634695892936117500_Ajanta Pharma Ltd._MgmtMeetUpdate_09042012 (2)

8/2/2019 634695892936117500_Ajanta Pharma Ltd._MgmtMeetUpdate_09042012 (2)

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IndiaNivesh Research IndiaNivesh Securities Private Limited601 & 602, Sukh Sagar, N. S. Patkar Marg, Girgaum Chowpatty, Mumbai 400 007. Tel: (022) 66188800

Ajanta Pharma Ltd.

IndiaNivesh Research is also available on Bloomberg INNS, Thomson First Call, Reuters and Factiva INDNIV.

ManagementMeet UpdateApril 9, 2012

Daljeet S. Kohli

Head of Research

Mobile: +91 77383 93371, 99205 94087

Tel: +91 22 [email protected]

Bhagwan Singh Chaudhary

Research Associate

Mobile: +91 77383 93427Tel: +91 22 [email protected]

Strong performance continues, aggressive capex plan, early

launch in US market. Maintain BUY with upward revisedtarget

In the last week, on 02nd April 2012, we met the management of Ajanta Pharma,

key takeaways from meeting are:

Domestic market: likely to maintain robust performance:

Despite slowdown in domestic Pharma industry in the last 3 quarters, Ajanta

Pharma has reported robust performance of more than 20% y-o-y growth

mainly on the back of key new launches. As we anticipated that companys

strategy of launching first time ~10-12 products annually would bode well for

robust performance in domestic market. During 9MFY12, company launched

approximately 8 new products of first time in India, particularly in new

therapeutic divisions Ortho, Respiratory, ENT & Gynae. Hence the revenue

contribution of these divisions increased from 7% in FY11 to 15% in 9MFY12.

Further, companys Derma division improved its rank in domestic market from

18th in FY11 to 14th in 9MFY12. We believe that company is likely to maintain

the growth momentum in FY13 & FY14 also.

However, its supply to Govt institutions is likely to remain at previous level of

~Rs 270 million in FY12E, under which it supplies one nutritional sachet mainly

to Maharashtra State Government & two cough syrups. Management is not

much focused on this business hence contribution to overall domestic revenuefrom this business is likely to reduce going forward.

Further, according to management field force strength is likely to be

maintained at current level of ~2000 in FY13& FY14. Hence, company is

banking on improving productivity which would bode well for margins.

Capex plan revised upwards:

Management has revised capex plan upwards to Rs 3.9 billion for setting up

of two new manufacturing facilities, from earlier estimates of Rs 1.25 billion

for setting up one manufacturing facility. Out of these two, one facility for

regulated market in SEZ Dahej already finalized while the other facility is yet

to be finalized (mostly in Gujarat state). The probability financing is likely to

be 70:30 from debt & internal accruals respectively. For this company is likely

to opt for ECB of $55 million; a low cost financing option. Of Rs 3.90 billion of

capex, 50% would be in FY13E & remaining in FY14E. These facilities are likely

to be operational from FY15E onwards and at full capacity utilization may

generate topline of ~Rs 10 billion.

According to our estimate after raising the loan, companys debt to equity

ratio would stand at 1.07x in FY13E & 1.3x in FY14E. Considering the growth

prospects of the company this looks reasonable. Although from FY07 to FY11,

company had total capex of Rs 2.5 billion only. Hence, the capex of Rs 3.9

billion in FY13E & FY14E is very significant and it provides us comfort of

managements visibility & confidence in business.

CMP : Rs.511Reco : BUY

Target : Rs.588

STOCK INFO

BSE 532331

NSE AJANTPHARM

Bloomberg AJP IN

Reuters AJPH. BO

Sector Pharmaceutical

Face Value (Rs) 10

Equity Capital (Rs mn) 118

Mkt Cap (Rs mn) 5,886

52w H/L (Rs) 518/207

Avg Daily Vol (BSE+NSE) 119,325

SHAREHOLDING PATTERN %

(as on 31st Dec. 2011)

Promoters 68.92

FIIs 0.00

DIIs 0.02

Public & Others 31.06

Source: BSE


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IndiaNivesh Research Ajanta Pharma Ltd|Management Meet Update April 9, 2012 | 2

Management Meet Update

Entry in Regulated market earlier than anticipated:

Ajanta has received 2 ANDAs approval for Risperidone & Levetiracetam from

USFDA in FY12 and it filled for another 5 ANDAs during the same year. Company

is likely to launch Resperidone, (use to treat psychotic disorders) in first quarter

FY13E in US market while launch of Levetiracetam may be in Q2 FY13E.

Management is expecting $2 -$2.5 million of annual revenue from both ofthese products. Company has guided to file 5-6 ANDAs every year with USFDA

and to build up a portfolio of 20-25 products in next 3-4 years in US market

for significant contribution to its top line. We expect US market to contribute

significantly from FY16 onwards on the back of new ANDA approvals & launch

of the products.

Additionally, Ajanta has filled for one molecule with European markets also.

We are of the view that 3-4 years down the line, these markets will start

contributing significantly.

Valuations

We recommended stock at Rs 290 level with BUY rating & target price ofRs 454, which has been achieved. Our recommendation was based on the

continuity in robust performance and expansion in PE multiple to Industry

level. In line with our expectations, companys performance has been

consistently robust in domestic as well as in exports markets in the last three

quarters (also in last 5 years). Its valuations have expended from forward PE

4.9x in the starting of FY12 to forward PE 6.8x at current level.

