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 10.
Very interesting. Congratulations on the returns so far. I am positive there is much more to come. Like the song (slightly modified though): Let it grow, Let it grow
Just a theory, but quite likely: if a pe/mf wants to acquire 5% stake in this company, going by 2wk avg ttq, it will take them >15 days to acquire from the market. They cannot be the only buyers on a daily basis. Plus, there is a risk of share price going up rapidly if the news gets out. The stock is up 2.6x since a year ago. So, not much time can be wasted if the opportunity is real, which it very much looks like. What would you do in such a case? Go to the promoter, build a relationship with him and acquire the stake at a premium to CMP. That will unlock further value.
But what if the buyer is strategic? Or for whatever reasons thepromoter doesnât want to sell? And other investors (public) refuse to be sellers on a daily basis? One has no other option but to give an open offer if one wants to pursue the opportunity. Again, value unlocking.
But wait a second. Promoters have been buying. Why?
Price signalling: One of the best ways to unlock value is to put your money where your mouth is. Promoters are clearly giving signals to the market that Ajanta is worth more than what the market is trading it at. Reminds me of the case study where to sell quality stuff, all a businessman did was started selling their products at a premium to the market snd they grew!
The more the better
And of course the dividends
In process, if they get an offer at a premium, which is very likely, it will further unlock value. And I wont discount the possibility that they are already doing it for somebody - keep on buying and transfer to the buyer once the required stake has been acquired.
High volumes today. Nearly 10% of s/o traded today as of now ~3.5% on the BSE and ~6.6% on the NSE. Only 18% delivery on the BSE yesterday. At 772/share, the stock is trading at 11.7 LTM P/E. Lots of maybes involved now
I got out of the stock today completely. I think there is a lot of froth visible currently and stock seems to be in blowout phase.
At around 12 times FY 12 cons EPS it seems fairly valued even though it is likely to grow at around 20% CAGR. I think it might take a pause which might induce me to make a reentry.
If it continues to go up then may the buyer earn since he is taking much more risk than me.
I already got my four bagger and satisfied. My initial target when I was buying this one was around 550 within 2 -3 yrs and target is surpassed much earlier and by a wide margin.
Congrats Hitesh! And thanks for the great pick. All those who followed your strong conviction in this thread made some good profits - me too
And this was one stk where throughout the ride there was a feeling that the stk has runaway from purchase-price range! Yet, it continued to surprise on upside.
And have you been Godly prescient or what? Today in the last few hours stock gave away almost the entire exponential rise made in last one week.
I made some partial profit booking earler today morning, thanks to a cautious note on twitter, and because I too was getting twitchy and nervousâŚ(I missed yr note yesterday).
But todayâs price movement has been mind-boggling.Yesterdayâs and todayâs vols were almost 10-12x times normal. Yesterday it was 8% up and today straight 15-20% down. Whatâs going on?
Also, this is probably the only stock I know of bought by promoters on almost daily-basis through their inv. holdings (Gabs Investment) since Novâ11 upping itâs stake from ~2% to ~7.5%. This was the sole comfort factor why I didnât get out of the position fully. But seeing todayâs price movements, Iâm a bit wary. Can someone explain this disconnect?
And considering todayâs closing - 627, Hitesh, would it entice you to think of a re-entry level?I just saw the charts today - Holy Mary, yesterdayâs intraday high touched 800!! Almost 25% drop from that price.
Thanks for your timely note of caution. Let the froth settle down, hopefully soon.
Lets work more on building a proper case for Ajanta for next 2-3 years, do solid homework this time, and meet the Management. Being a Pharma stock, there remains a case for premium discounting by market if it manages decent growthâŚand the only one in ValuePickr portfolio with this profile.
I think the froth was quite visible who saw the trading fervour yesterday when the stock was up and every effort at profit booking was met by renewed buying. Only in the last half hour of trade did it give up some gains to touch 735 odd levels.
Even today morning it was quite strong at around 740-760 and then all hell broke loose in last half hour of trade.
Coming to donaldâs query about re entry levels I guess somewhere close to 550 should be a good level to enter but first I would like the froth to settle down and volumes in the stock to come down and let the stock settle down in a range. valuation wise I think 550 seems to be a good place to bet on this one.
i was just looking at promoter holding and it has gone up sharply to 70% as on march 12 disclosure and since then too they have been lapping up stocks from the markets like crazy. Since March 12, promoters have raised stake in their firm gabs investment from 7.55 lacs to around 8.7 lacs according to latest disclosure. Thats close to 1.15 lac shares at price ranging from around 500 to 625 levels.
Wonder whats going on in their minds? Delisting plans/ stake sale plan/ or just plain great market prospects?
The latest SAST announcement mentions them as buying on 24 th May as well when price was between around 608 to 625.
Regarding acquisitions: They even purchased 5600 shares on 30th when price range was 720-800. (Itâs 9.13 lacs now) Something odd abt their filings too. Some days (like 31st, 23rdâŚ) they have as many as three filings in single day. And mismatch between BSE/NSE filings.
Congratulations! on the fantastic entry and exit. I am really thankful to you as I also picked this stock, though quite late but still making profit.
