My calculations are as follows:
Consolidated sales for fy 14 at 1200 crores.
25% growth in fy 15 provides a sales figure of 1500 crores.
20% NPM provides net profit of 300 cr.
That translates into eps of 85.
If company manages to notch higher sales as I expect it to (around 30%) then the earnings figures will be slightly higher.
Broadly speaking I expect consolidated eps for fy 15 to be in region of 85-90, more nearer towards 90. 
ownerâs bias.
More imp to fugure out, what PE Mr. M will give to a mid cap pharma co growing@25 %, if you give a 15 PE, then 1500 is fairly priced, 20, gives 2000< anything north of 20, will be stretched for mid caps.
Its similar to HDFC bank vs Indusind, despiteit doing better, P/B is always lower (3 vs 4).
Over the much longer period, it may get 25 PE, but also as the size of Ajanta increases, growth rate may come down to 20 %, due to base effect !
For Mr Market to assign a higher PE to ajanta, it will have to
Reach a critical sales figure mark maybe 2000 crores or so with almost similar margins as it currently enjoys. (I think ipca started enjoying 20 times forward PE after it breached 2000 cr barrier)
and
Have a meaningful US presence (this is usually the sexy element assigned to any pharma companyâ e.g alembic⌠although personally I feel its a double edged sword bcos if a large part of revenues start accruing from US markets then any USFDA trouble would spell disaster for stock price⌠e.g again IPCA where only 9% of sales comes from US and still once it had trouble the stock price tumbled from 900 to below 700 within no time.)
Currently I feel ajanta is halfway in the discovery phase. A couple of more years of sustained growth with good margins would pave the way for good rewards from Mr Market. The factor in favor of ajanta is very high net profit margins of 19-20% which is always a good factor in aiding higher valuations.
Till that time there will be bursts of overvaluations and undervaluations off and on depending upon the moods of the market.
As a Capital Allocator it is always prudent to err on the side of caution.
While there may be possibilities of higher Sales and to a lesser extent higher EBITDA margins, we must recognise these are really the BEST CASE situation. You need always to allow for things not going as per plan (sudden DPCO impact, other such exigency in the environment, or even an execution lapse) and have that big Margin of Safety. Even with that Margin of Safety if it appears a NO BRAINER, then yes allocate happily
That was certainly the case when Ajanta was trading at 1440-1460 range just last month and absolutely a no-brainer in Feb last. Making the case for allocation (in typical bull market sentiment)based on relative valuations is again not a prudent thing to do.Even while making the case for optimistic projections, while some shortcuts are okay to take - one needs to be very clear why Depreciation and Interest costs shouldnât be much higher than FY14 especially as major capex outlays are slated to be completed.
Doing the homework completely - having the facts ready - and justifying the projections is a better way of seeing the road ahead. Else it is just one opinion against the other using IMHO platitudes
As another prudent practice when Consolidated contribution is pretty less - just north of 5-7%, I usually ignore that in my base case, as usually itâs clearly not the focus area for Management. However when the consolidated contribution is north of 10-15%, I will always include that in the base case.
I felt compelled to comment seeing a plethora of overly bullish projections (not at the best times (in my opinion) which can be misleading/dangerous for many newbies). No one seemed to be making any case when the stock was correcting at 1440-1460 range just last month.
I reserve the right to inject a degree of caution whenever I deem fit. I also reserve the right NOT to engage any deeper in defense of my position
Disc: Ajanta Pharma forms a significant portion of my Portfolio since last 3 years. Have added majorly in last 6 months @900+ and 1400+ in Feb and July 2014, in line with VP Public Portfolio recommendations
Donald, when you put forth your point of view, Newbies (esp. me) and seniors both take a serious note of it I feel. That is the sort of repute you have.
It had sold off Ajanta at 1660/- (had bought averaging at 1470 - 20% of portfolio) before Q1 results actually. And am again looking to buy it during this correction due to global markets situation. (Indian markets are still inexpensive)
I too tend to agree with Donald, that while making capital allocation, it is better to err on the side of caution than aggression and number of things which seems perfectly alright can go wrong.
One such thing that I personally thought may provide a negative surprise which can have material impact on Ajantaâs growth in immediate/near term is itâs anti-malerial AMFM business in Africa. The revenue share from this segment was around 175 Crore in FY 14, which is 48% of overall African revenue in FY14. From the current year onward, the global fund, a nodal agency running AMfM program has changed the procurement strategy and resorted to pooled procurement on tender basis instead of fixed price contracts with individual suppliers. Broadly, under this strategy, lowest bidder (L1) will get 40% of the total business, L2 may get 25% and L3 may get 15%. Now what if the Ajanta is not in L1 to L3? What if they are L3? Since it is tender based procurement, due to competitive intensity, margins may be much lower, in that case, even after being L1 or L2, the total EBIDTA level profit from AMFM can still be lower. So what impact on overall margins?
