Ajanta Pharma

spatel · January 24, 2017, 10:26am

Ajanta Q3FY17 - 25% PAT growth, 12% revenue growth

6 ANDA filed in FY17 till 31st Dec 2016 (was 3 till 26th October 2016)
US - 12 Products commercialized (was 9 in Q2FY17)
Team size of 800+ scientists (was 750+ in Q2FY17)
Guwahati (Assam) – First phase commissioned, 2nd phase by Q4 FY18
Dahej (Gujarat) - Commercial operation from April '17
R&D spending increased to 8% of operating revenue (with the objective of increasing the ANDA filing pace in US)
De-growth in Asia and lower growth in Africa was mainly due to currency devaluations and forex scarcity in select geographies, which continue to pose challenges and resulted into suboptimal business.

Commenting on the results, Mr. Rajesh, Joint Managing Director said:
“… The external factors in emerging markets continue to pose challenges resulting into sub-optimal business. However we are pleased with the remarkable ramp up of our US business which has posted great results for the quarter.

Going forward, we continue to focus on our key markets and therapeutic segments to drive the growth.”

Results: http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/6C901FFB_5872_449A_96CD_37949B46BAC7_145358.pdf

Investor Presentation: http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/9C7A7DCF_85EA_4550_AA68_A3865DF92FF8_145945.pdf

narendra · January 24, 2017, 10:33am

Reduced growth in Asia and Africa ? Currency issue.
Domestic sales growth might have affected due to reduced hospitalisation and postponement of elective cases . My scuttlebut shows almost 10% reduced hospitalisation during last quarter after demonetisation.
US showing good growth from last 2 quarters.
Total ANDA approvals 16.
Commercialised 3 more products .total commercialised: 12 ( 9 till q2fy 17)
Filled 3 more ANDA.Total ANDA filled till q3:6.
Target is to file 8 to 12ANDA /yr.
Increased focus on R&D:
Added 50 more scientists during last quarter. Total scientists 800+.
R& D spend during q3: 45 crs.(8.5%)
@lustkills your expert comments please.

T11 · January 24, 2017, 2:40pm

Thanks @lustkills and @narendra. You have captured very succinctly. Additional pointers:

EBIDTA at 34% YTD against same 34% for FY16 despite headwinds as indicated in commentary.
Able to improve PAT to 24% YTD against 23% FY16.
so far been able to stick to ANDA projection. 18 approved and 12 rolled out.

Disclaimer:
~12% of PF.
Grabbed the opportunity today to add more when facts emerged but market was still in groove.

Yogesh_s · January 25, 2017, 6:01am

US business is growing rapidly but it is still too small and unlikely to be as profitable as EM business going by the margins that other US centric pharma companies are earning. EM business is having some growth issues now. Overall, I feel growth in US may not be enough to offset slowdown (in growth) in EM causing overall growth to come in at mid teens over the next 2-3 years. While that’s a decent number, at over 30 times earnings, market is expecting more. IMO should sell for about 20-22 times earnings.
this Q, if you exclude other income and exchange gains, profit growth is at 12%.

nil_71 · January 25, 2017, 6:16am

For USA growth to happen…one is needed to start investing heavily in R&D . All Generics in USA have started struggling. Only way to show growth is in specialties and that will take time.I agree it is overvalued

Peabody · January 29, 2017, 12:20pm

All good things have to come to an end. There are good signals that growth is slowing down. Again for some strange reason 52 week low for Ajanta happens to be in Jan/Feb time frame for the last 4 odd years. Can the management pull off another daredevil feat-not sure. market expectation is clearly very high. EBIDTA is still good around 25%-30% growth. I guess need to pare down my holdings.

Disc- invested

gautham1 · January 29, 2017, 2:29pm

Thats correct. Also, the high base effect will come into play for any company.
I have a general question (not necessarily related to ajantha) for senior investors here. Its easy to say buy right and sit tight. But most of the times, you are forced to sell due to overvaluation and in some cases due to growth slowing down. How does one handle such a situation ?. Its not easy to completely exit and reinvest the sale proceeds in a different company. ( especially in a market like this where everything is overvalued/priced for perfection). So would it make sense to stay invested if the company is at least growing. ( not necessarily at the old growth rate)?

