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201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 1
Stock details
Shareholding pattern as on 30th June 2010
RESEARCH ANALYSTS
ANSHUMAN JAIN DIVYA KANT [email protected] [email protected]
BSE Code 532331
NSE Symbol AJANTPHARM
Bloomberg Code AJP IN
CMP (`) 239.60
Market Capitalization (` in Crs) 282.48
Face Value (`) 10.00
Book Value (`) 150.16
52 Wk High (BSE) ` 273.65 (07 Sep ,2010)
52 Wk Low (BSE) ` 87.35 (03 Nov,2009)
Target Price (`) 380
Time Horizon 12-18 Months
Ajanta Pharma Ltd - APL “BUY” 01st Nov, 2010
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 2
Company Profile….
Ajanta Pharma is a specialty pharmaceutical company headquartered in Mumbai engaged in the
development, manufacture and commercialization of pharmaceutical products. Its products are sold and
marketed in over 52 countries through an established presence across Africa, Asia, Latin America and
the CIS countries. APL is in the process of formulating products to be able to file product dossiers in the
regulated markets.
Ajanta operates with 5 state-of-the art manufacturing facilities that produce high quality pharmaceutical
products. It focuses on commercializing unique generic products and pioneering synergistic
combination products in the therapeutic areas of anti- malarial, cardiology, dermatology,
gastroenterology, musculoskeletal, ophthalmology and respiratory disorders.
APL has an advanced Research & Development Centre for API synthesis and finished formulations of
different dosage forms. It focuses on specialty segments in India and simultaneous opening of new
international markets have been the key growth drivers for them over the years.
APL is also engaged in contract research for leading multinational pharmaceutical companies
Manufacturing Facilities
APL operates 5 state-of-the-art manufacturing facilities comprising of 4 within India and 1 in Mauritius.
The manufacturing facility located at Paithan, India is approved by the US FDA, health authorities of Brazil and Colombia.
The company uses its proprietary technology and synergistic manufacturing platforms to produce high quality products efficiently and produces a comprehensive range of dosage formulations of allopathic drugs including tablets, capsules, ointments, injections and powders.
APL is regularly upgrading its manufacturing units in order cater to the growing marketing needs & is in the process of expanding its manufacturing scope with more facilities and capacity enhancements in the existing plants.
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 3
Research & Development….
Ajanta Pharma has a Research and Development division which is 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 working on different dosage forms ranging from topical creams, ophthalmological preparations, nasal sprays and dry powder inhalers etc.
PL R&D hub covers an area of 30,000 sq feet (2,800 sq meters) and is fully equipped with modern amenities and technology for accessing reference material, environmental monitoring, data collection & analysis, record keeping and archiving.
Major Brands…..
Ajanta Pharma’s expertise covers a broad spectrum of products targeting various diseases. Some of its major brands targeting diseases are
1. Anti-Malarials (Artefan – Artemether & Lumefentrine) 2. Cardiology (Met XL – Metoprolol Succinate) 3. Dermatology (Melacare – Hydroquinone, Tretinoin, Mometasone) 4. Gastroenterology (Lafutax – Lafutidine) 5. Musculoskeletal (Feburic – Febuxostat) 6. Ophthalmology (Unibrom – Bromfenac) 7. Respiratory (Fivasa – Fluticasone Furoate Nasal Spray)
APL also has a significant global presence in the Male Erectile Dysfunction (MED) segment through its key brand ‘KAMAGRA’ and equally strong equity in anti-malarial segment through ‘ARTEFAN’ where it was the first branded generic to get WHO pre-qualified.
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 4
Pharma Industry Overview
India as a Global Destination….
The Indian pharmaceutical industry is currently the third largest in the world in terms of volume and
stands 14th in terms of value .The total turnover of India's pharmaceuticals industry between September
2008 and September 2009 was US$ 21.04 billion. Of this the domestic market was worth US$ 12.26
billion. Source: The Department of Pharmaceuticals, Ministry of Chemicals and Fertilizers (Jul, 2010)
Further the increasing population of the higher-income group in India will open a potential US$ 8
billion market for multinational companies selling costly drugs by 2015. Besides the domestic pharma
market is estimated to touch US$ 20 billion by 2015, making India a lucrative destination for clinical
trials for global giants.
(Source: Pharma Industry Study, Ernst & Young)
The pharmaceuticals industry in India will grow by over 100 %over the next two years i.e. FY10 –
FY12
There has been an increase in sales of all types of medicines, particularly anti-biotic, will zoom up in the
coming years.
Currently the pharmaceutical industry is currently growing at the rate of 12 %, but this will accelerate
soon. The sale of all types of medicines in the country stands at US$ 9.61 billion, which is expected to
reach around US$ 19.22 billion by 2012.
Source: All India Organization of Chemists and Druggists (AIOCD)
India tops the world in exporting generic medicines worth US$ 11 billion and currently, the Indian
pharmaceutical industry is one of the worlds largest and most developed
(Source: The Department of Pharmaceuticals, Ministry of Chemicals and Fertilizers)
India will join the league of top 10 global pharmaceuticals markets in terms of sales by 2020 with the
total value reaching US$ 50 billion.
