Ajanta Pharma Ltd. Initiating Coverage - Business Standardbsmedia.business-standard.com/_media/bs/data/...Torrent Pharma ADD 1,425 2,41,013 1,394 30th Sep‟18 54.9 53.1 61.3 26.0

January 18, 2018 Analysts: Bharat Celly (+91-9998580991) / Praful Bohra (+91-9819915604)

Ajanta Pharma Ltd. Initiating Coverage

Under the weather but on the mend

January 18, 2018 Analyst: Bharat Celly (+91-9998580991) / Praful Bohra(+91-9819915604) Page 1 of 29

Before reading this report, you must refer to the disclaimer on the last page.

Ajanta Pharma Ltd. Absolute : ADD

Relative : Benchmark

Initiating note Regular Coverage 6% ATR in 18 months

Under the weather but on the mend- Initiate with ADD Pharmaceuticals

© 2017 Equirus All rights reserved

Rating Information

Price (Rs) 1,533

Target Price (Rs) 1,648

Target Date 30th Jun‟19

Target Set On 18th Jan'18

Implied yrs of growth (DCF) 20

Fair Value (DCF) 1,498

Fair Value (DDM) 935

Ind Benchmark BSETHC

Model Portfolio Position -

Stock Information

Market Cap (Rs Mn) 1,34,944

Free Float (%) 29.30 %

52 Wk H/L (Rs) 1870/1106

Avg Daily Volume (1yr) 2,45,947

Avg Daily Value (Rs Mn) 364

Equity Cap (Rs Mn) 176

Face Value (Rs) 2

Bloomberg Code AJP IN

Ownership Recent 3M 12M

Promoters 70.7 % 0.0 % -3.1 %

DII 5.9 % 0.5 % 3.9 %

FII 12.7 % 0.5 % 2.3 %

Public 10.7 % -1.0 % -3.1 %

Price % 1M 3M 12M

Absolute 6.5 % 28.2 % -13.8 %

Vs Industry 1.8 % 23.7 % -12.1 %

TorrentPharma 5.3 % 3.2 % 9.3 %

GFL 6.3 % 22.9 % 36.0 %

Consolidated Quarterly EPS forecast

Rs/Share 1Q 2Q 3Q 4Q

EPS (17A) 13.5 14.8 17.8 12.9

EPS (18E) 10.7 14.9 12.0 12.3

Ajanta Pharma‟s (AJP) relentless growth trajectory (24% revenue CAGR over FY07-

FY17) is likely to pause in FY17-FY19, as the company grapples with (a) slower

domestic growth (GST hit), (b) a declining institutional business with IPCA‟s re-entry

as a supplier of anti-malarial drugs in Africa, and (c) currency headwinds in emerging

markets. While structural drivers are intact, we believe growth recovery would only

be back-ended; in the interim, we see pressure on asset turns and return ratios.

Initiate with ADD and a Jun‟19 TP of Rs 1,648, set at 27x P/E.

Domestic business – on a strong footing: AJP has built an enviable franchise in the

domestic market with a focus on key therapies such as cardiology, dermatology,

ophthalmology and pain management. It enjoys a strong edge over competition with

~40-50% products launched every year being first-time introductions. AJP‟s niche,

low-competition portfolio has helped it command a premium in most products, with

prices of 50% products topping those of peers. Also, ~35% of its current portfolio has

no competition. Therefore, it has enjoyed a strong market share and higher margins.

While AJP has been recently hit by GST-led de-stocking and declining revenues of

Melacare, we expect things to normalise in FY19E with a 14% CAGR over FY17-FY20E.

Africa business - IPCA's re-entry should hurt: Recently, WHO has re-qualified IPCA

as a preferred supplier for anti-malarial medicines in Africa. This is a negative for

incumbents such as AJP, who benefitted in FY16 when IPCA exited the global fund

business. Additionally, allocation from Global Fund towards malaria treatment is on

a declining trend, which can hurt revenues. Lower institutional revenues should

offset strong growth in the branded Africa business and keep overall revenues

muted. We thus expect flat Africa business revenues between FY17-FY20.