Yogesh_s · January 29, 2017, 2:47pm

You can sit tight only if you buy right. Most of the time that’s not the case. If you think your portfolio is overvalued then just sell and park your money in liquid funds. Keep looking for opportunities so you will be in a position to buy when you find one. Quiet often, after you sell, market will keep going up and that’s when your fear of losing money can turn into fear of losing out on making money. That’s also when your valuation model and your discipline will be tested. If you can sit tight (this time on cash), an opportunity will come where you can get back into market. Returns on such moves will be very high. Sometimes the same stock you sold will drop under its own weight without any apparent reason…

Peabody · January 29, 2017, 5:38pm

Excellent point Yogesh.Even if you buy right when the correction happens due to overvaluation or otherwise you tend to lose chunk of your profit. The point about liquid funds- do not understand. Is there anything we can park for a short period?
Stock slowing down due to slowing growth -classic example Page. I agree that sitting tight on cash will definitely give us those 52w low opportunities or any sudden negative developments.

Yogesh_s · January 30, 2017, 3:08am

I am referring to liquid debt funds that provide you fixed returns and do not drop in value in most cases. You can use debt mutual funds to park your money while you wait for stocks to correct. There is one ETF called LIQUIDBEE that trades like stock so you can buy and sell that on the same day you sell/buy your stock and both transactions will settle in the same settlement cycle. As an exception LIQUIDBEE attract no STT and other fees and many brokers charge no or low commission for this ETF. It always trades at 1000 and you earn returns as dividend units. since returns are paid as dividends, these are tax free and overall you earn about 4-5% tax free.

gautham1 · January 31, 2017, 3:54pm

Thanks for your response. I shouldn’t have used buy right phrase. I meant to say, buying something that has a great past track record and has some sort of a earning visibility. And what to do when earning growth slows down…If one looks at some great companies like asian paints, they have had some bad phases at some point in time. But eventually they came back. ( But again asian paints may be a bad example considering the nature of the business).
Yes liquid debt fund is always an option and I am already using it. But its very difficult deploy money in a new stock idea especially when the portfolio is large.

spatel · February 9, 2017, 5:20am

The FDA had inspected the Paithan formulation facilities at Aurangabad in March-April 2015. Almost 2 years ago. Next inspection was due anytime. Was in on-your-toes territory considering recent lengthy 483 observations from FDA to other pharma cos. With this backdrop, the following announcement by Ajanta today is a relief -

"Ajanta Pharma Ltd has informed BSE that the Company’s Paithan facility was recently inspected by US FDA and the Company has issued one procedural related 483. The Company is in process of responding to the same within the stipulated time prescribed by US FDA."

Source: http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/F7D7E5A1_4A19_4B30_846E_E3C3D99A2BD1_102713.pdf

Shikhar · February 20, 2017, 9:29am

US business to be a great growth driver for the company in the future. they have 16 ANDA approvals , company plans to file 10-12 ANDAs each year. However most of these filings are Para III and to capture market share its strategy will be to be cost competitive. For this it will have to start manufacturing APIs in house , which would lead to decline in return ratios.
Africa Business - growth rate seems to be on the decline due to return of IPCA in FY 19, slowing in donor funding , changing disease profiles for which the company will have to alter its product portfolio.
Asia Business- Has seen declining growth rates from the last few quarters.
central asia - due to steep devaluation in currencies against the US dollar
west asia - due to decline in oil prices
Slower growth expected in India Business
Hence there can be pe de re rating of the company if its ROCE ratio declines or the growth rate declines. The company is already at a high pe rating of 31 TTM which might decrease due to the above factors.

Disc - Invested
Views Invited

prem_shankar · February 20, 2017, 11:45am

Has the Dahej plant started to contribute to the revenue? What is the expected growth in revenue from the Guwahati plant? Will these two plants ensure the growth for some more time?

