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Ajanta Pharma: Year starts on a positive note - Views on News from Equitymaster

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Ajanta Pharma: Year starts on a positive note
Aug 20, 2014

Ajanta Pharma has announced its 1QFY15 results. The company has reported 30.4% YoY growth in sales and an increase of 80.5% YoY in net profits. Here is our analysis of the results.

Performance summary
  • Topline grows by 30.4% YoY during the quarter led by growth in its domestic and export formulations.
  • Operating margins surge by 8.1% to 31.2% for the quarter. This sharp jump in margins is also attributable to increase in operating income for the quarter.
  • On the back of the healthy performance at the operating level, the bottomline too grows by a robust 80.5% YoY for the said period.

Financial performance: A snapshot
(Rs m) 1QFY14 1QFY15 Change
Net sales 2,154 2,808 30.4%
Other operating income 28 67 139.3%
Expenditure 1,679 1,978 17.8%
Operating profit (EBDITA) 503 897 78.2%
EBDITA margin (%) 23.1% 31.2%  
Other income 48 86 78.4%
Interest (net) 16 14 -12.9%
Depreciation 86 120 40.0%
Profit before tax 449 848 88.8%
Tax 152 262 72.7%
Forex gain/(loss) 28 1 -96.1%
Profit after tax/(loss) 325 587 80.5%
Net profit margin (%) 19.3% 20.4%  
No. of shares (m)   35.4  
Diluted earnings per share (Rs)   70.2  
Price to earnings ratio (x)*   22.6  
*based on trailing 12 months earnings

What has driven performance in 1QFY15?
  • Ajanta Pharma's topline (including operating income) grew by 31.7% YoY during the quarter. Both domestic and export formulations helped in this robust performance.

    Standalone business snapshot
    (Rs m) 1QFY14 1QFY15 Change
    Domestic 960 1,190 24.0%
    Exports
    Africa 640 920 43.8%
    Asia 510 650 27.5%
    Latam 40 30 -25.0%
    Total exports 1,190 1,600 34.5%
    Total sales 2,150 2,790 29.8%

  • Ajanta Pharma's domestic business grew by 24% YoY for 1QFY15. The growth in domestic sales was largely on account of growth in its key therapies viz., Ophthalmology, Dermatology and Cardiology. Company has outperformed in all the major therapies it is present in.

  • The overall international formulations witnessed healthy growth of 34.5% YoY. Except for Latam, majority of its geographies have witnessed good growth.

  • Operating margins surged by 8.1% to 31.2% for the quarter. This sharp jump in margins was also attributable to increase in operating income for the quarter. Excluding the impact of operating income, the operating margins stood at 29.6%. This is in line with our estimates of 26% EBITDA margins for the full year.

  • On the back of the healthy performance at the operating level, the bottomline too jumped by 80.5% YoY for the said period. This was despite the surge in taxes during the quarter.
What to expect?
At the current price of Rs 1,583, the stock is trading at a price to earnings multiple of 13.8 times our estimated FY17 earnings. On the domestic front, the company's strategy of focusing on NDDS has helped it generate robust growth. The company continues to focus on NDDS technology for future launches in the key therapies viz., Ophthalmology, Cardiology and Dermatology for the upcoming period.

On the exports front too, the company has large part of its portfolio targeting branded markets. Here too company is looking to launch as per the opportunity in the market across various therapies. The company's focus here is on those therapies which have good market size and suit the market need. We believe the company has good potential to grow in African and Asian markets. The company still has small revenue coming from US market. As the company continues to focus on product filings in the US, approvals and launches from this market will fuel the company's growth in the long term.

While the company has a good business profile, the stock is trading at expensive valuations and hence our view is that investors not Buy the stock at these levels.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow suggested asset allocation and that no single stock comprises 5% of your portfolio.

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