Recovery to be back-ended; initiate with ADD: We expect AJP to report a 7% CAGR

in earnings over FY17 led by strong growth in the domestic market and US business

(low base), negated by muted growth in the Africa business. Asia business growth

will be characterised by currency movement, and we factor in a moderate 9%

CAGR. Margins are likely to expand by 160bps over FY18-FY20 with product mix

changes (higher domestic and other branded generic biz, lower institutional

business). While structural drivers are intact, AJP's growth recovery is likely to be

back-ended.

With a moderate growth profile, we expect ROE/ROCE to decline by 10 percentage

points. Current valuations at 27x FY19E earnings are in line with the historical

average. Initiate coverage with ADD and a Mar‟19 TP of Rs 1,648.

Consolidated Financials

Rs. Mn YE Mar FY17A FY18E FY19E FY20E

Sales 20,016 20,219 22,281 25,616

EBITDA 6,890 6,123 6,857 8,165

Depreciation 612 582 695 806

Interest Expense 35 5 6 6

Other Income 239 264 483 653

Reported PAT 5,068 4,418 5,112 6,285

Recurring PAT 5,068 4,418 5,112 6,285

Total Equity 15,677 19,061 21,781 25,124

Gross Debt 322 322 322 322

Cash 2,376 3,081 3,010 3,341

Rs Per Share FY17A FY18E FY19E FY20E

Earnings 57.3 49.9 57.8 71.0

Book Value 177 215 246 284

Dividends 13.0 10.0 23.1 28.4

FCFF 24.9 19.7 26.3 37.0

P/E (x) 26.8 30.7 26.5 21.6

P/B (x) 8.7 7.1 6.2 5.4

EV/EBITDA (x) 19.3 21.6 19.3 16.2

ROE (%) 37 % 25 % 25 % 27 %

Core ROIC (%) 37 % 27 % 26 % 27 %

EBITDA Margin (%) 34 % 30 % 31 % 32 %

Net Margin (%) 25 % 22 % 23 % 25 %

Ajanta Pharmaceuticals Absolute – ADD Relative – Benchmark 6% ATR in 18 months

January 18, 2018 Analyst: Bharat Celly (+919998580991) / Praful Bohra (+91-9819915604) Page 2 of 29

Company Snapshot

How we differ from Consensus

- Equirus Consensus % Diff Comment

EPS FY18E 49.9 52.9 -6 % We are expecting commoditized

launches in US in FY19. FY19E 57.8 64.6 -11 %

Sales FY18E 20,219 20,729 -2 %

FY19E 22,281 23,848 -7 %

PAT FY18E 4,418 4,707 -6 %

FY19E 5,112 5,748 -11 %

Key Investment arguments:

Domestic niche portfolio to lead strong momentum: AJP has successfully differentiated its portfolio vis-à-vis its peers. ~35% of its products don‟t have any substitutes. This helps the company build good relationship with doctors, ultimately resulting in higher pricing and outpacing market growth.

Sizeable revenues to add up on low US base: AJP has recently forayed in the US market with its FY17 revenue at US$ 28mn (~9% of sales). On the low base, the company can easily grow with the benefit of an expedited USFDA review; AJP has 16 ANDAs awaiting approval and is targeting to to file 10-15 ANDAs each year.

Emerging markets currency stabilization: Africa branded and Asia businesses (ex. India) struggled in FY17 owing to volatile currencies. As overall currencies have started stabilizing, we expect growth to revive in these segments.

Risk to Our View:

USD/INR below Rs 63.5.

Any adverse actions by regulators.

Delay in approval and launch of ANDAs in the US market.

Applicability or expansion of NLEM (National List of Essential medicines) may lead to

price cuts in the domestic portfolio.

Currency volatility in emerging markets

Key triggers

Spate of new launches in the US market, with GDUFA goal timelines shortening to months.

Continuous launch of first-time introductions in the domestic market.

Arresting of decline in Melacare revenues.

Currency stability in emerging markets.

