Agreed. Q 5-6 are well-covered before. Q4 is still relevant to ask and reaffirm in terms of current capacity utilsation and current outsorcing vis-a-vis what they had indicated earlier.
Some I would like to get answered and can think of.
1->400cr was required for new facilities expansion, which should be complete in 2 years (FY15). But there is not much capex in the recent AR. would like to know more details about that. By when and what capacities they plan to add and how much revenue is expected from added capacities.
2->With the kind of sales growth they are experienceing, how long they think is sustainable. Field force is doing a wonderful Job. Would be good to know the plans to augment the distribution channel.
3->More information about US foray ofcourse and management guidelines/expectations about that.
4->They mentioned some where improved doctor base and better presscription rates for good results. is that still on, are there still improvements possible in that front and whats the plan/contingency planning to address that based on yes/no.
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How much of $55 M ECB is already drawn? Due to recent rupee depreciation, will they need the entire $55 M ECB for expansion? Progress on Dahej and Savli project?
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Current outsourcing contribution. ? Going forward, as the company goes on with 400 cr of expansion, does the company see enough demand, should we expect a decline in return ratios?
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Capacity utilisation of existing facilities?Current contribution of institutional sales for branded generics?
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Does the company plan to seriously get into psychiatry niche segment in other geographies after launching Risperidone?
Yes Donald… you framed it well.
there
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Can anyone post the link to ‘Management Q&A’? Unable to find it.
Can anyone post the link to ‘Management Q&A’? Unable to find it.
Thanks 
Is the current price of Ajanta Pharma adjusted for the bonus shares. If not, any idea what is the date declared for bonus issues.
Hi Donald Ji,
Were you able to meet the management today? How was it? Whats your take on Ajanta for next 2-3 years?
When will the detail Q&A be put up here?
Regards,
Jatin
We did meet Management today. Another good interaction that bolsters faith in a capable management.Request all to read the latest AR - and note the Tone/Confidence/Language change vis-a-vis earlier years. Our focus of quizzing centered around that, this time round.
Today’s success is based on the foundation work laid in the last few years. We are satisfied that this kind of confidence for the future is no bluster but based on what seems solid strategising backed up by execution on the ground. By the end of our questioning - happy to report - that we found strategies/execution consistent with current on-ground (somewhat difficult, for some) reality.
We will be back in station week starting 26th. I hope I will get time to capture this back (among a few others we are meeting - if found up to the mark) in that week as well as prepare for Management Q&As starting Sep 1st week - Astral, GRP, PI, Poly Medicure and perhaps couple more.
This is peak season for Q&As )- I will prioritise capture/reproduction based on opportunity - Please bear with us and give us that latitude.
I will be sitting on updating latest Ajanta Pharma Management Q&A this afternoon, soon:). Till then I thought it prudent to share my projections for this business for nexct 2 years - to get the interest back in Ajanta counter.
At current levels - it's back where there is GOOD MARGIN OF SAFETY for me. just can't emphasise this enough:(
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Not to forget the consolidated picture. It does add some 10% odd to standalone earnings!
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Whenever I do such exercises I am amazed at the accuracy of Hitesh’s mota-mota estimates:). He had told me a couple of weeks back “ha, mota mota 60 Rs EPS to banta hain”! It’s almost as if we work backwards and establish the minor (for him) details.
This is what I think are conservative estimates - has the benefit of our recent interactions. Doe’s not take into account effect of external factors - which I like to think of as “Bonuses”. even if they dont come we should be okay, right?
Over to Hitesh, Ayush and others for corroboration/critique.
thanks for the projections donald. a few questions:
1). you have projected for the ebitda margins to decline in 2014 vs 2013 despite rupee being a lot lower than 2013. why is that? are there any other expenses that you are accounting for?
2). your depreciation and interest cost per unit sales seem to be lower in 2014 vs 2013 despite the company embarking on a huge 400 crore capex program. can you elaborate on the reasoning behing that?
thanks,
hemant
First rule of thumb for me - err on real conservative side:).
1). Lower Depreciation & Interest cost/Sales
We need to see Interest costs in perspective with likely lower debt levels.Look at Q1 interest cost levels at 1.6 Cr, and you will see why even a 17-18 Cr interest burden for the year is most likely to take care of all additionals for the year.Yes part of the ECB is likely to be drawn in next 6 months (for ordering machinery - unlikely to cross $20 mn) but all that will be capitalised during the course of the capex. Similarly higher depreciation will not kick in till capex is completed. So additional 2-3-4 Crs at most.
2). Lower EBITDA margins
Its good to take away external factors while projecting forward. Besides the effect of Re depreciation comes with a lag effect for Ajanta - as they protect net exposure with simple forwards. Much of 2 quarters have been protected at earlier rupee levels. Management has indicated EBITDA sustainability at 22-23% for now.Once Capex is completedin 2 years time, this would be at 20-21% as per them (as they start ramping up again).
As you can see we have projected higher levels than that. But it’s good not to factor in every little juice that can be seen. Any Bonuses will then simply add to our Margin of Safety. That way everyone can see the potent undervaluation. No debates needed;)
thanks donald, few followup questions-
when you say some part of ecb will be drawn over the course of and high depreciation will kick on only once the capex is completed, this gives me a feeling that the expansion is only in its intial stages and may take 18-24 months to get completed. if yes, what makes you confident that ajanta will continue to still grow at 25% for the next 2 years? does the current capacity allow for that? may be you already have these answers from the management interaction. would wait for the QA if it answers this question.
also, what makes the current margins unsustainable? Is it because mgmt expects increased competition in some of its products or were there some parts of business which were short term but high margin and would be discontinued later. I see that ebitda margins have been slowly increasing yoy and hence don’t understand the possible reasons for this margin decline.
ps : i have high exposure to ajanta and have been buying it slowly below 800 so just want to make sure my investment hypothesis is still validated.
Hi Hemant,
Good to see your questions. And keep them rolling - will serve to make others start thinking on similar lines/take-off from your queries.
But you will have to hold your horses:) and wait patiently for the Management Q&A update as you indicated (I am on it right now).
Else you will end up interviewing me as a proxy for Ajanta Management;)
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fair enough donald
will wait for the Q&A. many thanks for the selfless efforts you put in for the investor community.
Phew!
Finally latest Ajanta Pharma Management Q&A uploaded for your perusal.
Ayush and Jignesh - Please go through in detail to correct any mistakes/mis-representations from my side. This has been one harried job, among many things today.
Ayush - Taxation. Need your help on the 200% R&D depreciation not leading to lower taxes quizzing. Please update that asap, so we can send this off to Management for their records and any corrections, etc.
Thanks for putting up the Management Q&A. Its awesome the way Donald is able to reproduce the whole interaction and honestly able to provide the insights we get. I haven’t met anyone else who is so focussed on being able to transfer the interactions to wider public.
This was my first meeting with Ajanta and my conviction levels have quite increased after. The best part for me were:
1). Its a totally branded business (both domestically and internationally). Hence the business should remain to be more stable. Also, such pharma cos are rare and can get much premium valuations from the market
2). The management seemed highly conservative and grounded.
3). The extent of outsourcing. This speaks about the quality of the co and its brand power. And as this outsourcing is expected to increase, the balance sheet would remain efficient for next 1-2 years. (Though B/S will increase due to upcoming capex)
I think Ajanta is still not well understood and seems to be available at good valuations.
Regards,
Ayush
Disc: Have bot back some of the qty of profit booking done earlier
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