In spiteof the raids by the taxmen and increase in tax rates going forward, one trait that distinguishes Ajanta from other mid cap pharma companies is its true marketing excellence which in turn leads to R&D excellence. Excellence in other spheres of business can beeasily bought, but marketingis an art which ajanta seems to master. This is the sole trait that distinguishes truly great companies from the above avg ones.
Therefore we must not jump to conclusions too soon.
Agreed Ajantaās growth story should remain unaffected by the tax issues
Yet it is very likely that you would be able to buy Ajanta below its friday closing price
Where ajanta scores over other companies is in identifying gaps in offerings of various companies and then launching products which are first in India kind esp in those gaps. That gives them a headstart in some of the products. Plus they seemed to be the first guys to identify the niches of dermatology, ophthalmology and cardiology as growth drivers.
These traits are those which have stood them in good stead in last few years.
Yes u r right. But this is what good marketing is all about- identifying the gaps in the market, knowing what would sell and what will not and then directing the R&D team to develop products to fill in those gaps.
Note that R&D comes second. The masterstroke is to select the right products and to have a feel of what would sell. This is an art that Ajanta seems to master. Eg-
Everybody can make tabs. Everybody has the technology. But who saw the gaps in the market? Steve Jobs- the artistā¦thats where true talent lies. Again R&D comes second.
Same was the case with our very own Maruti 800ā¦
here is some further communication with ajanta people and their reply:
MY communication:
thanks for you prompt response.____
I was just wondering what kind of tax rates company would be subjected to going forward in next few quarters and next few years and whether the tax authorities have raised any queries regarding the tax cuts availed by the company.____
If you could clarify on those lines it would be very helpful for investors like us.____
thanking you
THEIR REPLY:
Sir,____
This is very difficult to estimate but we expect it to be on the same line as last quarter. Beyond this, as a company policy, we only reiterate that we are confident of our growth to be sure, scalable and sustainable inspite of any such burden.____
Regards,____
Investor Grievance Team
For me the main points emerging out of this communication is that there is something that has prompted them to pay higher tax and as per them they are likely to pay higher taxes going forward also.
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I wouldnt be worried about this since company seems to be taking higher taxes in their stride and reporting excellent numbers.
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But what I would be worried about is any retrospective tax company may be asked to pay-- that would really dampen the sentiments in the counter.
What was the reason behind this change in tax rate? Probably the reason stands true for last few quarters as well. Safe to assume the retrospective implementation of higher tax rate?
As per the Nirmal Bang report dated 29th Oct,
"ā¦Tax rate for the quarter was significantly higher at 29.7% on account of the
company having exhausted its past tax credits. It will now fall under full tax
bracket from FY13E onwards. For the full year we have assumed tax rate of
28% (earlier 20%)
Valuation & Recommendation
We are rolling forward our target price to FY14 projections. Accounting for
higher tax rate in FY13E & FY14E, and assigning a higher multiple of 10x to
FY14E EPS of Rs 44.1 on account of continued outperformance by the company,
we arrive at a target price of Rs 441. At the CMP, the stock offers a potential
upside of 7.3%. Hence, we recommend to Ć¢HOLDĆ¢ the stockā¦"
Olpharm Nigeria Limited has introduced a new malaria drug, Combisunate 80/480 into the Nigerian market.
The drug, manufactured by Ajanta Pharma Limted is being marketed by Olpharm and is a combination of Arthemeter 80mg and Lumefantrine 480mg.
GABS investment pvt ltd, one of the promoter entities has acquired 1860 shares of the company on 17 nov 12 thus increasing their stake by .01 % and taking the total stake to 8.61%
Although the number of shares acquired are notsignificant, it is a step in the right direction. Moreover the promoter holdings have been increasing steadily for the last few quarters without a fail.
Management Q&A -Q2FY13 Update - Ajanta Pharma - Nov 21, 2012
Congratulations on good numbers being reported in H1 FY13.
Performance/Accounting Related queries
1). Q1 Sales was more or less in line with Q4 & Q3. Q2 has shown a decent jump of some 7% plus?Are we confident of registering similar levels for H2?
Yes. We certainly hope so.
2). Any new markets/segments responsible for the spurt?
Basically due to growth in volumes from new products launched last year and the year before. Every year we launch 10-12 products - these have caught some traction now;
What is the contribution from US market?
Not significant. And unlikely to be any significant numbers till Fy14.
3). There is also a visible improvement in EBITDA margins by 2-3%? What do you attribute this to?
Basically cost of goods- RM front some improvement is there; due to stocking of some key materials in earlier quarters which led to higher inventory levels then, but we got some benefit from that.
4). Finance Cost breakup in Q1? How much is the Interest cost? Rest of 15.95 Cr is Forex loss on ECB loan? and for Q2?
Interest costs for H1 is 9.76 Cr; Net Interest costs for Q1 5.21 Cr; Q2 at 4.55 Cr.From Q2 onwards we have demarcated Interest and Exchange rate Difference (Net). You would have seen that.
How much ECB loan has been drawn?
In H1 we drew $5 Mn; We have not drawn any fresh tranches
Long Term Debt Q2 stands at 77 Cr down from Mar 12 levels. You have paid down some debts? Also looks like you have made the improvements in working Capital Cycle that you had mentioned in our last interaction. (WorkingCap/Sales -23% vs the jump up to 25% in Marā12 from earlier 20% levels)
Yes, Long Term Debt was 103 Cr in Marā12 and has come down.Short term borrowings have also come down from87 Cr to 61 Cr in Sepā12. We have managed better efficiencies in receivables & inventory
But this does not appear to be reflecting in the Interest costs paid in Q1 & Q2
We made the repayments only in Sepā12
5). R&D expenses is not being separately reported? Is this going to be the norm or, will be reported/clubbed in subsequent Qrs?
