1

Ajanta Pharma Ltd

BUY Target Price: Rs.160.00

CMP: Rs.137.00 Market Cap.:Rs. 1616.05mn.

Date: February 05, 2010

Key Ratios:

Particulars FY09 FY10E FY11E

OPM (%) 19.13 18.66 18.49

NPM (%) 6.69 7.34 7.22

ROE (%) 14.05 15.53 14.94

ROCE (%) 12.23 11.83 12.02

P/BV(x) 1.06 0.90 0.76

P/E(x) 7.56 5.78 5.11

EV/EBDITA(x) 2.64 2.27 1.99

Debt-Equity Ratio 1.58 1.47 1.31

Key Data:

Sector Pharma

Face Value Rs.10.00

52 wk. High/Low (Rs.) 149.70/50.00

Volume (2 wk. Avg.) 73182

BSE Code 532331

SYNOPSIS

We initiated the coverage of Ajanta Pharma and set

a target price of Rs.160.00 for Medium to Long term

gains.

Ajanta Pharma is a specialty pharmaceutical

company engaged in the development,

manufacture and commercialization of

pharmaceutical products.

The company focuses on specialty segments in India

and simultaneous opening of new international

markets have been the key growth drivers for it over

the years.

The company engages in contract research for

leading multinational pharmaceutical companies to

expand its revenue base.

The Board of Directors has approved buyback of

Company's shares through stock exchange for an

amount of Rs. 113.6 million at a price not exceeding

Rs. 101 per share.

The top line and Bottom line of the company are

expected to grow at a CAGR of 15% & 21% over

2008 to 2011E.

Share Holding Pattern:

V.S.R. Sastry

Vice President

Equity Research Desk

91-22-25276077

vsrsastry@firstcallindiaequity.com

Dr. V.V.L.N. Sastry Ph.D.

Chief Research Officer

drsastry@firstcallindia.com

2

Table of Content

Investment Highlights ............................................................................................................ 3

Company Profile……………………………………………………………………………………………………………………..5

Peer Group comparison………………………………………………………………………………………………….….….08

Keyconcern………………………………………………………………………………………………………………….…………08

Financials……………………………………………………………………………………………………………………………….09

Charts………………………………………………………………………………………………………………………….………...11

Outlook and conclusions…………………………………………………………………………………………………….....13

Industry Overview…….…………………….……………………………………………………………….………….…….. …14

3

Investment Highlights

Q3 FY10 Results Update

Ajanta Pharma reported a phenomenal rise in standalone net profit for the quarter ended

December 2009. During the quarter, the profit of the company rose 67.37% to Rs 76.94

million from Rs 45.97 million in the same quarter last year. Net sales for the quarter for

the quarter rose 26.49% to Rs 946.59 million, while total income for the quarter rose

26.88% to Rs 949.52 million, when compared with the prior year period. It reported

earnings of Rs 6.52 a share during the quarter, registering 67.37% growth over prior year

period.

Quarterly Results - Standalone (Rs in mn)

As at Dec - 09 Dec - 08 %Change

Net Sales 946.59 748.37 26.49

Net Profit 76.94 45.97 67.37

Basic EPS 6.52 3.90 67.37

Net Sales & PAT Growth

4

EPS Growth

Board approves Buy-Back of Shares

The Board of Directors of the Ajanta Pharma has approved buyback of Company's shares

through stock exchange for an amount of Rs. 113.6 million at a price not exceeding Rs.

101 per share, subject to necessary applicable regulatory approvals.

Care reaffirms `A` rating

Credit rating agency, CARE has reaffirmed the `CARE A` (Single A) rating assigned to the

Long-term Bank Facilities of Ajanta Pharma (APL). This rating is applicable to facilities

having tenure of more than one year. Facilities with this rating are considered to offer

adequate safety for timely servicing of debt obligations. Such facilities carry low credit

risk.

Dividend declaration

The Board of Directors of the Ajanta Pharma has recommended the Dividend @ Rs 2.50

(i.e. 25%) per share, subject to the approval of the shareholders for the financial year

2008-09.

