Ajanta Pharmafeatures in Hitesh Patel’s current top 5 picks for a 2-3 year horizon. I had not looked at this at any depth before, but decided to as it came highly recommended from Hitesh. Here is what Hitesh has to say about the stock in brief
Ajanta pharma)-- consistent growth, good brands in domestic markets, strengthening its presence in overseas markets, relatively recession proof, reducing debt since around last few quarters. cmp 192, stock available at a pe of around 5-6. On a scale of 1 to 10, valuation is very attractive and so gets a grade of 9, conviction also at around 9.
Had an initial good look and came away impressed to dig further. My observations/questions:
1). Long term sales CAGR of 23% and PAT CAGR of 47%
2). 5yr Sales CAGR 17% and EPS CAGR of 29%
3). Raw material/Sales has consistently been coming down from 56% of Sales in FY06 to 36% of Sales in FY10
4). NPM has been consistently increasing from 5% in FY06 to 7.5% in FY10
5). Top brand in Dermatology like Melacare
6). New state of teh art API facility set up in Waluj Aurangabad in Fy10
7). Acquired formulations facility to cater to the rest of the world markets in FY10
8). Very impressive 1HFY11 results - Sales growth 18%, PAT growth 58%. This should be maintained as there is no apparent seasonality in Sales as seen from past quarters. NPM has touched almost 9%
1). Tax rate is pretty low ~15-16% for FY10?
2). Promoters had pledged shares - at one point this had gone upto 25% from 14%. Its down to 1.7% of total shareholding. Do we know the circumstances, why??
3). Company has always had high debt. Have been reducing the debt burden of late and in Q2 d/e is down to 0.93
4). What is the reason for the impressive performance in 1HFY11 as compared to say FY10? One factor is that they have been repaying debts regularly so interest cost/Sales is down below 4% from some 6% in FY10 corresponding quarter, but that is probably not telling the whole story
5). Raw material/Sales has seen huge improvements -from 39% to 31% of Sakles in last few quarters. Is this the effect of the new API facility that must be catering to captive use mostly. Does it supply some 50% of captive needs?
Some of these answers may tell us more on the sustainability of growth and profitability going forward.