Sensitivity to Key Variables % Change % Impact on EPS

EBITDA Margin -1 % 0 %

DCF Valuations & Assumptions

Rf Beta Ke Term. Growth Debt/IC in Term. Yr

7.4 % 0.7 11.4 % 5.0 % 1.4 %

- FY18E FY19E FY20-22E FY23-27E FY28-37E

Sales Growth 1 % 10 % 16 % 14 % 9 %

NOPAT Margin 21 % 21 % 23 % 23 % 23 %

IC Turnover 1.19 1.12 1.12 1.12 1.12

RoIC 26.9 % 25.7 % 27.0 % 26.9 % 26.3 %

Years of strong growth 1 2 5 10 20

Valuation as on date (Rs) 627 644 826 1,066 1,282

Valuation as of Jun'19 733 752 966 1,246 1,498

Based on DCF, assuming ~11% CAGR years of growth, we derive our current fair value of

Rs 1,282 and a Jun‟19 fair value of Rs 1498.

Company Description:

AJP is a specialty pharma company focused in Domestic and emerging market. Ajanta has

changed business over time moving away from packaging company to OTC drugs

marketers to prescription drugs. It has impetus their revenues to grow at 24% CAGR over

FY2007-2017. AJP‟s focus is to position themselves as branded generic company, with

their own front-end wherever they are present in.

Comparable valuation Mkt Cap

Rs. Mn.

Price

Target

Target

Date

EPS P/E BPS P/B RoE Div Yield

Company Reco. CMP FY17A FY18E FY19E FY17A FY18E FY19E FY17A FY18E FY17A FY18E FY19E FY17A FY18E

Ajanta Pharmaceuticals

ADD 1,533 1,34,944 1,648 30th Jun‟19 57.3 49.9 57.8 26.8 30.7 26.5 177.2 7.1 37 % 25 % 25 % 0.8 % 0.7 %

Torrent Pharma ADD 1,425 2,41,013 1,394 30th Sep‟18 54.9 53.1 61.3 26.0 26.8 23.2 255.9 4.9 24 % 19 % 19 % 1.0 % 0.9 %

Alkem Lab Ltd NR 2,249 2,68,914 NA NA 74.6 67.6 90.4 30.1 33.3 24.9 373.7 - 22 % - - 0.7 % -



Investment Rationale

Domestic business – on a strong footing

In the domestic market, AJP has focused on chronic segments and brought innovation in

existing therapies. The company is present mainly in four therapies, viz. cardiology,

ophthalmology, dermatology and pain management. Across most therapies, AJP has

outstripped market growth with a 22% CAGR over FY12-FY17; however, it has trailed other

players in the dermatology segment owing to a decline in its key molecule, Melacare.

AJP‟s domestic business is expected to continue on a high-growth trajectory with a 14%

CAGR over the next three years. Growth would mainly be driven by traction in the

existing portfolio, dominated by niche, low-competition products, and new introductions.

We believe AJP has enough headroom for growth, given its low market share (~2%) in

cardiology and dermatology – two of the biggest and oldest therapies in the

pharmaceutical market and in their portfolio. Its ophthalmology market share is

relatively better at ~7%.

Exhibit 1:Domestic growth momentum to continue on higher base

Source: Company, Equirus Securities

Niche domestic player; first-time launches provide edge, pricing power

AJP enjoys a strong edge over competition with several first-time launches in the domestic

market. Of total products launched every year, ~40-50% products are first-time

introductions in terms of compound, dosage form and release profile.

Exhibit 2:Total and first-time launches


AJP‟s niche, low-competition portfolio has helped it command a premium in most products,

with prices of 50% products topping those of peers and the remaining ~40% trending lower.

Exhibit 3:Number of products with prices above/below avg. price


0%

5%

10%

15%

20%

25%

30%

35%

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

Revenues (Rs mn) Growth (%)

0

5

10

15

20

25

30

2014 2015 2016 2017

1st time introductions Total Launches

15 17

38

16

2

27

0

5

10

15

20

25

30

35

40

5-10 Players 11-15 Players 16 and above

(Rs) Price above Avg Price Below AVG



Low product competition across most therapies

With niche products, AJP has remained ahead of the market in terms of new launches, as

reflected in its historical growth numbers and competition dynamics for its products. In the

domestic portfolio, about 93 products face no competition, while 66 see competition from

only 1-5 substitutes.

Exhibit 4:Competition dynamics of the domestic portfolio


In ophthalmology, dermatology and pain management, competition in 65-85% of products is

less than 5 players. In the highly competitive cardiology therapy, competition in 30%

products is less than 5 players. Consequently, across therapies, the company has been able

to price products higher, thanks to its thrust on innovative products and better brand

equity amongst specialists. First-time launches generate ~25% of the company‟s domestic

sales.