Source: Price water house Coopers (PWC)
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 5
Government Initiatives….
100 per cent foreign direct investment (FDI) is allowed under the automatic route in the drugs and pharmaceuticals sector including those involving use of recombinant technology. (DIPP)
The Government plans to set up a US$ 639.56 million venture capital (VC) fund to give a boost to drug discovery and strengthen the pharma infrastructure in the country
The GOI has prepared “Pharma Vision 2020" for making India one of the leading destinations for end-to-end drug discovery and innovation and for that purpose provides requisite support by way of world class infrastructure, internationally competitive scientific manpower for pharma research and development (R&D), venture fund for research in the public and private domain and such other measures.
The Drugs and Pharmaceuticals Manufacturers Association has received an in-principle approval for its proposed special economic zone (SEZ) for pharmaceuticals, bulk drugs, active pharmaceutical ingredients (APIs) and formulations to be located at Nakkapalli mandal in Visakhapatnam district
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
Source: IBEF
APL Mapping the Complete Pharmaceuticals Value Chain….
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 6
FINANCIAL HIGHLIGHTS FY06 TO FY10 (STANDALONE)…….
Fig in Cr
Total Income ~ CAGR growth 16 % PAT ~ CAGR growth 30 %
Q1FY11- Stellar Performance……..
Fig in Cr
Particulars Q1FY11 Q1FY10 % Change.
Sales 98.29 84.53 16
OPM % 18.17 18.18 -
PBDT 13.77 10.41 31
PBT 8.59 6.13 40
NP 6.98 4.37 60
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 7
International Presence……
Nearly 60% of total sales of the company come from international markets. In international markets, the company sells its products through its own team of sales representatives. It has a dedicated chain of salesmen which ensures its brands reach the dealers
APL has healthy presence in various regions across the globe
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 8
Risks ….
The company’s Joint Venture Turkmenderman Ajanta Pharma Limited though continued its operations in FY10 its performance had been much below expectations. However it would be mitigated company is planning to exit the JV in near future
Currency volatility has been an area of concern since ~60 % of the total sales are from global markets. This has been mitigated by systematic hedging facility.
Company’s entry in regulated markets could pose as a threat going forward however this would be mitigated since company has rich experience of having excellent performance in the recent years and has established its niche in the markets of Africa with strong brand equity and is looking to repeat the similar performance going forward.
APL is bit weak in the eastern region of India however initiatives are being taken the company for more brand visibility along with strengthening of the sales team
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 9
Investment Rationale……
Strong Brand in Key Markets: APL operates in 52 countries and has a healthy international presence.
Some of the list of products (brands) includes Valif, Met XL 100 for cardiovascular, Artefan for Anti
malarial segment, Melacare, Nasopat, Fivasa, Salisa for Dermatology segment, Unibom, Apdrops for
Ophthalmology. The company also has product called Kamagra for males, which has found strong
presence in Gulf and African markets
Unique Business Model: APL does not sale all its products in all the geographies in which it operates.
Rather it follows a very country specific and product specific model. For example, it sells its Anti
malarial products and specialty range of products in African markets which continue to do wonder,
while in South East Asian markets, cardiology, ophthalmology and dermatology products are sold.
Similarly for Latin American market, the company has cuff syrup dosages. Thus rather than dumping all
the products to marketing team, products or rather, the brands are sold depending upon the demand for
that particular market.
Specialty Domestic Business: In domestic market, all its sale come from prescription based model and
largely from three segments ie, dermatology, cardiology and ophthalmology. All its sales are from
prescriptions from Specialist doctors. The company's brands are the strongest among these specialist
doctors. For example for dermatology, Melacare is recommended by most specialist doctors
Expansion & Capex Plans: During past 3 years, the company had incurred a capex ~ Rs. 100 crore.
Nearly 20 crore is spent on upgrading the Paithan facility and the rest is spent on setting up new API
facility in Aurangabad and on new R&D centire in Kandivali (W), Mumbai and on warehouse
infrastructure. The company will spend every year ~ Rs. 20 crore, largely on new products, expansion
and up gradation in existing products and on R&D's. Which we believe will enable it to have
competitive advantage over its peers.
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 10
Strong Pipeline of Products: APL continues to focus on New Drug Delivery Systems (NDDS) and
new combinations. It has 1380 product registrations in different markets of the world and over 1029
more are waiting in pipeline. Further the company has plans to launch 20 products in FY11.
Derives Outsourcing Benefits: APL manufactures ~50% of its total sales and rest by outsourcing
partners which ensures better control over logistic and other costs thereby resulting overall better
margins for the company
Key Support Role played by Subsidiaries: The Mauritius Formulation facility is largely for Western
part of African markets, where there exists some treaty with the Mauritius that the imports are allowed
duty free and without any restrictions. The US subsidiary is largely for filing ANDA and other
procedural purposes. The Philippine subsidiary acts as a marketing arm for that particular region.
