headwinds are being faced by companies with more exposure to the US i believe. Price erosion among generic suppliers in the US, USFDA issuing observations , etc are causing a concern for such companies. Ajanta has a small exposure to US, that too in niche medicines with less chances of price erosion.
in that case, why is it at its multi-year low?
national pharma draft policy might affect the margins of indian business of all pharma companies. i think this is a major concern for ajanta pharma .Also african business will degrew this year . Except US , i dont see any growth for ajanta in the short term
Mumbai, India – (31st August, 2017) -
Ajanta Pharma Limited, announces today the launch of Eletriptan Hydrobromide Tablets in the US market through its wholly owned subsidiary Ajanta Pharma USA Inc. It is a bioequivalent generic version of Relpax®1 Tablets. Ajanta Pharma has launched the product in two strengths, 20 mg and 40 mg tablets.
Eletriptan Hydrobromide Tablets is part of an ever growing portfolio of products that Ajanta has developed for the US market. In total, Ajanta has 35 Abbreviated New Drug Applications (ANDAs) of which it has 19 final ANDA approvals, 2 tentative approvals, and 14 ANDAs under review with US FDA. So far it has launched 14 products in the US market.
Given the pricing pressure from US as well as Indian government, it would not be wise to ignore the head winds. However, one cant overwrite the sector cause without R&D expenses, new discovery will not aspire that much. Government will understand that and will strike a balance over long term.
Given both the facts, I think a PE of 15 offers some margin of safety with additional exposure at every 10-15% fall.
I am restricting my allocation to Pharma to 15% given the current headwinds, at present have 8% exposure. minimum 3-5 years of patience is needed to let the company prove its mantle.
Disclosure - Currently do not hold any position in the company, look for 1000 level.
Reliance has initiated coverage with TP of 1500
The company shows Fixed Assets Purchased as zero for last several years. Isn’t that a very important expense for a growing company?
Is the company spending enough on research to justify growth?
can you please upload the report or the gist of the report here?
Ajanta Pharma - Initiating Coverage - Robust Domestic Biz & Healthy Export Prospects
Ajanta Pharma (AJN) – a specialty pharmaceutical company that develops, produces and markets a wide range of branded and generic formulations – has consolidated its position in domestic formulations market, while strengthening its exports footprint over the last five years. Looking ahead, we expect AJN to sustain growth momentum on the back of new product launches in domestic market and healthy export prospects post US FDA clearance to its Dahej unit. We initiate coverage on the stock with BUY recommendation and a Target Price of Rs1,500, valuing the stock at 25x FY19 EPS of Rs60.
Domestic Formulation Biz to Sustain Steady Growth Momentum
With its aggressive launches and improved sales force productivity, AJN’s domestic formulation business – which accounts for ~32% of total sales – reported a strong 22% CAGR to reach Rs5.3bn (higher than IPM) over FY12-17. Despite challenging regulatory environment and loss of sales due to GST roll-out, we expect steady growth momentum to continue, going forward driven by improved sales force productivity and new product launches (15-20 products per year). We envisage AJN’s domestic formulation business to report 12.5% CAGR over FY17-19E.
Strong Traction in the US; Emerging Markets to See Muted Growth
AJN’s export business witnessed 25% CAGR over FY12-17 led by Emerging Markets (Africa & Asia). With >713 front-end workforce for both the markets, AJN markets customised products in each market. However, we expect the growth to remain muted in Africa (1% CAGR) & Asia (10%) over FY17-19E owing to reduction in institutional business (anti-malarial) in Africa and currency headwind in Asia. Notably, despite being a late entrant into the US market, AJN’s US sales surged to Rs1.85bn in FY17 from Rs24mn in FY14. With ~15 ANDAs pending for approval, AJN plans to file 12-15 ANDAs in FY18E. We estimate US sales at US$40mn and US$52mn in FY18E and FY19E, respectively from US$27.6mn and US$2mn in FY17 and FY16, respectively.
Outlook & Valuation
We believe that AJN’s long-term fundamentals continue to remain healthy driven by strong traction in the US business (post US FDA clearance to its Dahej unit) and above industry growth in domestic business. Its Sales, EBITDA and PAT witnessed 24%, 37% and 44% CAGR, respectively through FY12-17 owing to strong growth in domestic formulation business (22% CAGR) and healthy growth in exports (21% CAGR). We expect AJN’s overall sales to clock 9% CAGR over FY17-19E with EBITDA margin at 30-31% and return ratios to remain healthy (RoCE & RoE seen at 30% & 23% in FY19E). We believe the current valuation (PE multiple of 25.0x FY18E and 20.5x FY19E EPS) offers an attractive entry point. We initiate coverage on the stock with BUY recommendation and a Target Price of Rs1,500, valuing the stock at 25x FY19E EPS of Rs60.
IPCA along with Ajanta is a major contributor of antimalarials to Africa through global funds. Due to regulatory issues, IPCA is not supplying antimalarials through global funds. Once IPCA gets back to regular supply, Ajanta’s Africa contribution will reduce further?
@Donald how do you find payable days from screener data. I could calculate accounts, receivable n inventory but not accounts payable .I saw it in one of your calculation screenshots ,analyzed from screener data
Ajanta pharma out with better than expected results
Indian business showing a growth of 13% in revenues yoy.