At CMP of Rs 511, the stock trades at PE 6.8x of FY13E earnings estimates.

We expect valuation to expand further to forward PE 8x (in line with industry

average) and revise our target price upwards to Rs 588 with BUY

recommendation on the stock. (Valuing at 8x of FY13E earnings estimates).


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Consolidated Financial Statements

Income statement Balance sheetY E March (Rs m) FY09 FY10 FY11 FY12e FY13e Y E March (Rs m) FY09 FY10 FY11 FY12e FY13e

Net sales 3,493 4,077 5,049 6,075 7,364 Share Capital 118 118 118 118 118

Growth % 12.9% 16.7% 23.8% 20.3% 21.2% Reserves & Surplus 1,453 1,731 2,170 2,765 3,514Expenditure Net Worth 1,571 1,849 2,288 2,883 3,632

Material Cost 1,271 1,455 1,729 2,035 2,430 Minority Interest - - - - -

Employee cost 427 542 637 759 913 Secured Loans 2,108 2,062 1,593 - -

Other expenses 1,145 1,309 1,470 2,078 2,511 Unsecured Loans 394 218 313 - -

EBITDA 651 771 963 1,203 1,510 Total debt 2,502 2,280 1,906 1,906 3,706

Growth % 26.7% 18.6% 24.8% 24.9% 25.5% Net defered tax liability 6 53 109 109 109

EBITDA Margin % 18.6% 18.9% 19.1% 19.8% 20.5% Total Liabilities 4,079 4,182 4,304 4,899 7,448

Deprecaition 142 207 247 267 300

EBIT 509 564 716 936 1,210 Gross Block 1,925 2,426 3,131 3,617 4,796

EBIT Margin % 8.5% 9.5% 11.2% 12.9% 13.3% Less Depreciation 542 741 991 1,258 1,636

Other Income 25 25 28 28 28 Net Block 1,383 1,685 2,140 2,360 3,159

Interest 236 202 178 181 259 Capital Work in Progress 552 470 172 172 1,350PBT 298 388 566 783 978 Investments 85 85 85 85 85

Tax 44 48 59 94 117 Deffered tax assets - - - - -

Effective tax rate % 14.7% 12.3% 10.3% 12.0% 12.0% Current Assets

Extraordinary items Inventories 1,039 1,196 1,131 1,415 1,715

Minority Interest Sundry Debtors 1,001 967 1,040 1,227 1,465

Adjusted PAT 254 340 507 689 861 Cash & Bank Balance 81 148 148 138 180

Growth% 16.2% 33.7% 49.1% 35.9% 24.9% Loans & advances 452 400 506 654 857

PAT margin % 7.3% 8.3% 10.0% 11.3% 11.7%

Reported PAT 254 340 507 689 861 Current Liabilities & provisions

Growth% 16.2% 33.7% 49.1% 35.9% 24.9% Current Liabilities 455 693 809 1,000 1,252

Provisions 57 76 109 152 189

Net Current Assets 2,060 1,942 1,907 2,282 2,775Total assets 4,079 4,182 4,304 4,899 7,369

Cash Flow

Y E March (Rs m) FY09 FY10 FY11 FY12e FY13e Key ratiosPBT 298 388 566 783 978 Y E March FY09 FY10 FY11 FY12e FY13e

Depreciation 142 207 247 267 300 Adj EPS (Rs) 21.7 29.0 43.3 58.9 73.5

Interest 236 202 178 181 259 Cash EPS (Rs) 33.8 46.8 64.5 81.6 99.2

Other non cash charges (1) (8) (0) (12) - DPS (Rs) 2.9 4.1 5.8 7.1 9.6

Changes in working capital (280) 216 114 (385) (450) BVPS 134 158 195 246 310

Tax (49) (54) (99) (94) (117)

Cash flow from operations 346 951 1,006 740 970 ROCE 10.6% 11.8% 14.9% 16.8% 14.4%

Capital expenditure (824) (429) (407) (486) (2,356) ROE 19.0% 21.0% 24.7% 27.2% 26.9%

Free Cash Flow (478) 523 599 254 (1,386)

Other income 4 2 1 - - EBITDA Margin % 18.6% 18.9% 19.1% 19.8% 20.5%

CWIP - - - - - Net Margin % 7.3% 8.3% 10.0% 11.3% 11.7%

Cash flow from investments (819) (427) (405) (486) (2,356)

Equity capital raised PER (x) 23.2 17.4 11.7 8.6 6.9

Loans availed or (repaid) 767 (223) (373) - 1,800 P/BV (x) 3.8 3.2 2.6 2.1 1.6

Interest paid (236) (200) (180) (181) (259) P/CEPS (x) 14.9 10.8 7.8 6.2 5.1

Dividend paid (incl tax) (34) (34) (48) (83) (112) EV/EBITDA (x) 12.8 10.4 8.0 6.4 6.3

Inc from other investments Dividend Yield % 0.6% 0.8% 1.2% 1.4% 1.9%

Cash flow from Financing 496 (457) (601) (264) 1,429

Net change in cash 23 68 (1) (10) 42 m cap/sales (x) 1.7 1.5 1.2 1.0 0.8

Cash at the beginning of the year 58 81 148 148 138 net debt/equity (x) 1.6 1.2 0.8 0.7 1.0

Cash at the end of the year 81 148 148 138 180 net debt/ebitda (x) 3.7 2.8 1.8 1.5 2.3

Source: Company Filings; IndiaNivesh Research


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