thanks gaurav for your efforts.
I think we are giving a lot of undue importance to the dates of commencement of new plant. Even with some delays, Ajanta has the option of outsourcing because they currently have negligible US presence so there is not too much importance to compliance with USFDA norms etc.
Absolutely.
They are able to outsource and keep growing Sales at 30% rates for current business. Infact I suspect they are enjoying a very good run on margins front due to the big outsourcing today (Ref Management Q&As).
Its not a concern today - for the markets -Africa, Asia & LatAm & India. But controlling Quality will become an issue sooner than later - the factories taking over in due course will address that concern.
Ajanta is creating huge value - I am surprised no one has mentioned about the jumps in EBITDa margins for last 2 years - where do you see these kind of jumps. If you trace this back to Value Drivers fro the business - this is unparalled.
One could/should question the numbers ;). But domestic market ORG MAT survey showing them at 39 Rank - is testimony to actual prescription-sales being there - cant be fudged. Africa ops are huge and not easy to cooroborrate - 65% business comes from abroad. But Dividend payout going upto 18% is good -very good counterpoint.
Think right now Mr Market may be over-playing Re-$ guessing games. As Hitesh says, these things eventually balance themselves out.
We should concentrate on Value being created. Will try and demonstrate this in my next post in the ART of Valuation thread
Exactly, as we see more US launches.
Ajanta Pharma Announces the Launch of Risperidone Tablets
Ajanta Pharma USA Inc., a wholly owned subsidiary ofAjanta Pharma Ltd, announced today the launch of Risperidone Tablets (0.25mg, 0.5mg, 1mg, 2mg, 3mg, 4mg), the generic version of Risperdal[1]. Risperidone Tablets are used to treat schizophrenia and bipolar disorder. According to IMS Health, sales of branded and generic products totalled approximately $147 million for the 12 months ending March 2014
How can we check the numbers…I mean not to get complacent, how can we apply Earnings Quality Test to Ajanta…
Most of the numbers look good (too good), but sometimes I feel jittery that how are they performing so extraordinarily well
Some pointers to verify the reported numbers are
dividend payout. I would be much more comfortable with a div payout of 20% plus. Ajanta is getting closer to that levels. Some more to go though.
Tax payments. Ajanta seems to have crossed that hurdle.
Return ratios and cash flows. These seem to be okay.
Another comforting factor is high promoter holding.
In domestic markets, I can clearly identify with their products having prescribed them.
The facts difficult to verify would be figures reported from Africa. But over the years there definitely seems to be some consistency in their growth.
I have a feeling that their foray into the US markets would also be something of a high margin business. I think they would venture into products in US markets where there is a gap or where margins are higher. I think any meaningful contribution from US markets is still atleast 2 years away.
Absolutely.
.....
......
ART of Valuation Link: ../../valuepickr-scorecard-aug-2011/286853916/conversation_view?b_start:int=90&-C= threadAjanta Pharma's EBITD margins rising since 2006.
| Yr | 6-Mar | 7-Mar | 8-Mar | 9-Mar | 10-Mar | 11-Mar | 12-Mar | 13-Mar | Trailing |
| Sales | 206.0 | 238.7 | 284.9 | 319.3 | 381.7 | 456.8 | 604.3 | 839.2 | 1079.9 |
| EBITD | 29.2 | 36.7 | 47.6 | 63.1 | 74.2 | 91.8 | 134.3 | 214.7 | 363.3 |
| EBITD % | 14.2 | 15.4 | 16.7 | 19.8 | 19.4 | 20.1 | 22.2 | 25.6 | 33.6 |
EBITD margins of some of the pharma cos
| Sun pharma : | 47 |
| FDC : | 30 |
| Lupin : | 28 |
| Ipca lab : | 25 |
| Shilpa medicare : | 21 |
| Alembic pharma : | 20 |
Result Update by Daljeet Kohli of IndiaNivesh. Link given below:
Bulleted Points:
Revenue was inline, while margins expansion continues:
Favorable product mix led to expansion in margins:
Outlook:
On the regulated markets front, Ajanta has filed 23 ANDAs with USFDA (received
approval for 2 ANDAs & 1 launched), out of which 21 are still awaiting approvals.
Management expects 2-3 approvals in FY15E & guided to file more than 6 ANDAs
every year, including mix of Para II, Para III, Para IV in oral solid dosage form.
Companyâs under construction formulation facility in Dahez (Gujrat) is likely to
commercialize in Q1FY16E. Ajanta has budgeted Rs 2.20 bn investment for this
facility, out of which it had spent Rs 1.30 bn & rest capex is likely to be in FY15E.
