Ajanta Pharma Ltd.|Q2FY15 Result Update | Earnings momentum continue; however, downgrade to SELL based on expensive valuation :: IndiaNivesh

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Highest ever quarterly PAT in past 14 quarters: AJP adjusted PAT came in at
Rs775mn, up 40% y-y and 32% q-q. Such strong growth is driven by superior
performance in, domestic formulation (DF) and emerging markets, as well as lower
material cost. Lower material cost led gross margin to improve from 66% in 2Q
FY14 to 71% in 2Q FY15. There has been 514bps reduction in material cost as
percentage of sales due to lower credit cost, supplying API technology to vendors
and higher scale of economy. EBITDA margin has been on improving trend for 14
quarters now. Management has revised its EBITDA margin guidance to 29-30% for
FY15. Other income also increased by 40% y-y supporting adjusted PAT growth of
40% y-y for the quarter. R&D spent for the Q2FY15 and H1FY15 has been Rs110mn
and Rs300mn, respectively. Management has guided for 5% of net sales to be spent
on R&D for FY15. The R&D spend would be divided equally for DF, regulated markets
and emerging markets, respectively
DF sales growth continue to outperform industry growth by wide margin: Domestic
branded sales came in Rs1bn, up 33% y-y. This significant growth is mainly due to
36% y-y, 23% y-y and 39% y-y growth in Ophthalmology, Dermatology and Cardiology
segment respectively. Pain segment has also started showing better traction. The
considerable portion of growth is led by volume growth and new product launches
and partly by price hikes. During the quarter, AJP launched six new products, out of
which, three were first to market. We expect robust growth to continue for AJP on
the back of new product launches and increased market share in existing products.
Increased tender business and new product launches led superior performance in
emerging market: Emerging market sales came in at Rs2.2bn, up 27% y-y and 35%
q-q. Robust growth in sales was driven by strong growth of 34% y-y in Asia market
and decent growth of 24% y-y in Africa region. AJP launched ten new products in
Africa and two new products in Asia, resulting in such high growth on overall basis.
Tender business formed 52% of total sales for Africa region. Volume growth in
Phillipines as well as CIS region led to strong growth in Asia region. We expect healthy
growth in emerging market led by higher tender business and new product launches.
Efforts on track to make regulated market as a new growth driver: AJP’s cumulative
ANDA filing stands at 25. AJP has approval for 2 ANDAs and has launched one in US
through its own front end. AJP had sales to the tune of Rs10mn from this product.
AJP has guided for atleast 6 ANDA filing every year over next 2-3 years.


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