Sorry to be a spoil sport but why do you think this is a good quarter?
Operating margins have declined. If it was not for the reduced interest and tax, net profit would be substantially lower.
R&D costs and labour costs have gone up. Is it because of lack of skilled manpower? How expensive is the companies foray into the US drug market going to be?
More importantly, when will margins stabilise and to what level?
cheers,
Subbu
I feel the results are good for precisely the reason u put up. There is another way to look at OPMs. Inspite of R&D spend going up and higher employee costs the company has managed a decent show. Take out these higher R&D and employee expenses and figures will look even better. Interest and tax expenses come later in the equation.
In one of its concalls management has indicated its intent to increase its focus on domestic markets and hence higher number of MR. In the class of medical representatives there is nothing like skill. It is just attending to the doctors regularly and repeating the products.
Management has guided for around 15-20% growth for next 2-3 yrs and that looks achievable. And even if there is same net margins, we have a 15-20% grower available at extremely attractive valuations. Any improvement in margins would be like icing on the cake.
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Good answer Hitesh. Im satisfied with the domestic story.
You previously mentioned that the Company is going to enter the US in a big way and about 100 crore capex is envisaged.
This is outside of my circle of competence and I could be wrong. The US is a mature market with a lot of big pharma companies like Astrazeneca, glaxo etc. How does a small company like Ajanta compete with them in the same market? Is spending 100 crore a wise investment? What is Ajantaâs product going to be in the US and how does it compare with alternatives in the US (i.e. glaxo, astrazeneca etc).
What is your call on this? I would be more happy if the company focussed domestically and returned cash to shareholders rather than embarking on another risky journey in the US.The US govât is already under pressure to cut spending so healthcare is expected to be cut. So the industry is only going to become more competitive.
cheers,
Subbu
I equation.
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hi subbu,
I dont think the company plans to spend 100 crores only for US operations. The amount of 125 crores is total capex over fy 13 and fy 14.
I think their export markets has reached saturation in terms of scorching growth. Domestic markets are having cut throat competition and in both these markets company can keep growing at 15-18% CAGR.
If company wants to mature to the next level then US markets are the place to go. And there also I like the calibrated approach of the company of going for few launches per year. They already have facilities for API and formulations which can be utilised for better profits in US markets.
Regarding companyâs standing as compared to other big players it is the proverbial kid amongst men. so for achieving some kind of standing it has a long way to go.
Investment here is like looking at a sizeable company 3-5 years down the line. I dont expect any significant re rating also immediately. But if it keeps churning up decent set of results as it has done in the past then markets are not going to ignore it for long and some time in future the current PE of 7-8 is going to go up to 12-15 or so. Thats when we will need to take a re look.
regards
hitesh.
Hi Hitesh,
1). Excellent pick. Reading this thread reminded me of passages from Lynchâs 1Up book where he talks abt futility of dentists investing in oil, and oilmen investing in pharma 
and regretting over the fact that he missed some new dept store from where his wife/her friends were shopping. Nothing like that going on here. You are doing the right thing. You can confidently, and quite literally, claim to âhave your skinâ in the game 
(sorry, couldnât resist the pun).
2). Also, would like to draw yr attention to the fact that recent Valuex India forum (arranged by Atyant Cap Fund mgr Rahul Saraogi) included a factory visit of Ajanta and breakfast hosted by promoters Agarwal family. Probably you already know, but didnât see this mentioned in this thread, so thought let me just update for everyone else. So this stock can be said to have been discovered by value investors/funds -http://valuexindia.com/agenda/(see Nov 9 agenda)
3). Can you update us about Q2 results and how the story looks now? CMP is right abt at ~330 levels which you earlier mentioned youâd be comfortable adding to yr position. But with the impending gloomy outlook, do you maintain yr call or any other advise for a better entry point for someone entering fresh?
Thanks.
Hi
Second quarter results for ajanta have been steady. Margin have been affected somewhat by higher other exp, higher employee and R&D expenses. Inspite of this the net profits have shown marginal growth of around 11-12% y-on-y during the quarter.
I think this stock is for keeps till it is grossly overvalued whenever there is excessive optimism.
The management seems to be buying in real earnest recently which seems to be encouraging.
Excellent set of numbers from Ajanta pharma again for q3 fy 12.
** Sales NP**
q3 fy 12 164 18.5
q3 fy 11 120 11.9
9M fy 12 426 42.9
9M fy 11 331 29
9M fy 12 eps is 36.63.
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The company seems to be on track to achieve an EPS of close to 55 per share for FY 12 as the last quarter is usually the best quarter.
Hello Everybody,
Indeedsuch an insightful discussion. I appreciate the time and effort people put in to share their ideas. My amateurish ideas are available on my blog.
http://investingkitten.wordpress.com/2012/03/22/ajantapharma/
Hi Investingkitten,
If you think you have anything of value to add, please put the content here. The way you are putting your blog link here and in the TED forum, I am tempted to think you are here to promote your blog!!