5

Company Profile

Ajanta Pharma is a specialty pharmaceutical company engaged in the development,

manufacture and commercialization of pharmaceutical products. The company employs over

2,500 people worldwide and its products are sold in over 25 countries. Ajanta operates with 5

state-of-the art manufacturing facilities that produce high quality pharmaceutical products. It

focus on commercializing unique generic products and pioneering synergistic combination

products in the therapeutic areas of anti- malarial, cardiology, dermatology,

gastroenterology, musculoskeletal, ophthalmology and respiratory.

Committed to patient care since 1973, Ajanta Pharma is a fully-integrated pharmaceutical

company with headquarters in Mumbai, India. The company had an advanced Research &

Development Centre for API synthesis and finished formulations of different dosage forms. The

company focuses on specialty segments in India and simultaneous opening of new international

markets have been the key growth drivers for it over the years. The company also engages in

contract research for leading multinational pharmaceutical companies to expand its revenue

base. The company’s team members are driven to fulfill its mission; a commitment to ‘Serving

Global Healthcare needs with Empathy, Innovation & Technology’.

Research & Development

Ajanta Pharma views Research and Development as a vital component of business strategy that

will provide a long-term competitive advantage. Its R&D facility Advent has more than 150

diligent and committed scientists. Advent, located in Mumbai, houses a range of state-of -the-

art equipment for formulation development, working on different dosage forms ranging from

topical creams, ophthalmological preparations, nasal sprays and dry powder inhalers to name a

few. The company has an equally well equipped API lab at Advent to synthesize high value APIs

for some of its key products.

Ajanta R&D hub covers an area of 30,000 sq feet (2,800 sq metres) and is fully equipped with

modern amenities and technology for accessing reference material, environmental monitoring,

data collection & analysis, record keeping and archiving. A separate Regulatory Affairs team

works closely with R&D, Manufacturing and Quality Assurance teams to compile dossiers for

submission to various Ministries of Health and / or respective FDAs. The R&D team is

completely involved in any project from concept to Phase IV study tracking market acceptability

and after-launch status.

6

Manufacturing Facilities

Ajanta Pharma operates 5 state-of-the-art manufacturing facilities; 4 within India and 1 in

Mauritius. One of these, located at Paithan, India is approved by the US FDA, health authorities

of Brazil and Colombia and also holds a WHO pre-qualification for one of its products. These

modern manufacturing sites provide it with a high level of flexibility, thus ensuring efficient and

timely delivery of its products to patients and clinicians worldwide. Committed to quality,

company uses its proprietary technology and synergistic manufacturing platforms to produce

high quality products efficiently. Its manufacturing capabilities include a comprehensive range

of dosage formulations of allopathic drugs including tablets, capsules, ointments, injections and

powders.

Ajanta’s worldwide manufacturing operations have a long-standing commitment to operational

excellence and continuous improvement, which is why company regularly upgrades its

manufacturing units. To cater to the growing marketing needs, company is in the process of

expanding its manufacturing scope with more facilities and capacity enhancements in the

existing plants.

Global Presence

The management efforts are always underway to expand Ajanta Pharma’s presence into new

territories. The company started its overseas expansion in the late 90’s and now its products

are sold in over 25 countries through an established presence across Africa, Asia, Latin America

and The CIS. Ajanta pharma are now in the process of formulating products to be able to file

product dossiers in the regulated markets.

Ajanta has established a strong marketing set-up that is supplemented by a wide distribution

network in many international markets. All activities are centered on establishing its brands in

respective markets for sustained sales.

7

Company Products

Ajanta Pharma develops and commercializes a diverse range of scientifically and medically

innovative generic products. The company is amongst the front runners in the segments of

Cardiology, Dermatology and Ophthalmology in India. Many of its brands hold leading positions

in their respective sub-therapeutic segments. It is also expanding its presence in the fields of

Respiratory, Gastrointestinal and Musculoskeletal medicine by introducing innovative products

in these segments. A clear therapeutic focus has lead to a strong product portfolio for it.

Ajanta Pharma’s expertise covers a broad spectrum of products targeting various diseases.

