Ajanta Pharma, Stupendous growth continues… :: ICICI Securities, report

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Stupendous growth continues… • Revenues grew 21.8% YoY to | 362.6 crore, in line with I-direct estimate of | 356.5 crore on the back of 15% growth in exports and 35% growth in domestic sales • EBITDA margins improved 393 bps YoY to 36.2%, higher than Idirect estimate of 31.6%. EBITDA increased 35.2% YoY to | 131.4 crore against I-direct estimate of | 112.6 crore • Net profit increased 35.7% YoY to | 84.7 crore, higher than I-direct estimate of | 79.0 crore, driven by a strong operational performance Domestic formulations - Focus on new launches and few therapies Domestic formulations constitute 33% of the total consolidated turnover (FY14). The main distinguishing factor for APL compared to its peers is the uncanny knack of launching extremely high number of first time launches with focus on new drug delivery system (NDDS). Out of 175 actively marketed brands, 125 were first in India. The focus on specialty therapies and niche product led APL to post a strong CAGR of 27% in FY10-14, far higher than industry growth of ~9%. Going ahead, we expect domestic formulations to grow at a CAGR of 25% in FY14-17E to | 760 crore driven by a mix of existing products and new launches. Exports traction mainly from emerging markets Export formulations constitute 67% of the total consolidated turnover (FY14). APL currently derives almost its entire export revenues from emerging regions like Africa (Franco Africa), Asia and LatAm with a presence in more than 35 countries. As opposed to the common practice of forging alliances with local/regional pharmaceutical players, APL’s front-end marketing team interacts directly with doctors. The company has consistently introduced new products in these markets. Overall export formulations have grown at a CAGR of 32% in FY10-14 to | 793 crore. We expect exports to grow at a CAGR of 20.3% in FY14-17E to | 1380 crore driven mainly by consistent product launches. Low profile but focused; US foray important for scalability With a focus on niche therapies in domestic formulations and a calculated approach in the exports market, APL remains an interesting candidate from the midcap pharma space with high growth rates, strong margins, commendable return ratios and lighter balance sheet. Defying the normal trend of targeting developed markets for generic generics initially, the company focused on branded generics in semi-regulated markets. At this juncture, APL is well poised to foray in the US market, especially once the newly constructed Dahej plant gets USFDA approval. The company has filed 25 ANDAs with the USFDA and received two product approvals. Strong performance justifies multiple upgrading; change to BUY The Q3 numbers have once again demonstrated Ajanta’s consistency in delivering above average numbers both in India and abroad. In domestic formulations, APL continues to register robust growth. In the exports space both the Philippines and Franco-African markets continue to thrive on the back of consistent product launches and base business growth. On the margins front, the company has consistently been improving its margin on the back of an improved product mix. We expect revenues, EBITDA and net profit to grow at a CAGR of 22%, 23% and 25%, respectively. We have ascribed a target price of | 3220 based on 25x (1x of PEG) based on FY17E EPS of | 129.

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