Africa business suprising showing a growth of 25% in revenues yoy , however on an annual business expected to shrink
Asia business showing a growth of 6% yoy , implying that the Asian market seems to be stabilizing based on the perfromance of last 3 quarters.
USA business showing a de growth of 63% from 70 cr to 26 cr due to consolidation of buyers. Pricing pressure in USA is expected to continue.
Overall income from operations rise by 5% to 540 cr from 516 cr last quarter
EBITDA margin remains the same at 34 % of sales ; 184 cr
PAT is almost same as last year at 132 cr , 24% of revenues
Depreciation expense has remained the same inspite of PPE increasing from 583 cr to 902 cr yoy. This is due to change in depreciation method last quarter.
Just when the pharma pack is poised to raise, today Lupin said it got an USFDA warning, has effected the whole pack.
Lupin’s warning letter: http://www.bseindia.com/xml-data/corpfiling/AttachLive/d976df74-3cae-4b55-bd26-2bc54765b017.pdf
Ajanta continues to be steady on its performance - https://www.bseindia.com/xml-data/corpfiling/AttachHis/0af1b5f6-bf77-469c-a4b8-226c10353be6.pdf
Continues to have zero observations after USFDA audits - https://www.bseindia.com/xml-data/corpfiling/AttachLive/19d0e4a3-e5fb-4364-8684-a59cf2727104.pdf
Ajanta Pharma Q3Fy18 (ICICI Securities data) -
- India MR strength at 3000+
- Cumulative ANDAs status was at 16 pending ANDAs and two under tentative approval. Approved ANDAs were at 20. In FY18, the company expects to file 10-12 ANDAs. It expects five to six ANDA approvals/launches in FY19
- Guided for 10-12% growth in the US in FY18
- Due to slow growth in the dermatology segment, the management expects FY18 domestic branded business to end with mere 6-7% growth. Growth is likely to recover in the dermatology segment from FY20 onwards
- The Africa business included 94 crore from anti-malarial tenders for Q3FY18 against 140 crore in Q3FY17
- The company’s Asia business growth has recovered. The management has guided for 115-125 crore sales for Q4FY18 and mid-teen growth in FY19
- The management expects gross margins to remain in the range of 79-80%
- Guided for 24% tax rate in FY18, 25% in FY19 and ~22% in FY20
- Guided for ~300 crore capex for FY18 (~200 crore spent in 9MFY18). The management expects to spend ~250 crore every year in capex for the next two to three years
Disc: On tracking radar
Results Announced -
1.Indian and asian business have shown decent growth of 6 % and 4 % of revenues this quarter.
2. massive growth in Africa branded business has more than compensated for de growth in Africa Institutution business
3. US business seems to be coming back on track. Price erosion continues but slowing down
4. co. has withdrawn 3 products from US market due to its incapability to maintain the margins - shows co. is more focused on efficient use of resources rather than just increasing their top line.
5. EBITDA margin has massively dropped this quarter from 36 % last year to 26 % same quarter this year. this is because of jump in employee expenses from 76 cr to 105 cr. also because of increase in other expenses from 32 % of sales to 32 % of sales. Might be due to the expenses of operating the new facilities.
6. co. has almost completed its capex plans as of now with just 61cr remaining as CWIP.
7. working capital management was a bit poor this year with receivable days climbing to 87 compared to 61 days last year. inventory was 62 days compared to 40 days last year.
8. Assuming better working capital management next year ( atleast not worse) it will be interesting to see what the company does with 400-500 cr of free cash flows given it has no capex plans in the near future and zero debt on balance sheet. Mcap of co. is around 11000 cr, so we r looking at cash flows around 4-5 % of market cap.
Q4Fy18 Conference call highlights (from ICICISecurities)
- India MR strength at 3000+
- Total 18 pending ANDAs and two under tentative approval.
- Approved ANDAs were at 19. In FY19, the company expects to file 10-12 ANDAs in the US
- The company has drastically reduced its African tender business guidance to 115-120 crore in FY19 vs. 380 crore in FY18 mainly due to 15-20% of price erosion and reduced overall size of tender due to stoppage of procurement from some countries.
- Due to this, the company expects negative to muted revenue growth in FY19. It expects the domestic business to grow in midteens in FY19 while the African and Asian branded businesses are expected to grow in low teens. The US business is expected to grow in high mid-teens
- The management expects gross margins to remain in the range of 80-81%. However, it expects EBITDA margins in FY19 to come down to 30% mainly due to commissioning of new plants
- Guided for 24% tax rate in FY19 and ~22% in FY20
- FY18 capex was 275 crore. The management expects to spend ~250 crore every year in capex for the next two to three years
- Despite commissioning of new plants in FY18, full in house production of domestic dermatology and ophthalmology segment will start only from FY20. In FY19, the company expects 30-40% in-house production for these two segments
On the technical analysis weekly chart, seems head & shoulder pattern formation is in progress.
- Operating leverage - a relatively large change (growth) in operating profit for every INR of change (growth) in sales; kind of disproporionate growth. Ajanta enjoyed this phase in last 4-5 years.
- "Risk" of Operating leverage - a relatively large change (de-growth) in operating profit for every INR of change (de-growth) in sales; kind of disproporionate de-growth. Ajanta may pass through this turbulent phase in Fy19.
Operating leverage is a double edged sword.