Some of its major brands are:

1. Anti-Malarial (Artefan – Artemether & Lumefentrine)

2. Cardiology (Met XL – Metoprolol Succinate)

3. Dermatology (Melacare – Hydroquinone, Tretinoin, Mometasone)

4. Gastroenterology (Mucopide – Rebamipide)

5. Musculoskeletal (Feburic – Febuxostat)

6. Ophthalmology (Unibrom – Bromfenac)

7. Respiratory (Fivasa – Fluticasone Furoate Nasal Spray)

The company also have a significant global presence in the Male Erectile Dysfunction (MED)

segment and equally strong equity in anti-malarial segment through ‘ARTEFAN’ where it was

the first branded generic to get WHO pre-qualified.

8

Peer Group Comparison

Name of the company

CMP (Rs. )

(As on Feb.

05, 2010

Market Cap.

(Rs. mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend(%)

Ajanta Pharma 137.00 1,616.05 23.57 5.81 1.05 25.00

Sun Pharma 1474.10 305,310.30 51.53 28.61 5.93 275.00

Cipla 309.45 248,464.00 13.19 23.46 5.72 100.00

Dr Reddys Labs 1149.30 194,030.60 44.37 25.90 3.69 125.00

Key Concerns

Global economic slowdown

More number of players and tough competition

Foreign exchange fluctuations.

9

Financials Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) FY08 FY09 FY10E FY11E

Description 12m 12m 12m 12m

Net Sales 2851.30 3194.77 3812.21 4384.04

Other Income 7.71 13.76 9.49 10.44

Total Income 2859.01 3208.53 3821.70 4394.48

Expenditure -2391.98 -2597.33 -3110.45 -3583.95

Operating Profit 467.03 611.20 711.25 810.52

Interest -150.90 -220.31 -196.92 -206.77

Gross profit 316.13 390.89 514.32 603.75

Deprecation -69.71 -131.48 -185.52 -222.63

Profit Before Tax 246.42 259.41 328.80 381.13

Tax -68.50 -45.64 -49.17 -64.79

Profit After Tax 177.92 213.77 279.63 316.33

Equity capital 117.96 117.96 117.96 117.96

Reserves 1223.99 1403.52 1683.15 1999.49

Face value 10.00 10.00 10.00 10.00

Total No. of Shares 11.80 11.80 11.80 11.80

EPS 15.08 18.12 23.71 26.82

10

Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 30-Jun-09 30-Sep-09 31-Dec-09 31-Mar-10(E)

Description 3m 3m 3m 3m

Net sales 845.32 945.92 946.59 1074.38

Other income 0.46 3.02 2.93 3.08

Total Income 845.78 948.94 949.52 1077.46

Expenditure -691.57 -770.63 -772.63 -875.62

Operating profit 154.21 178.31 176.89 201.84

Interest -49.80 -59.69 -42.86 -44.57

Gross profit 104.41 118.62 134.03 157.26

Deprecation -43.11 -44.90 -47.80 -49.71

Profit Before Tax 61.30 73.72 86.23 107.55

Tax -17.56 -9.41 -9.29 -12.91

Profit After Tax 43.74 64.31 76.94 94.64

Equity capital 117.96 117.96 117.96 117.96

Face value 10.00 10.00 10.00 10.00

Total No. of Shares 11.80 11.80 11.80 11.80

EPS 3.71 5.45 6.52 8.02

11

Charts

12

13

1 Year Comparative Graph

Outlook and Conclusion

At the current market price of Rs.137.00, the stock is trading at 5.78x for FY10E and

5.11x for FY11E respectively.

Price to Book Value of the stock is expected to be at 0.90x and 0.76x respectively for

FY10E and FY11E.

Earning per share (EPS) of the company for the earnings for FY10E and FY11E is seen at

Rs.23.71 and Rs.26.82 respectively.

The revenue of the company is expected to grow at a CAGR of 15% over 2008 to 2011E

respectively.

On the basis of EV/EBITDA, the stock trades at 2.27x for FY10E and 1.99x for FY11E.

The Board of Directors has approved buyback of Company's shares through stock

exchange for an amount of Rs. 113.6 million at a price not exceeding Rs. 101 per share.

AJANTA PHARMA BSE SENSEX

14

The company employs over 2,500 people worldwide and its products are sold in over 25

countries.

Ajanta operates with 5 state-of-the art manufacturing facilities that produce high quality

pharmaceutical products.

