Ajanta Pharma (incorporated 1979) is a specialty pharmaceutical
company with all its revenues coming from formulations. Close to
34% of its revenues are derived from domestic business consisting of
branded generics as well as tender sales. Remaining 66% of its sales
come from exports to Africa, Asia and LATAM.
Domestic business focuses on select niche therapies: Ajanta is quite
strong on three segments domestically, i.e., dermatology, ophthalmology and
cardiology. It enjoys an edge over competition by launching first time
products in niche segments domestically. This strategy has enabled the
company to be counted amongst the fastest growing players domestically.
The company’s domestic business posted 33.7% growth in FY12.Gaining 14
ranks in the last two years, it is currently ranked 48th.
The management has decided to enter into three other segments, i.e., ENT,
gastro and orthopedics with similar strategy and success. Focus on these
segments has led the company to raise its field force from 1,300 to 2,000 in
the past two years. The management has indicated that they would be
reducing focus on tender business (contributing 23% to domestic sales),
which should reflect positively on the margins. The management strongly
believes that the proposed National Pharmaceutical Pricing Policy (NPPP) will
not have any significant impact (1-2%) on its sales.
Exports business on strong footing: Asia and Africa are the two major
markets of Ajanta Pharma. Besides, it also has a small presence in the LATAM
region. Ajanta currently has a combined field force of 400 for exports. Out of
nine ANDAs filed for by the company, it has received approval for two. It has
tied-up with a Florida based distributor, with the first shipment of one of the
products having already left for the US. The management has guided for
USD1.5-2mn sales from the two approved ANDAs. They expect the remaining
approved ANDAs to get launched towards the tail end of FY14. The
management has guided for up to six ANDA filings annually with continued
focus on niche segment as in the domestic market. Exports have grown at a
CAGR of 27.5% from FY08-12 and looking at the products pipeline this
momentum should sustain.
Aggressive expansion: The company has very aggressive capex plans of
Rs4bn over the next two years for setting up two manufacturing facilities,
each for regulated and emerging markets. 70% of the capex will be funded by
debt and remaining from internal accruals. The management is currently in
talks to raise USD55mn of ECB for the expansion. The company will be
capitalizing interest costs and this won’t affect FY13-14 financials. The
management believes that the expansion can generate incremental peak
sales of up to Rs10bn.
Valuation and outlook: We believe that the domestic business will continue
to deliver at the current rate with improvements in field force productivity.
The company has a pipeline of 1,300 products that should keep the growth
rate up for exports. Capex for regulated markets and R&D in niche areas
augur well for the company in the long run. The management has guided for
robust 22%-23% top line growth in FY13 with PAT growth at 30%. It expects
EBIDTA margin to improve by 20-40bps over the next two years. At the CMP
of Rs415 the stock is trading at 10xFY13E and 8.2xFY14E (consensus EPS).
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