The results of this tendering process is apparently out. However, I have not been able to get hold of the results. I read in one of the research reports on IPCA that it was one of the successful bidder selected and will garner 30% share for two therapies in AMFM program. However, no info on Ajanta till now. It will be interesting if we can dig out how Ajanta fared in the tender process.
P.S.: I checked the export data of Artefan for last three years for the month of June & July
Here are the numbers: (June +July) 2012: USD 4.24 million ;
(June + July) 2013: USD 1.98 Million;
(June + July) 2014: USD 7.16 million
Thus apparently, it looks that there is positive impact on Artefan supply post tender.
Ajanta price has come to your no brainer levels. 
Lol Actually for me the no-brainer level was in May-Juneâ14 below 1050
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Ajanta 
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On the lighter side Mr. M has its own brains !, very difficult to decipher though !
Unfortunately Indian markets are driven largely by FII money. They have ~22% share in all companies combined (promoters have ~53% and the rest with DIIs and with local investors) -
http://www.quantspartner.com/FII_Shareholding.aspx
So if there are concerns of global liquidity crunch be it FED tapering(last year) or a FED interest rate raise(now), Indian markets fall (it may recover equally fast too who knows). For this problem to resolve, equity allocation among Indians must rise from current 2-3% (majority is still in physical assets - gold and real estate). This is quite unfortunate.
(I know this is an out of context post and I need not mention this as people are already aware of these facts but still)
Three promoter acquisition disclosures at bse site today, txn date of yesterday. There are no counter-party (selling party) notices though. So does not seem intra-promoter transactions, but genuine market purchases.
Some more acquisition reported today with txn date of yesterday. They are buying from the open market.
Nice !Looks like company practicing the dividend reinvestment maxim to the fullest by investing the dividend for the year back in to their own stock
Three promoter acquisition disclosures at bse site today, txn date of yesterday. There are no counter-party (selling party) notices though. So does not seem intra-promoter transactions, but genuine market purchases.
On the WHO anti malaria business , posting the response from ajanta to my query :
"Overall the total business of Anti-Malaria was Rs.225 crores in FY 2013-14 which includes both WHO and branded generics retail sales.
Yes definitely, WHO has changed the procurement model in Juneâ14. We would like to inform that under this new model consistent to our past performance, Ajanta has secured decent market share in the Global Fund WHO business. This award once again reiterates our ability to make right judgement call and protect our market share even in hyper competitive market conditions."
Strides arcolabs also got part of the tender which is around 25-30 million, which they say is 20% of the overall tender
I got into Alembic Pharma in May2013. I had seen Ajanta Pharma at the same time. Ajanta has gone from Rs550 levels to Rs1700 levels. Alembic has gone from Rs135 to 440 levels. So both have given roughly the same returns.
I continue to own Alembic and am in no mood to sell it. This made me think why dont I own Ajanta Pharma. I remembered the only reason I did not buy Ajanta in May2013 was because it had pledged shares. It still has them. Can fellow VPites help clarify if this is okay. I read they pledge shares, raise money and buy their own shares. Is this okay?
Coming to valuation Alembic is at 35x FY14 P/E and Ajanta at 26x FY14 P/E. I think Ajanta will grow faster than Alembic in FY15E. So on FY15E it will be cheaper. Ajanta pre tax FY14 RoCE = 53%and for Alembic it is 42%. Alembic has a Rs8000crs market cap and Ajanta has a Rs6000crs market cap.
Relative to Ajanta, Alembic actually looks little slow and less dynamic. So if I continue to own Alembic shouldnât I own Ajanta also. Using this logic I bought some Ajanta today. Would request fellow VPs to give your views on this line of thinking.
Pharma Companies having significant U.S generic market exposure are trading at a premium compared to others. Ajanta is yet to scale up in U.S ,thatâs why it trades at a discount to Alembic. unless there is some adverse USFDA action like,warning letter or import alert alembic will continue trade at premium.
If you go through the thread , you will realize pledging is a non issue for ajanta .
Venkatesh,
I have the similar openion like u,over a 2 year period Ajanta can outperform Alembic bcz of below reasons.
1).Two new plant will start commercial production 2 years time.
2).Possible PE rerating from 22-24 to 28-32
3).Entry into US market 23 ANDA pending for approval.
Meanwhile stock crashed today looking good.
Hi all this is my first post
Hitesh Bhai hit the nail as this stock has huge plus in the form of very small entry in US Market reducing USFDA Risk. More over the companyâs Domestic sales are only 35%. Even in those 35% only cardiology is expected to be under Govt regulation (Donât expect govt. to go after Opthamalagy and Dermatology). So the stock may definitely deserve a re-rating provided the company gets back the growth. June has been always a slow qtr for ajanta.
Disc: Invested
Hi Guys,
I have heard that Ajanta has moved into A group from 7th Oct.
Implications?
More investments by FII, DII