Dahez facility is likely to supply products to regulated markets.
Company has capex plan of Rs 1.80 bn for another facility in Savli (Gujrat) with the
budgeted amount of Rs 1.80 bn. This facility is likely to commence its operation
from Q3FY16E onwards. Savli facility is likely to supply products for domestic &
emerging markets only.
Management guided to report revenue growth of above 20% & EBITDA margins of
above 30% in FY15E.
We expect companyâs EBITDA margins to expand further & likely to be above 30%
level in FY15E & FY16E on account of better product mix & favorable operating
leverage. We expect revenue/net profit CAGR of 18%/20% CAGR during FY14-16E.
Valuations:
At CMP of Rs 1,060, the stock is trading at P/E multiple of 13.7x of FY15E & 11.5x of
FY16E earnings estimates. Given continuous out-performance, capacity expansion,
entry into regulated markets & penetration in emerging markets, companyâs outlook
seems robust. We roll over P/E multiple of 15x from FY15E to FY16E & maintain
BUY rating on the stock, while increase target price from Rs 1,216 to Rs 1,385.
Discl: Invested.
Hi Guys,
Just a few pointers/thoughts from my side as we look towards the future prospects of the company.
1). In the past few years, the company has managed a phenomenal expansion of EBITDA margins owing mostly to getting away from tender business (low margins), expanding the specialty segments - COD - (higher margins) and operating asset light model because of outsourcing (nearly 40-50% right now).
2). This has been in tandem with launch of various new products, and the company has enjoyed huge growth in percentages due to low base.
But going forward, how will the company continue its growth?
1). Once the new factories start production, there is not going to be a huge growth in revenues - since they are going to shift the outsourced manufacturing to in-house. So no-growth comes with high depreciation and interest costs. Hence a decline of margins in this regard.
2). The US market is the potential for future growth. But none of their ANDA filings are FTF, and as guided by the management, they are more towards niche markets, where the volumes are not great ($4 mil per product). They hope to have 10-12 products in the next 2 years. So 40mil USD means around 250 cr. So that means addition of appx. 10% to top line per year. Which comes additional factory costs (with the high regulations etc), however the margins will be higher.
3). Their focus with respect to specialty segments has been in COD - where they have already managed to get high up in the rankings, and getting higher up would be much more difficult. Nor will they be able to enjoy similar growth percentages as before.
4). They can focus on other specialty segments such as Gastro, Anti-Diabetic, Onco etc. but their USP has been first to market products. I am no expert in chemistry, but my sense is that just because their R&D was really good in COD segments, does not mean it will be able to repeat the same success in the new segments. I do not think the molecules are similar, specially considering the complex nature of the molecules in specialty segments.
5). Though I am not 100% clear on this, but as I understand, part of the African business (around 100 cr out of 368 cr) was driven by WHO, and this part of the business has been scaled back to say the least. Furthermore, they will take a hit because of the new pricing policy (even though the specialty wont be hurt as much).
6). What is the reason for seasonality in Ajanta’s business? Do people fall more sick in winters or around new years? Because strictly speaking a company which reports highest numbers in last quarters may be trying (manipulating) to end the year on a high.
Despite taking all this into consideration, the company reported a standalone EPS of 20. Even if they company manages to keep this stable, and get a FY15 EPS (consolidated of around 100 EPS), then taking a P/E of 15 given 1500, or upside of around 40%.
Views Invited.
Hi Guys,
Just a few pointers/thoughts from my side as we look towards the future prospects of the company.
1). In the past few years, the company has managed a phenomenal expansion of EBITDA margins owing mostly to getting away from tender business (low margins), expanding the specialty segments - COD - (higher margins) and operating asset light model because of outsourcing (nearly 40-50% right now).
2). This has been in tandem with launch of various new products, and the company has enjoyed huge growth in percentages due to low base.
But going forward, how will the company continue its growth?
1). Once the new factories start production, there is not going to be a huge growth in revenues - since they are going to shift the outsourced manufacturing to in-house. So no-growth comes with high depreciation and interest costs. Hence a decline of margins in this regard.
2). The US market is the potential for future growth. But none of their ANDA filings are FTF, and as guided by the management, they are more towards niche markets, where the volumes are not great ($4 mil per product). They hope to have 10-12 products in the next 2 years. So 40mil USD means around 250 cr. So that means addition of appx. 10% to top line per year. Which comes additional factory costs (with the high regulations etc), however the margins will be higher.
3). Their focus with respect to specialty segments has been in COD - where they have already managed to get high up in the rankings, and getting higher up would be much more difficult. Nor will they be able to enjoy similar growth percentages as before.