Exhibit 5:Therapy-wise product competition dynamics


Exhibit 6:Premium pricing across therapies


Resultant, the company has been able to consistently beat domestic market growth,

including in individual therapies.

93

66

31

19

65

0

10

20

30

40

50

60

70

80

90

100

Only Ajanta 1-5 players 5-10 Players 11-15 Players 16 and above

Products

0

5

10

15

20

25

30

35

40

45

50

Only Ajanta 1-5 players 5-10 Players 11-15 Players 16 and above

Pain Management Cardiology Ophthalmology Dermatology

0

10

20

30

40

50

60

Pain Management Cardiology Ophthalmology Dermatology

(Rs) Above Avg Below Avg



Exhibit 7: AJP consistently outpaced IPM growth


Low market share provides growth headroom

AJP‟s market share in existing therapies remains low, offering huge growth potential. Given

its first-to-market niche launches along with favorable IPM (Indian pharmaceutical market)

dynamics, we expect the company to beat IPM growth going forward as well. We expect a

14% CAGR for AJP over 2017-2020.

The company‟s performance in the dermatology therapy has been lackluster due to

declining sales of Melacare (Rs 300mn vs. a peak of Rs 630mn). As Melacare seems to have

stabilized at current levels, we expect AJP to revive growth in this therapy.

Exhibit 8:Therapy-wise size and market share

Therapy wise sales Therapy Size

(Rs. Bn) % of IPM sales

Ajanta FY17

Sales (Rs. Bn)

Ajanta Share in

Overall therapy

Cardiac 136 12% 2.52 2%

Dermatology 83 7% 1.42 2%

Ophthalmology 22 2% 1.54 7%

Pain mngmnt 91 8% 0.45 0%

Source: AIOCD, Company, Equirus Securities

Exhibit 9:Sales/market share of AJP’s top-10 products

Brand Names Therapy Sep' 17 sales Rs. mn Market-share

Met XL Cardiac 834 2.8%

Atorfit CV Cardiac 506 7.2%

Melacare Derma 490 6.9%

RosufitCv Cardiac 217 3.1%

Feburic Ortho 202 3.1%

Met XL AM Cardiac 183 2.8%

Soft Drops Ophthal 107 2.7%

Rosustar Gold Cardiac 89 2.4%

Cinod Cardiac 85 2.1%

Olapat Ophthal 69 1.5%

Source: AIOCD, Company, Equirus Securities

Sales force productivity to improve

AJP‟s sales force productivity is relatively lower versus other companies, mainly due to its

specialty focus (four therapies) vs. peers with a presence in several therapies, including

OTC. We however expect an improvement in sales-force productivity per month from Rs.

0.17mn to Rs. 0.25mn over the next three years driven by growth in existing products and

niche launches in the domestic market.

Exhibit 10:Ajanta domestic vis-a-vis peers

Company No of First to

market

MR

Productivity

Top-10

products

(% sales)

Sales CAGR

(FY12-17) MRs

Sun Pharma 283 8.4 18% 22% 9200

Lupin 54 5.8 19% 15% 6600

Torrent 70 4.7 34% 17% 4208

Ajanta 150 2.0 38% 27% 3000

Dr. Reddy's 68 4.0 27% 12% 5778

Cadila 141 4.5 24% 11% 7199

Cipla 146 7.2 24% 12% 8000


15%

10% 10% 10% 12%

14%

4%

38%

29% 29%

36%

26%

23%

12%

0%

5%

10%

15%

20%

25%

30%

35%

40%

FY12 FY13 FY14 FY15 FY16 FY17 1HFY18

IPM Ajanta Pharmaceuticals



IPM to likely grow at 11% CAGR over next 3-4 years

Faster growth in chronic therapies has driven domestic growth in the past. Chronic

therapies grew by 18% during 2011-16, while acute therapies at 10% during the period.

Going forward as well, chronic therapies are set to outstrip acute therapies, with overall

IPM pegged to grow at an 11% CAGR.

Exhibit 11:IPM expected to continue to grow at ~11.5% CAGR

Source: Equirus Securities

Penetration of medicines in the Indian market remains low; the average per capita

spends on medicines in India at US$ 15-25/year is 80% lower than that for emerging

markets (US$ 117/year).

