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Recommendations India

Ajanta Pharma Q1FY15 results update

August 6, 2014, Wednesday, 10:14 GMT | 06:14 EST | 13:44 IST | 16:14 SGT
Contributed by Nirmal Bang

Ajanta Pharma (APL) posted strong sales growth of 31.1% yoy to Rs 287.5 cr, which is in-line with expectations. EBITDA margins have improved by 787 bps to 31.2% on the back of improved gross margins to 72.1% from 65.9% in Q1FY14. However, for the full year we taken 70% gross margins. Net Profit grew by 80.5% to Rs 58.7 cr

Key Highlights

- Domestic markets grew by 24% yoy, much higher than industry average and its peers led by all around healthy growth like in Cardio (42% yoy), Dermatology (35%) and Ophthalmology (25%) segments, as per IMS MAT.

- During the quarter the company has launched nine products in the domestic segment. Management has reiterated its stance of growing deeper in the existing therapies and not intended to foray into any new therapy as of now. We like the fact that the company’s profitability is based on higher productivity which is likely to continue as it is not hiring more MRs.

- Exports to Emerging Markets posted impressive growth of 32.8% yoy, backed by 42% growth in Africa and 26% in Asia. APL has launched 14 new products in the emerging markets and has a strong pipeline of 1600 products under registration to ensure the continued growth.

- During H2FY14, APL has set up its own front end team in US and in Q1FY15; it has re-launched its solo product – Risperidone in US through its own front end team. The company has received Rs 2 cr as revenues from the product in the first quarter of its launch. Albeit small, we believe it is a start of revenues from regulated markets. We expect FY17 to be meaningful year for the company in terms of US revenues

- The company has filed two more ANDAs during the quarter taking the total number to 25 (combined market share is $3.5 bn) out of which 23 are awaiting approval. APL expects 2-3 approvals during FY15.

Valuation & Recommendation

We have factored in 21% growth with 30.2% EBITDA in FY15 (as compared to FY14 margins of 31.2% as Dahej facility which would be operational from Q1FY16, would add on the cost in near term), on constant currency. The company has healthy balance sheet and strong return rations more than 30%. The stock has re-rated substantially in last three years and given the growth momentum and improving profitability, we believe that it can sustain at these valuations. Considering the continuous outperformance, healthy outlook, investors can hold shares for price target of Rs 1807 (18x of FY16E EPS)