The company engages in contract research for leading multinational pharmaceutical

companies to expand its revenue base.

The company focuses on specialty segments in India and simultaneous opening of new

international markets have been the key growth drivers for it over the years.

We expect that the company will keep its growth story in the coming quarters also. We

recommend ‘BUY’ in this particular scrip with a target price of Rs.160.00 for Medium to

Long term investment.

Industry Overview

Sector structure/Market size

India's pharmaceutical industry is now the third largest in the world in terms of volume and

accounts for 10 per cent of the world’s production. According to the Mr. Srikant Kumar Jena,

Minister of State for Chemicals and Fertilizers, the Indian pharmaceutical industry is now over

US$ 20 billion.

India ranks fourteenth in terms of value. The country ranks fourth in terms of generic

production and seventeenth in terms of export value of bulk actives and dosage forms,

according to Mr. Jena.

By 2015, India is expected to rank among the top 10 global pharmaceutical markets. The

industry is typically growing at around 1.5-1.6 times the country’s gross domestic product (GDP)

growth.

Moreover, according to a FICCI-Ernst & Young study, the increasing population of the higher-

income group in the country will be by 2015, open a potential US$ 8 billion market for

multinational companies selling costly drugs. Besides, the report said the domestic pharma

15

market is likely to touch US$ 20 billion by 2015, making India a lucrative destination for clinical

trials for global giants.

The Indian pharmaceutical offshoring industry is slated to become a US$ 2.5 billion opportunity

by 2012, thanks to lower R&D costs and a high-talent pool in India.

Exports

India's exports of drugs, pharmaceuticals and fine chemicals grew by 29 per cent in 2008-09 to

US$ 8.25 billion compared to 2007-08.

According to Mr. Anand Sharma, Union Minister of Commerce and Industry, the Indian

pharmaceutical sector has emerged as one of the major contributors to Indian exports with

export earnings rising from a negligible amount in the early 1990s to US$ 6.08 billion by 2007-

08.

A report by industry research firm, RNCOS, forecasts that pharmaceutical exports will grow at a

compound annual growth rate (CAGR) of 18.5 per cent between 2007-08 and 2011-12. This

growth will be fuelled by multi-billion dollar patent expirations and growth in the global

generics market.

Growth

The domestic pharma market will outshine the global market, growing at a compounded annual

rate of 12-15 per cent as against a global average of 4-7 per cent during 2008-2013; according

to a study by market research firm IMS.

The socio-economic factors such as rising income levels, increasing affordability, gradual

penetration of health insurance and the rise in chronic diseases would see the Indian

formulation market touch US$ 13.7 billion by 2013, at a CAGR of 12.2 per cent over the period

from fiscal year 2008 to 2013 (estimated).

Denmark-based world leader in diabetes care, Novo Nordisk, is looking at making India the hub

for manufacturing insulin for the sub-continent. The company has set up a dedicated facility

with a capacity of 26 million vials per annum in partnership with Ahmedabad-based Torrent

Pharmaceuticals Ltd.

16

Rural Market

According to estimates, rural areas account for 21 per cent of the country's pharmaceuticals

market. In 2006-07, the rural Indian pharmaceuticals market was estimated at around US$ 1.4

billion, having grown at about 40 per cent in 2006-07 against 21 per cent in the previous year.

French company Aventis Pharma has launched a rural market division with 10 products and a

sales team of 300 people as it eyes a bigger share of the fast growing Indian rural market.

Pharmaceutical Retail

The Indian drug retail market grew by a 29.24 per cent in value terms in October 2009 over the

same period a year ago. This is more than double the average monthly revenue growth rate of

13-14 per cent posted in the recent past, as per market research firm ORG IMS.

Generics

According to a report by IMS Health, the Indian generic manufacturers will grow to more than

US$ 70 billion as drugs worth approximately US$ 20 billion in annual sales faced patent expiry in

2008. With nearly US$ 80 billion worth of patent-protected drugs to go off patent by 2012,

Indian generic manufacturers are positioning themselves to offer generic versions of these

drugs.