As per revised schedule VI, only fixed heads to be shown. H1 R&D spend is 21 crores
So, is this being clubbed under Other Expenses head?
Basically clubbed under two heads - Employee benefits, Other expenses
Tax Related Queries
1). Tax paid in Q2 9.25 Cr (29.71%). Have we exhausted all tax breaks by Q2? What will be the tax rate for Q3 & Q4.Whatās the rate for full year FY13 & FY14?
Effective rate for full year FY13 will be ~30%. In FY14 this will be @ 33%. This is because FY13 Q1 was at MAT rates.
2). So what about benefits/tax exemption on R&D Expenses front?
Yes, R&D benefits are factored in. We have now crossed the MAT limits
3). The newly applicable rate - Is there any retrospective liability for earlier years? FY12 or FY11
No.
And there are no notices on that front by the I/Tax dept? And no litigation/liability on this front being disputed by the company?
Not at all.
Finally woke up to my responsibilities - on updating Management Q&As:). What are your comments base don this interaction?
Ajanta Pharma looks good on numbers front to me. And the Tax queries have been answered satisfactorily (?)
Will the skeptics let this pass??
donald,
I had mentioned earlier that I wont be worried too much about higher tax rates for ajanta. My only worry will be regarding any retrospective tax being slapped on the company
I think this answers the questions about tax rates and should re assure investors.
thanks for making the efforts of contacting management and clarifying things.
Thank You Donald for this timely report.
I for one was surely feeling a bit jittery after buying back Ajanta at 368 levels. Now it again becomes a long term core portfolio stock.
Cheers
Vinod
Thanks for the update. Did they clarify why they were raided by IT and why did the tax rate go up only after the raid?
Q&As
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Got in. Hope it works
Some projections form my side, assuming the momentum continues.
| Ajanta Pharma | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 6yr CAGR | 2013E | 2014E |
| Growth | 19.37% | 12.08% | 19.52% | 19.69% | 32.29% | 33% | 30.00% | ||
| Total Sales | 238.69 | 284.92 | 319.33 | 381.65 | 456.78 | 604.27 | 20.41% | 802.42 | 1043.15 |
| EBITDA | 36.67 | 47.55 | 63.13 | 74.23 | 91.76 | 134.28 | 29.64% | 176.53 | 229.49 |
| EBITDA Margins | 15.36% | 16.69% | 19.77% | 19.45% | 20.09% | 22.22% | 22.00% | 22.00% | |
| Depreciation | 6.78 | 6.97 | 13.15 | 19.76 | 23.79 | 30.68 | 36.82 | 47.86 | |
| Depreciation/Sales | 2.84% | 2.45% | 4.12% | 5.18% | 5.21% | 5.08% | 4.59% | 4.59% | |
| EBIT | 29.89 | 40.58 | 49.98 | 54.47 | 67.97 | 103.60 | 139.72 | 181.63 | |
| Interest | 11.56 | 15.09 | 22.03 | 19.08 | 15.66 | 22.72 | 30.08 | 39.10 | |
| Interest/Sales | 4.84% | 5.30% | 6.90% | 5.00% | 3.43% | 3.76% | 3.75% | 3.75% | |
| PBT | 18.33 | 25.49 | 27.95 | 35.39 | 52.31 | 80.88 | 34.57% | 109.64 | 142.53 |
| Taxes | 4.42 | 6.84 | 4.53 | 5.12 | 5.3 | 13.38 | 32.89 | 47.03 | |
| Tax rate | 24.11% | 26.83% | 16.21% | 14.47% | 10.13% | 16.54% | 30.00% | 33.00% | |
| PAT | 13.91 | 18.65 | 23.42 | 30.27 | 47.01 | 66.49 | 36.74% | 76.75 | 95.49 |
| Net margins | 5.83% | 6.55% | 7.33% | 7.93% | 10.29% | 11.00% | 9.56% | 9.15% | |
| # of Shares | 1.1709 | 1.1709 | 1.1709 | 1.1709 | 1.1709 | 1.1709 | 2.35922 | 2.35922 | |
| EPS | 11.88 | 15.93 | 20.00 | 25.85 | 40.15 | 56.79 | 36.74% | 32.53 | 40.48 |
| Adj EPS | 5.90 | 7.91 | 9.93 | 12.83 | 19.93 | 28.18 | 32.53 | 40.48 | |
| EPS growth | 34.08% | 25.58% | 29.25% | 55.30% | 41.44% | 15.42% | 24.43% | ||
| P/E | 13.09 | 11.34 | 9.12 | ||||||
| P/Sales | 1.43 | 1.08 | 0.83 | ||||||
| P/BV | 3.18 | ||||||||
| EV/EBITDA | 5.24 | ||||||||
| Dividend Yield | 1.01% |
If you take Consolidated Financials, the company may do 850-900 Crs easily; Subsidiaries add about 10-12% additional Sales. Consolidated EBITDA Margins are more or less same. So taking higher interest and depreciation, and Tax outgo (in view of significant new capex envisaged in FY13), a Net Margin of 10% ( FY12 at 11%) looks doable. or 85-90 Cr PAT.
So on a consolidated basis, Ajanta available at 9-10x FY13E??
Hitesh - this looks attractive to me for fresh allocations too? Your comments please.
Hi Excel,
Sorry I had missed your query earlier.
I did not ask that direct a question; decided to focus on the facts/implications:) - which is expected tax rates going forward; ruling out retrospective claims and/or litigations.
Time to consider the Negatives?
a) are there possibilities of more cockroaches?
b) will the growth momentum continue?
1H did about 37% increase in Sales and 2H I have assumed a 30% increase in Sales, considering the higher 2HFy12 base
what else?