The way trading is happening on this make me remeber 2003 days when Gail was just Rs 200. The delivery were horribly low. On thursday and friday for Ajanta though volume has not come down but delivery on friday was just ~4% on NSE. My feeling isin few daysit will simply drop to Rs 550 level which most of the people are talking over here.
I somehow missed your note and could not exit at the time. What you would suggest should I hold on or exit at the current price and start look at it again.
Its a difficult call to make. If you have a big enough position then lighten some of it on rise and wait for dips to materialise to add around 500-525 levels.
Currently stock is too volatile even on intraday basis to make any judgement of the direction in the short term. even intraday range is of around 40-50 rupees. I find it good for trading. can give u quick bucks. Only risk is getting stuck at higher levels in case stock falls down. So idea is to keep small position.
Ideal time to accumulate would be to allow volumes to shrink, and the range to narrow down to a may be a difference of rs 10 or lower between high and low.
Ajanta Pharma is now among theTop 50 (FY 11 ranking 63) pharma companies in theIndian market (IMS ORG MAT March2012). 2000+ strong field force. During the year the newproduct launches were 25 out of which13 were first time in the country.
The company received 2 ANDA approvals from USFDA in FY12 with another 7 awaiting approval. The first product will belaunched in the US market in Q1 FY13.
The most interesting thing to note in the company is the huge amount of outlay on R&D Expenses. Here is a summary:
Year 2008 2009 2010 2011 2012
3.59
6.87
20.26
24.88
37.4
20.18%
32.12%
70.99%
53.56%
56.25%
The first row shows the amount of exp on R&D (the amount debited to P/L only)
The second row shows the amount as a % to Net Profit.
The co has been making aconsciouseffort to move up the value chain and that augurs well for the future prospects and re-rating.
Few things to understand:
1. For which stream are the products being developed and ANDAs being filed. How big is the opportunity here?
2. The co mentions about peaking out of the production capacity in 2 years and co would need substantial investments in excess of 400 Cr to expand. Does it mean that the growth prospects are limited for next 2-3 yrs? If not what could be the growth rates for next 2-3 years?
3. Though they have 4 plants, only one seems to have been approved by USFDA etc. Does this limit their potential?
Would be reading more on this co and try to get better understanding.
I am kicking myself why I had missed out working on this stock story for over a year, despite prodding by Hitesh a few times, after the initial work on the company.
What a stock story:) Lot of changes/improvements have taken place in the company over the last 2-3 years. These are imprinted in my head only nowâŚonly after compiling the stock story.
As luck would have it, I had lazily allocated some 2-3% , just based on talks with Hitesh. Thanks Hitesh:) and No, Thanks for not being able to transfer your conviction to me:( You have such a refined gut feel⌠Had I compiled the story before, the allocation would have gone upwards of 10%.
Better late than never! I will slowly look toaccumulatemore of Ajanta Pharma on declines/corrections.
the money spent on research seems to be paying rich dividends now. and as you pointed out the company is consistently moving up the value chain. that is amply reflected in gross and net margins. i guess a lot of research expenses are due to launch of first time in india kind of products which necessitates some trials on clinical side plus some research on manufacturing side as well.
coming to ur queries,
1). company seems to be focussing on psychiatry products levetiracetam is used by psychiatrists. so is risperidone. opportunity is huge in the US market. It is by far the biggest and most stringent market for exports.
2). peaking of production capacity in 2 years-- i think at the rate they are going they might need to augment their production facilities. I would read somewhat different from your observation in that management seems quite confident of strong growth. I like the way they are thinking 2 years ahead.
3). They have four plants. It makes sense to make only one of them USFDA approved bcos it involves a lot of cost and effort to get USFDA approvals and there would also be periodic inspections by the fda people so no use getting other facilities meant for Indian, african and asian production approved by usfda. Since the facility is approved by the FDA guys, they can keep on manufacturing from there as and when they get product approvals from USFDA.
Firstly, congratulations to Hitesh for bringing the story to valuepickr at the right time and at the right valuations.Personally, pharma is outside my circle of competence but I do enjoy analysing companies and stock stories.
My primary concern is how expensive is the US foray going to be and can the company manage it. The US pharma industry is the largest pharma market in the world with lots of competition from companies many times the size of Ajanta. This is the big leagues and it doesnât get bigger than this and does management have the kind of expertise to grab a share of the pie? Iâm not sure if the company is pursuing the right strategy by going after psychiatry products - a huge US market opportunity. I would think that there would be significantly more competition from larger players if the opportunity is huge. It might make more sense to pursue a large enough opportunity but not too large for the larger players i.e. a niche area that larger players ignore.
Even if the company manages to pull it off Iâm sure there will be an investment period of 3 - 6 months when the company will make losses and the market, being short-sighted might punish the stock during this time. The depreciation of the INR surely does not help.
Iâm more positive about the domestic story with great products and Indians will have a long period of growing pharma consumption.
So as I said previously, how the US foray pans out, what products the company bets on and how much it costs the company are probably the issues to consider. I would think the stock is ultra-cheap if the company manages to pull it off, but its a BIG if.