Promoters Venturing in Pharma SEZ: Inspira infrastrucre has plans to set up an Infrastructure
Pharma SEZ in Aurangabad. There are no direct business connection with this company and Ajanta
Pharma, except that the promoters are the same
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 11
Financials - Income Statement – (Rs. in Cr except EPS)
Particulars FY 10 FY 11E FY12 E
Revenues 408 481.44 572.91
Other income 2.51 2.51 2.51
Total Income 410.51 483.95 575.42
Expenditure 330.50 391.06 471.82
Interest 20 18 15
PBDT 60.01 74.89 88.60
Depreciation 21 28 33
PBT 39.01 46.89 55.60
Tax 4.77 6.66 8.34
Net Profit 34.24 40.23 47.26
Equity Share Capital 11.79 11.79 11.79
EPS 29.04 34.12 40.08
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 12
Balance Sheet – (Rs. in Cr)
Particulars FY 10 FY 11 E FY12 E
LIABILITIES
Share Capital (A) 11.79 11.79 11.79
Reserves and Surplus (B) 173.12 209.94 253.78
Net worth C(A+B) 184.91 221.73 265.57
Secure Loans (D) 227.95 215 190
Deferred Tax Liability (Net) (E) 5.27 5.27 5.27
Total F(C+D+E) 418.13 442 460.84
ASSETS
Gross Block 242.57 279.57 324.57
Less: Depreciation 74.11 102.11 135.11
Net Block (G) 168.46 177.46 189.46
CWIP (H) 46.99 30 5
Investments (I) 8.46 8.46 8.46
Net Current Assets (J) 194.22 226.08 257.92
Total K(G+H+I+J)) 418.13 442 460.84
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 13
Cash Flow Statement (Rs in Cr)
Particulars FY 10 FY 11E FY 12E
Net Profit before Tax 39.01 46.89 55.60
Net Cash Flow from Operating Activities (A) 95.47 86.14 74.75
Net Cash Flow from Investing Activities (B) (42.67) (20) (30)
Net Cash Flow from Financing Activities (C) (46.05) (34.35) (43.42)
Increase/(Decrease) in cash & cash equivalents during the year (D)
6.75 31.75 1.33
Cash and Cash Equivalents at the beginning of the year (E) 8.06 14.81 46.59
Cash and Cash Equivalents at the end of the year F (D+E) 14.81 46.59 47.92
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 14
Outlook &Valuation….. PEER Group as On 21 Oct, 2010
Company Market Cap P/E (TTM) P/BV (TTM)
(Rs. in Cr.) (x) (x)
Plethico Pharma. 1,293.47 17.94 1.91
Parenteral Drugs 804.69 24.94 2.62
Bliss GVS Pharma 419.1 9.36 3.15
Twilight Litaka 388.89 10.23 4.19
Venus Remedies 258.9 5.61 1.44
Ankur Drugs 252.39 3.13 0.71
Amrutanjan Healt
225.8 27.47 2.32
Sharon Bio-Med. 181.95 8.45 1.58
Ind-Swift 163.06 4.49 0.64
Kilitch Drugs 145.46 12.27 1.96
Ahlcon Parent(I) 81.72 9.56 2.39
Lincoln Pharma.
72.33 9.19 0.98
Hester Bios 69.03 11.35 1.69
Industry Avg - ~ 12 ~2.01
Ajanta Pharma 289.44 9.29 1.64
TVL is trading at a significant discount to its peers in the mid cap pharma sector. The company is
trading at P/E (12 TTM) of 9.29x V/S industry average of ~ 12times
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 15
Valuation…..
Ajanta Pharma is operational in more than 52 nations having significant international &
pan India presence
APL continues to focus on New Drug Delivery Systems (NDDS) and new combinations. It
has 1380 product registrations in different markets of the world and over 1029 more are
waiting in pipeline.
Further the company has plans to launch 20 products in FY11.
APL to spend ~ Rs 20 Cr every year for next couple of largely on new products, expansion
and up gradation in existing products and on R&D.
Further the US subsidiary to focus on ANDA (Abbreviated New Drug Application) which
will be the future growth driver for the company and would enable the company to venture
in US markets in the near future.
This warrants strong case of re-rating of the stock….. At current market price of Rs. 239.60/- the stock trades at a PE of 6.0 x times of FY 12 estimated earnings of Rs 40/- We recommend a “Buy” at a CMP with a target price of Rs 380 /- in next 12 - 18 months.
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 16
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Research
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Inventure Growth & Securities Ltd has prepared this Document. The information, analysis and estimates contained herein are based on Inventure’s assessment and have been obtained from sources believed to be reliable. Neither Inventure Growth & Securities Ltd nor any of its employees or associates accepts any liability whatsoever direct or indirect that may arise from the use of information herein and shall not be responsible for its completeness and accuracy. It is not an offer to sell or a solicitation to buy securities. This document is for circulation only
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201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 17
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