IT a benign hit, Palmy outlook but overboard on Price
Ajanta Pharma (AJP) beats 4Q estimates with Sales/PAT at Rs2.5bn/435mn
(+45%/114% yoy), driven by sweeping growth across DF (+46% yoy; 37% yoy
excluding Inst.) and exports (+45% yoy). Accelerated CVS/Derma growth within
Domestic has boasted OPM at 27.6% (+690bps yoy). Other highlights: Other income
of Rs62mn includes Rs54mn dividend income received from Mauritius subsidiary, one
time tax expense of Rs157mn to be written off against available MAT credit, shielding
the cash outflow.
Management outlook: Overall mgmt expects F14 Sales to grow +20% on F13’s high
base with OPM ~25% and profit growth between 10-15%. Growth from the Domestic
(led by Derma) and Exports segment is pegged at 20% and 25% respectively.
However stay positive on US business for F15 with 5-6 launches in 4QF15. On Africa
(ex-WHO tender) business, guided 18-20% stable growth.
Upgrade TP; Retain Hold: Following clarity on the IT penalty together with healthy
Sales and margin outlook for F14 we upgrade our F14/F15 earnings by 15-18% to
Rs54.8/65.1. Hence, our TP is revised to Rs716 (earlier Rs605) while retaining our
P/E multiple at 11x F15. The stock continues to get expensive on valuation and now
trades at all time high limiting upside. In recent 3-6m the P/E has expanded by >100%
(12.5x now on F15 consensus) while the earnings upgrade on consensus remained in
15-20% range for F14/15e.
Export formulation grew ~44%/45% for F13/4Q: Growth from export formulations
segment was healthy for F13/4Q (+44/45% yoy), led mainly by Asia and Africa
regions. Till date AJP has a basket of 14 ANDAs (2 approved) and has plans to file 5-
6 ANDA per year.
Domestic surprises on lofty Institutional sales: The F13/4Q yoy growth continues
to surprise at 29%/46% (29%/37% ex-Inst. business), largely driven volume growth
across Derma/ CVS + pick up in 3 newer segments. F13 witnessed 19 new product
launches of which 4 were first to market.
Valuation and recommendation: In our view, while the long term fundamentals of
AJP (backed by commercialization of Gujarat plant by F16) are in tact, the valuation
seems to be expensive though. Our TP is upgraded to Rs716 (earlier Rs605) valuing
at 11x F15.
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