IPM growth would be mainly driven by (1) increasing insurance coverage, (2) increasing

disposable incomes, (3) rising prevalence of chronic diseases, (4) improvement in medical

facilities, (5) population growth and (6) a rise in healthcare awareness.

Exhibit 12:Global per capita pharmaceutical spending

Source: Sun Pharmaceutical annual report, Equirus Securities

Exhibit 13:Key growth drivers in the domestic market

Source: Sun Pharmaceuticals annual report, Equirus Securities

73% 66%

63% 27%

34%

37%

2011 2016 2021

Acute Chronic

613489

1110021

1922063

1955

776 739 577 513

295 117

25

0

500

1,000

1,500

2,000

2,500

US Canada Japan EUs Australia SouthKorea

EmergingMarkets

India

(US$)



Africa business - Expected to remain muted

AJP‟s Africa business is expected to remain muted in FY19 over FY18 and gradually inch up

from FY20 onwards led by growth in the branded business in Anglo and Franco Africa. The

tender business however is set to remain flattish over the next three years owing to (a) flat

fund allocation from Global Fund and other funding agencies for malaria treatment in

African Markets and (b) IPCA‟s re-entry resulting in lower tender allocation for AJP.

Anti-malarial tender business (25% of total revenues) to remain flat over FY19-FY21

Overall funding from global institutions for the treatment of malaria has been stable over

the last 3-4 years. Of the total malaria fund, allocation towards the African region has also

been stable over the past years. Major funding sources are Global Fund, followed by USAID

(PMI) and Government of Endemic Countries.

Exhibit 14:Total malaria spend worldwide; contribution of global fund highest

Source: WHO, Equirus Securities

Of total malaria spends worldwide, the highest allocation is towards the African region,

ranging from 65-74% over the last six years; this translates into US$ 1.8bn-1.98bn over 2010-

16.

Exhibit 15:Allocation towards Africa has been highest over the years


We believe overall funds available for the treatment of malaria increased by ~8.5% in 2015

over 2010, from US$ 385mn to US$ 418mn. This was despite a ~US$ 40mn decline in overall

Global Fund allocation to US$ 155mn, as the reduction was fully compensated by USAID

PMI.

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2010 2011 2012 2013 2014 2015 2016

(US$ Bn) Total Malaria spend Government SpendGlobal Fund USAIDGlobal fund % of total - RHS

0%

10%

20%

30%

40%

50%

60%

70%

80%

2010 2011 2012 2013 2014 2015 2016

African contries Other regions



Exhibit 16: Global fund (largest contributor) allocation towards treatments reduced

Global Fund Government USAID (PMI)

2015

2010


21%28%51%

Treatment Health System Prevention

17%

24% 59%

6%

88%

6%

32%

15%

53%

21%

28%

51%

9%

61%

30%

20%

17% 63%



During 2013-2017, overall capital inflow for Global Fund has stagnated. Spends towards

malaria were in the range of 24-31% of total funds raised. For the next three years, Global

Fund has allocated US$ 3.23bn (or US$ 1bn annually), in line with 2017 funding.

Exhibit 17:Global Fund allocation towards malaria out of total fund (mn USD)

Source: Global fund, Equirus Securities

Over the years, malaria funding was much below WHO‟s GTS (global technical strategy for

Malaria) level of US$ 6.5bn despite a marginal increase in malaria cases from 2014 through

2016. Meanwhile, the per pill price of ACT combination viz. AL (most preferred first-line

therapy) remained stable despite volatility in base compound prices. Thus with overall

funding reducing and price per pill remaining largely stable resulted in a proportionate

decline in disbursements of ACT pills/medicines.