4). They can focus on other specialty segments such as Gastro, Anti-Diabetic, Onco etc. but their USP has been first to market products. I am no expert in chemistry, but my sense is that just because their R&D was really good in COD segments, does not mean it will be able to repeat the same success in the new segments. I do not think the molecules are similar, specially considering the complex nature of the molecules in specialty segments.
5). Though I am not 100% clear on this, but as I understand, part of the African business (around 100 cr out of 368 cr) was driven by WHO, and this part of the business has been scaled back to say the least. Furthermore, they will take a hit because of the new pricing policy (even though the specialty wont be hurt as much).
6). What is the reason for seasonality in Ajanta’s business? Do people fall more sick in winters or around new years? Because strictly speaking a company which reports highest numbers in last quarters may be trying (manipulating) to end the year on a high.
Despite taking all this into consideration, the company reported a standalone EPS of 20. Even if they company manages to keep this stable, and get a FY15 EPS (consolidated of around 100 EPS), then taking a P/E of 15 given 1500, or upside of around 40%.
Views Invited.
Stock went up another 10% today, i couldnt find any news? Is it wise to sell little bit
It didn’t move despite good results for last 2 quarters. It was consolidating @ levels of 1000. It was slowly becoming a coiled spring ready to bounce
The bounce back is more than 60% since the beginning of the year. Looks like better result is expected in Q1.
Raj,
Pros: Unpenetrated US market
Highly capital efficient company,with improving return ratios
Exemplary performance in the Domestic markets,inspite of Fy2014 being one of the worst years in recent times for Pharma cos.(domestically,of course)
Excellent R&D
One of the highest margins in the Industry
Instituitional interest still seems low
Cons: Sharp rise in stock price
Dream run over the past 5 years(increases chances of a fall…as per Graham’s logic)
Personally,I am of the opinion that fast growers should command higher P/Es.When this growth is coupled with high corp. governance standards,it adds to much more comfort.
Alembic’s new AR points out to their focus on capital efficiency & diligence in manufacturing practices.Ajanta is the same! However,Alembic traded at much higher valuations tha Ajanta,in the past few quarters.Its just that,they are not as good communicators as Alembic.So,as markets wake up to Ajanta’s quality & solid biz. model,its multiples may overshoot those of Alembic soon.I had the same thought process when it was available at 15x TTM & even now,at 24x TTM,I stick to my guts.
Disc.: Invested.
Thanks Sagar for the details. I also bought it at around 1000 levels and doubled my position after seeing the annual results. But the allocation was just 6%. Now I feel in hindsight, I should have allocated more.
It’s a dream run which is continuing in this stock primarily as they have done better than market estimates most of the time.
PS: Waiting for Q1 results. I will definitely add more if Q1 results continue the trend.
Guys,
The recent correction seems a gud time to accumulate, Ajanta still looks cheap 1 yr fwd, only 15 PE, @30 % eps growth, if growth is 40- 50 %, looks dam cheap ?
what say ?
disc : invested
Best
Santosh
Ajanta’s FY 14 AR has come out. Here is the link
Very interesting theme they have chosen which reflects the character of the company accurately, “LATERAL BY DESIGN”.
Hi,
Anyone has access to “IMS MATMarch 2014” survey data ?
“LATERAL BY DESIGN”.- Design thinking in Pharma-what a wonderful analogy
Going through the AR,one gets a sense that there is intent to justify the extraordinary nos.They have singly explained almost each column of their balance sheet,along with the variables.So,its highly informative & will go a long way in soothing the nerves of skeptics.
In my opinion,Ajanta’s current valuations are only because of the high growth trajectory that the co. has taken in recent years.The premiums derived from high Corporate Governance standards are still not being reflected.I have a hunch that this will change through the year & good gains lie ahead,even from CMP.
FIIs have also increased their stake in the company,significantly,over the past quarter.
http://www.bseindia.com/corporates/anndet_new.aspx?newsid=bc1c615a-156c-495a-a304-1ee95618cb0a
DPCO recently announced announced price-caps on drugs in Diabetes & Cardio segment.
There are 3 top brandsin Ajanta Pharma’s 100 Cr annual Cardiac Portfolio. As per Hitesh Patelall three drugs are commonly used drugs for diabetes and cardiac problems. the latter two are cholesterol lowering agents.
Met-XL range: 50 Cr
Atorfit range: 30 Cr
Rosufit range: 8 Cr
Naturally we are concerned and checked with the company. Here is what the Management had to say
“There is no impact on our cardio portfolio (i.e., Met-XL, Atorva & Rosuva) as our current prices are lower than what is fixed by NPPA.Risks of such intervention in future by Govt. cannot be ruled out.”