I wouldnât mind sharing whatever I write on my blog here verbatim. Yes! i would like it if my blog becomes popular. No! That ainât even an important objective. So many learned people are generous enough to reveal less known info on stocks at varied places that I felt obligated to share whatever little I knew to share it on some place say blog⌠Here you go
20120322
There is more hope than a reliable story backing this particular pick. Nonetheless value investing for sure. It is a pharma company with licenses in Anti-malarial, erectile dysfunction and dermatology preparations.
Pros
Cons
Trivia
Disclosure
I have today increased my portfolioas exposure to this stock from 3% to roughly 11%.
Hello,
A promoter group company has been buying aggressively in recent few weeks, and the stock has now touched 550. I contacted the management to find out the share of âkamagraâ in total revenues. It is small 2.5%. My analysis falls flat on itâs face from this revelation. I am not selling this stock yet. Will wait to analyze results of next couple of quarters before I take a decision to sell. I am not mentioning my blog here as some valuepickrs like Ashwini Damani tend to get outrageously offended.
Their blog rocks, mine sucks! so be itâŚ
TC
investingkitten,
Hi investingkitten,
Do you have any valuation exercise on this which you could share with us.
im sure they have other products which are doing well especially in dermatology etc,a single product nit doing well or emphasis on a product which everybody wants to enter the market with does not seem tobe a compelling factor to sell this one,if you givea brief outlook on the management outlook,vision and where they want to stand after 10-15 years it would be great,im invested in this for some time and wanting to add more with the expectation that it would be the next big pharma co,the numbers show that they are performing,rest we require is the managemnt enthu and drive.
Donald ,do we have management interactions for this one or plans for the same in the future.
Again excellent results from ajanta for fy 12.
Consolidated figures:
Yearfy 11fy 12
sales 497 671
OP65 108
NP50 77
EPS 43.3 66
Hiteshbhai,
Wonderful Results once again! 32% Sales growth with a 43% PAT growth. Debt levels are low. RoE ~30%
1). What are you conservative estimates for Ajanta for Fy13?
2). Will it be able to maintain a 25-30% growth?
3). Are you factoring in additional US Sales form the 2 approved ANDAs starting from Q1FY13
On a consolidated basis, the stock is available 8.7x trailing. If it can do a 30% PAT growth from here 1 year forward it is available at 6.7x - which is pretty good. We can alwaysaccumulatemore on declines.
Your considered views, please. How does it look for the next 2-3 years??
Yearfy 11fy
OP65 108
NP50
Hi HiteshBhai,
I am newbee here. First of all my heart full congratulations for finding this excellent pick.
You have been doing excellent work.
1).
2).
3). alwaysaccumulatemore
hi donald,
nice to see u taking interest in ajanta.
yes the growth seems quite feasible. I think company can do around 75-78 per share for fy 13 on consolidated basis.
additional US sales will start contributing meaningfully from around fy 14 second half. at present it is just a small fraction of overall sales figure.
I think ajanta is halfway in terms of PE rerating. And once this process begins usually there is a lot of fun and games and often goes to other extremes in the jubilant mood. So I wont be surprised to see ajanta attain PE levels of around 15 if growth continues for a few more quarters. Effectively stock can double from here also.
Hi Hitesh,
Agree with future prospects if this kind of growth momentum continues.Pharma as a sector is always considered more stable and the market does accord premium discounting.
The stock has much more steam left, if the growth continues. After making the stock story, we never took the trouble of preparing for a proper Management Q&A - we were happy to ride on the field-insights regularly updated by you.
The performance and the superior profile of the business/sector - must drive us to do a proper assessment.
Will start working on this in detail after a couple of weeks (going on a 2w vacation with kids end of week). will take your help!
Cheers.
Every time I look at this company, it reminds me of the early days of Torrent Pharma story - almost similar/better growth story, excellent financial metrics and available at attractive valuations. Along the way, brokerage houses kept on publishing reports and gradually led to re-rating, and one fine day, the company which nearly won the generic arm of Merck, became 1bn $ company (now just shy of it, as dollar has appreciated along the way). The day this company gets coverage from leading brokerage houses, re-rating wont take time. 25-30% pat cagr in the next 5 years and 16-20x pe can take this to a market cap of ~4000 crores. Current market cap: 759 crores.
Rohit,
Comparision with Torrent was exactly the sense I had when I had a look at Ajanta for the first time. And the reason why i was interested was back when torrent was quoting around 120 per share I had taken a position based on chart pattern and made some good money but got out way too prematurely at around 180. Learnt the lesson in case of Ajanta and have been patiently holding on since dec 10.
Hitesh,
Congratulations for this wonderful pick! What are you best stock picks at the moment? I am a new stock investor in Indian stocks and based out of London.