Indian generic drug makers received half a dozen more approvals from the US Food and Drug

Administration (FDA) in 2009, over the previous year. Dr Reddy's Laboratories received the

highest number of tentative and final approvals in 2009 at 32, followed by Aurobindo at 26 and

Wockhardt at 23.

Diagnostics Outsourcing/Clinical Trials

The Indian diagnostics and pathology laboratory business is presently around US$ 864 million

and is growing at a rate of 20 per cent annually, according to industry experts.

Moreover, the US$ 200 million Indian clinical research outsourcing market is estimated to reach

up to US$ 600 million by 2010, according to a joint study done by KPMG and the Confederation

of Indian Industry (CII).

17

Research & Development

The search for innovative drug molecules and better technologies by pharmaceutical MNCs is

expected to offer a windfall for the smaller research-oriented Indian firms.

With their drug pipelines drying up and more blockbuster drugs going off-patent, MNCs are

looking at alliances for drug co-development, buying or licensing out innovative molecules

which can further be developed into finished drugs.

Moreover, in a bid to boost R&D in the pharmaceutical sector, the government will provide US$

422.96 million for establishing six National Institutes of Pharmaceutical Education and Research

over the next five years.

Government Initiative

The government has taken various policy initiatives for the pharmaceutical sector:

• The government has offered tax breaks to the pharmaceutical sector. Units are eligible

for weighted tax deduction at 150 per cent for the research and development (R&D)

expenditure incurred

• Steps have been taken to streamline procedures covering development of new drug

molecules and clinical research

• The government has launched two new schemes—New Millennium Indian Technology

Leadership Initiative and the Drugs and Pharmaceuticals Research Programme—

especially targeted at drugs and pharmaceutical research.

According to Mr. Ashok Kumar, Pharmaceuticals Secretary, the government is planning to set

up a US$ 439.94 million corpus fund for the pharma industry soon. The fund would be set up

with the help of the government and the industry and will be used for helping the pharma

industry in R&D.

Investment

• According to the Ministry of Commerce, domestic investment in the pharmaceutical

sector is estimated at US$ 6.31 billion.

• The drugs and pharmaceuticals sector has attracted foreign direct investment (FDI)

worth US$ 1.43 billion between April 2000 and December 2008.

18

Road Ahead

The Indian pharmaceutical industry will see tremendous growth in the coming years as

consumer spending on healthcare increases in India. Consumer spending on healthcare is

expected to increase to 13 per cent of GDP by 2015, up from 7 per cent in 2007.

________________ ____ _________________________

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

19

Firstcall India Equity Research: Email – info@firstcallindia.com

B. Harikrishna Banking

B. Prathap IT

A. Rajesh Babu FMCG

C.V.S.L.Kameswari Pharma

U. Janaki Rao Capital Goods

E. Swethalatha Oil & Gas

D. Ashakirankumar Auto

Rachna Twari Diversified

Kavita Singh Diversified

Nimesh Gada Diversified

Priya Shetty Diversified

Tarang Pawar Diversified

Neelam Dubey Diversified

Firstcall India also provides

Firstcall India Equity Advisors Pvt.Ltd focuses on, IPO’s, QIP’s, F.P.O’s, Takeover

Offers, Offer for Sale and Buy Back Offerings.

Corporate Finance Offerings include Foreign Currency Loan Syndications,

Placement of Equity / Debt with multilateral organizations, Short Term Funds

Management Debt & Equity, Working Capital Limits, Equity & Debt

Syndications and Structured Deals.

Corporate Advisory Offerings include Mergers & Acquisitions (domestic and

cross-border), divestitures, spin-offs, valuation of business, corporate

restructuring-Capital and Debt, Turnkey Corporate Revival – Planning &

Execution, Project Financing, Venture capital, Private Equity and Financial

Joint Ventures

Firstcall India also provides Financial Advisory services with respect to raising

of capital through FCCBs, GDRs, ADRs and listing of the same on International

Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and

other international stock exchanges.

For Further Details Contact:

3rd Floor, Sankalp, The Bureau, Dr.R.C.Marg, Chembur, Mumbai 400 071

Tel.: 022-2527 2510/2527 6077/25276089 Telefax: 022-25276089

E-mail: info@firstcallindiaequity.com

www.firstcallindiaequity.com