Peabody · February 20, 2017, 1:49pm

Thank you for sharing. This is very useful to understand and form our thought process.

Disc-Invested significant amount

Peabody · February 20, 2017, 8:10pm

Dear all,

Given the increasing noise levels about Ajanta’s growth prospects in the medium term, can any of the seniors share their views. What should be done when there are probable headwinds. Financial numbers and the market prices are already reflecting this scenario. After holding for a long period and being one of the key money spinner in the portfolio, it seems there are problems coming up due to lack of acceptable growth numbers. Please share your personal views.

disc invested

gautham1 · February 21, 2017, 12:33pm

Good question. My view. Yes the slowdown is visible. Financial numbers arent that bad. At least there is some top line growth. I dont agree that that market reaction is bad. Despite all thats discussed, its commanding a valuation of 30 PE.
The question is what will one replace this with?. ( If one were to exit). Hard to find answer in this market. I think if the expectation is moderate, then it would be good to continue holding. ( Assuming no big PE derating)
i am not an expert. Experts can share their views

T11 · February 25, 2017, 12:24pm

Have spent some time re-evaluating my investment hypothesis. Summarizing some of the pointers:

India: Overall ~13% growth from INR 420 Crs to INR 474 Cr between 9M FY16 to 9M FY’17.

Cardiology: Almost stagnant for past 3 Quarters at ~65 Cr INR.
Optho: 7%ish de-growth QonQ for past 3 quarters.
Derma: Again stagnant for past 3 quarters at INR 37ish Cr.
Institutional: Is not significant and management is moving away with intent.

Asia Export: De-growth of 18% from INR 342 Cr. to INR 281 Cr between 9M FY16 to 9M FY’17.

US Export: Unfolding well. pretty much in line with management commentary. 12 products already in commercialized out of 16 approved. Other 16 ANDA are in pipeline with additional projection of 8-10 per year for next 2 years. clocked approx. 140 Cr for 9 months.

Africa Exports: Fortunately, flag bearer of the family is doing good. 12% growth registered between 9M FY16 to 17 despite approx 30% squeezing of Artisiminin prices in tenders and currency issues.

Overall Positive Considerations:

Recent FDA inspection and 1 observation at Paithan plat can still be treated as a positive in this environment.
Dahej facility expected to come on steam any time soon.
Guwahait facility phase 1 expected to be operational by March 17. Key consideration is that this facility is to cater to domestic and emerging markets. So, by extension, management is still positive about growth prospect here.
US is going to be extremely competitive but at least FDA ghost is behind and ANDA pipeline is there. They can do anything between good to great here.

Overall Negative Considerations:

Appears to be saturated in its own niche i.e domestic cardio/optho and darma in Indian market. (not sure if this is an outcome of they running at 100% capacity utilization and next leg of supply will come from Assam)
Asia de-growth.
Changing landscape of Africa Tender business. Africa’s fight with Malaria is way far from getting over any time soon. They expect a 90% reduction by 2030.

However, the challenge is that as per WHO site, in some regions of the globe, Malaria parasite have developed resistance to current set of ACT (Artimisnin combination therapy). Thus the effective/preferred approach for them is to go traditional way of vector control (mosquito net, fumigation etc.) OR expediting new drug discovery in this.

Not sure how sever this is perceived at this moment or what kind of impact these new findings will have on new tender/budget etc. Invariably, Ajanta need to be on top of the game, once again, with respect to change in finding/marketing new set of effective medicines to save the turf.

In conclusion, for now I have a very neutral kind of POV. In short term, don’t find any immediate positive triggers rather a status-quo can take it down. In mid term, I will observe for some time to see how each segments move.

Dics: Invested since long. Had some purchase within last 60 days (market was reacting knee jerk on one FDA news).

hnk_so · February 25, 2017, 6:28pm

Excellent inputs.
Like your Indepth analysis

debanjanray2003 · February 26, 2017, 4:52pm

As per the investor presentation, Dahej (Gujarat) plant shall begin commercial operation from April 2007. The technical analysis of this stock is currently bad ( downtrend). But, it is worth holding the stock now.