Exhibit 18: Malaria cases increased post 2014


Exhibit 19:Artemisnin compound prices remained stable against AL


2.75

3.08

2.62

3.34

3.96

2.88

3.19 3.54

3.88

0%

5%

10%

15%

20%

25%

30%

35%

40%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2009 2010 2011 2012 2013 2014 2015 2016 2017

Malaria Allocation Total Global Fund spend

% of Total fund towards Malaria

237

225

217

210 210 211

216

195

200

205

210

215

220

225

230

235

240

2010 2011 2012 2013 2014 2015 2016

(Mn)

0

10

20

30

40

50

60

2010 2011 2012 2013 2014 2015 2016

(Rs) AL Price per 30 *12 pack Artemisnin price per 100 gram



Exhibit 20:ACT treatment declines post 2013


Exhibit 21:AL and AS-AQ hold highest share in ACT treatments courses disbursed


Pending USDFA issues forced IPCA‟s exit amid no allocation from Global Fund, benefitting

AJP and other WHO-qualified suppliers. AJP stated that it received benefits of Rs 600mn in

FY16, which are unlikely to accrue going ahead with IPCA‟s re-qualification as preferential

supplier and possibly allocation from Global Fund. However, dynamics of the allocation are

not available yet.

Cipla, Novartis and Ajanta hold the highest market share in Global Fund purchase orders in

2016. However, the entry of IPCA could have a bearing on all these companies.

Exhibit 22: Cipla received maximum purchase orders of AL therapy in 2016


158 187

279

332

392

331 311

0

50

100

150

200

250

300

350

400

450

2009 2010 2011 2012 2013 2014 2015

(Mn)

0

5,00,00,000

10,00,00,000

15,00,00,000

20,00,00,000

25,00,00,000

30,00,00,000

35,00,00,000

40,00,00,000

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

AL AS-AQ (FDC) AS+AQ (Co-B) Others

IPCA 4%

Ajanta 13%

Novartis 18%

Strides Shasun 6%

Quality Chemicals (Under License

from Cipla) 45%

Cipla Ltd 10%

Macleods Pharma Ltd. 4%



Exhibit 23:IPCA tender revenues decline owing to pending USFDA issues


Thus, we expect overall tender revenues to decline in FY19 over FY18 and remain constant

thereon. Africa tender business should contribute Rs 3bn annually for the next three years

i.e. FY19-FY21.

Africa branded biz - Hit by currency volatility; stability to foster growth

African countries with large pharmaceutical markets are largely dependent on crude, and

were hurt due to a dip in crude prices over last year. This had a rub-off impact on AJP as

well, with the company reporting a revenue decline.

Nigeria saw the maximum impact of a decline in crude prices, with its currency declining by

~28% yoy, while SA rand fell by ~13%. However, with oil prices stabilizing or inching up from

here on, African markets should see a growth recovery.

Exhibit 24: African countries with large pharma markets saw currency depreciation

against INR


As currencies stabilize, and disposable incomes and insurance penetration levels increase,

the overall pharmaceutical market would grow at ~10.5% CAGR over the next

3-4 years and become a US$ 45bn market by 2020 (as per Mckinsey report). We expect

AJP‟s branded Africa business to grow at 15% CAGR over the next three years vs. 24% CAGR

over FY13-FY17.

Exhibit 25:Revenue hit by economic slowdown; stabilization may fuel growth ahead


4392

2599

1480

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

FY14 FY15 FY16

(Rs. Mn)

27%

-7% -5% -7%

2%

-13%

-4% -4%

17%

-29%

1% 1% 0% 0%

-8%

1%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

Algeria Nigeria Kenya Ivory Coast Libya SouthAfrica

Tusania Morcco

FY16 FY17

39% 41%

-1%

8%

15% 15%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0

500

1000

1500

2000

2500

3000

3500

4000

4500

FY14 FY15 FY16 FY17 FY18 FY19 FY20

Revenues (Rs. Mn) Growth yoy (%)



Asia business - Middle East Asia and Central Asia to remain a drag

Under the Asia business (20% of revenues), AJP is present in 30 countries across therapies

such as Anti-Diabetics, Anti-biotic, Anti-Malarial, Cardiology, Gynecology, Orthopedics,

Pediatrics, Respiratory, and general health products. The company deploys a sales force of

650 people for the business.

The business has been growing at a healthy rate in the past, but declined in FY17 owing to

currency devaluation and repatriation issues in the Middle East Asia and Central Asia.

Therefore, the company took a conscious decision and calibrated its sales to these

countries. About ~30% of the Southeast Asia business is generated from the Philippines,

which continued to grow despite 10% currency depreciation during FY17.

Central Asia and Middle East Asia remain areas of concern, largely owing to non-availability

of US dollars and repatriation issues. Central Asia has been seeing non-convertibility issues

since quite some time now, while issues in the Middle East should resolve with oil prices

stabilizing.

