutic segments that it operates in is also increasing.
The spurt in lifestyle diseases is a major growth driver for pharma companies. The 2 ANDA approvals that APL has recently received from the USFDA will be key to its growth, as this gives it the company access to the largest pharma market in the world. Entry into the US market will boost APL’s revenues, as has been seen in the case of many Indian companies. Due to rising exports, its foreign exchange inflows have remained strong as compared to the outflows. The company also wishes to launch 15 new products this year, most of which are developed by its R&D unit. All these factors promise good growth opportunity, which is evident from its historical performance. In addition, it enjoys a strong pricing power, being the first to launch innovative products in the market.
APL manufactures and markets specialty formulations, which are sold in more than 30 countries. Its subsidiaries and manufacturing facilities are located in different countries. The company derives its income from 3 key therapeutic segments, including ophthalmology (22%), dermatology (27%) and cardiology (21%). Institutional buyers contribute about 23% and OTC drugs contribute about 7% to its revenues. APL has recently sold its brand ‘30-Plus’ to Dabur India for a realisation of about Rs 1.5 cr, against the estimates of Rs 50 cr.
On the financials front, for FY11, the company posted a 23% and 49% growth in its revenues and net profits respectively. Its domestic business grew by 23%, while exports grew by 24% on a YoY basis. Its EBITDA margins have also improved from 17% to 20% over a period of 3 years. In the first half of this fiscal, APL suffered forex losses of Rs 6 cr, despite which it posted a 43% rise in its net profits. The company doesn’t have any exposure to FCCBs, but it has a foreign currency working capital loan amounting to Rs 48 cr. Its total debt remains in excess of Rs 189 cr, and its borrowing cost is about 10%. The interest coverage ratio remains very strong, and at its EBIT level, it can cover its interest expenses for more than 4x, which is quite comfortable.
On the valuations front, the counter looks attractive at a PE of 8x its annualised EPS of Rs 39.67 and an EV/EBITDA of 5.6x, vis-à-vis its peer group company Indoco Remedies, which is available at PE of 9.37x and EV/EBITDA of 7.6x. We advise our readers to enter the counter with 15%-20% expected returns from the scrip.
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