In South East Asia, we expect Philippines to continue growing at a higher rate, while the

remaining market to post tepid growth. We expect overall Asia market to grow at 10% each

in FY19 and FY20.

Exhibit 26:Philippines peso declines by 10% against INR


Exhibit 27:Asia dipped owing to economies woes; expecting growth from FY19


1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50

01-0

4-2

015

01-0

6-2

015

01-0

8-2

015

01-1

0-2

015

01-1

2-2

015

01-0

2-2

016

01-0

4-2

016

01-0

6-2

016

01-0

8-2

016

01-1

0-2

016

01-1

2-2

016

01-0

2-2

017

01-0

4-2

017

01-0

6-2

017

01-0

8-2

017

01-1

0-2

017

19%

30% 29%

15%

-9%

-1%

10% 10%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

0

1000

2000

3000

4000

5000

6000

FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Revenues (Rs. Mn) Growth yoy (%)



US business - Bleak visibility over future launches

AJP has successfully launched few low-competition products in the past, which shored up

revenues from Rs 40mn in FY15 to Rs 1.85bn in FY17. However, amid a tough pricing

environment and competition in one of its niche launches, gZegerid, 1HFY18 revenues

declined to Rs 800mn from 1.04bn in 2HFY17.

Exhibit 28: US revenues, mainly driven by gZegerid and gAxert, declined with

additional competition in both products


We expect revenues to revive in 2H on the back of full-quarter contribution from gComtan

and gRelpax, along with contribution from high-value gKapvay launched in Nov‟17. All

combined are expected to contribute US$ 6mn in 2H.

Visibility over future launches is bleak as majority of AJP‟s filings are through Para-II/III

routes. Thus, competition dynamics and contribution from the pipeline is uncertain. The

company has 16 ANDAs awaiting approval and two tentative approvals, gVesicare and

gViagra, at present. As AJP has para-III filings on both, they are likely to be commoditized

launches along with other competitors after the patent expiry. Both are likely to be un-

meaningful opportunities and contribute US$ 2-3mn annually each.

In Para-IV filings, other ANDAs in the pipeline include Cialis and Sensipar. As none of these

products is complex in nature and the number of filers in both is above 10, we expect these

to be commoditized launches with contribution limited to US$ 1mn annually.

Amid a tough pricing environment in the US, overall realizations have declined over the

past. Pricing (realization) is expected to remain low going forward as well with an

expedited USFDA approval process, strengthening purchasing power of buyers (payers) and

an increase in the number of players.

Considering the overall challenging environment in the US, we expect average contribution

from an ANDA to be limited to US$ 1.5mn. However, AJP will benefit from USFDA‟s

expedited ANDA approval review process (GDUFA target action date of 11 months). Thus,

with AJP‟s target of filing ANDAs for 10-15 products annually and with 16 ANDAs in the

pipeline, we expect the spate of launches to continue and the company to continue

launching 7-10 products each year.

Exhibit 29:US revenues expected to grow at 17.5% CAGR


0

200

400

600

800

1000

1200

1400

1600

1800

2000

FY15 FY16 FY17 1H FY18

Revenues

Singulair Granules

Competition in

Zegerid tablets and

price erosion in

base, compensated

partially by launch

of Abilify and month

launch of Comtan

and Relpax

Axert,

Zegerid Tablet,

Zegerid Powder

0

500

1,000

1,500

2,000

2,500

3,000

3,500

FY15 FY16 FY17 FY18E FY19E FY20E

(US$ Mn)

(US$ Mn)



Exhibit 30:US pipeline

Brand

Name

Active

Ingredient

Brand

Sales USD

No. of generic

players Approval stays Likely launch

Ajanta

annualized

sales

Comments

Vesicare SOLIFENACIN

SUCCINATE 530 1; Teva TA 1QFY20 1.3

Only 1 patent left expiring on 19-May-2019. Ajanta, Cadila, Glenmark has tentative

approval. However, it seems all have Para III as no Para IV litigation is present. Thus we

expect it to be commoditized launch in May-2019. Teva Para IV got settled and as per the

settlement Teva can launch a month before patent expiry.

Cialis TADALAFIL 782 Expecting;

Commoditized Pending 3QFY19 1.2

Teva is FTF. Later 10 other companies (inc. Ajanta) filed Para IV. All 11 have settled the

litigation. As per the settlement companies can launch by 27-Sep-2018 (based on press

release by Lilly). Thus expecting it to be commoditized launch.

Sensipar CINACALCET

HYDROCHLORIDE 330

Expecting;

Commoditized Pending 1QFY19 0.8

Teva was FTF and lost the litigation on latest patent ' 068 expiring on 8th Mar, 2018. Later

patent 405 and '595 were issued on which 15 companies inc. Ajanta, Aurobindo, Sun, Cipla,

Cadila Dr Reddy, Lupin, Piramal filed Para IV. Ajanta, hetero, Micro, Sun, Breckenridge

settled. Settlement terms are unknown. In case, if Teva launches on 8th Mar, 2018, we

expect all settlements to get triggered and launch their product. Rest still undergoing

litigation

Viagra SILDENAFIL

CITRATE 1300

Expecting;

Commoditized TA 1QFY21 3.3

15 companies haved filed an ANDA, out of which 11 companies already have Tentative

approval (inc. Ajanta). 8 companies have settled and as per the settlement they can launch

after the expiry of Teva's 180 day exclusivity i.e. Jun-2019. Ajanta, Dr Reddy, Aurobindo

haven't filed Para IV and thus won't be able to launch prior to latest patent expiry i.e. April-

2020.

Relpax ELETRIPTAN

HYDROBROMIDE 295 5 players Approved Launched 3.0

All the patents have expired. An Green stone (AG), Ajanta, Mylan, Cadila and Teva have

launched their generic version. Product has seen steep price erosion of ~90%.

Comtan ENTACAPONE 59 6 players Approved Launched 3.5

Sun, Wockhardt, Macleods, Aurobindo and AJP have launched their generic versions. AJP has

recently launched in Nov-2017. Mylan and Sandoz had launched their AG version. 1 Patent

remaining to expire, however, Innovator is no longer protecting the patent thus generics can

launch on approval.

Kapvay CLONIDINE

HYDROCHLORIDE 66 6 players Approved Launched 5.0

Six companies, viz. Lupin, Actavis (Teva), Amneal, Anchen, Xiamen and Ajanta have secured

approval. AJP has recently entered the market. All patents have expired and generics can

launch on approval. Lupin has not yet launched the drug




Financial Profile

Healthy topline growth to continue

Revenue growth has slowed down over the last couple of years with FY18E growth expected

to be 1% owing to (1) a higher base, (2) a slowdown in Africa and Asia branded business due

to currency volatility, (3) additional competition and price erosion in the US portfolio, (4) a

decline in Melacare revenues, and (5) impact of demonetization and GST implementation.

Growth revival is expected over the coming year with new launches in the US market,

stabilizing currency of African and Asian economies and continued outperformance in the

domestic market.

Exhibit 31: Revenues to grow at 10% CAGR between FY17-FY20E


Gross margins to remain strong on higher branded, lower tender biz

We expect gross margins to remain strong at FY17 levels of ~79% over FY18-FY20E. Gross

margins will remain largely intact despite a decline in contribution from low-margin Africa

malaria tender business and an increase in high-margin branded generic business (from 64%

in FY17 to 72% in FY20E) as it will get completely offset by the low-margin US business. As

we expect commoditized launches in the US market, margins are likely to be in the range

of 40-45%. Domestic business margins will strengthen with own manufacturing (third-party

manufacturing to come down to 15-20% from 45% in FY17) with commercialization of the 2nd

phase of Guwahati facility.

Exhibit 32:Gross margin to hold up at current levels


EBITDA margins to contract on higher costs/overheads

We expect a ~250bps contraction in EBITDA margins over FY17-FY20E due to an increase in

R&D expenses, partial utilization of the Dahej facility and negative impact of operating

leverage. Opex is set to increase at ~10.5% CAGR vs. 8.5% CAGR in revenues over FY17-20E.

R&D expenses, at Rs 1.5bn in FY17 (~7.5% of sales), are expected to go up to 9.5% of sales

(Rs 2.4bn) in FY20E as (a) the company is looking to file 12-15 ANDAs each year, and (b)

AJP‟s continued focus to launch niche products in the domestic market would warrant

clinical trials.

37%

30%

22%

19%

14%

1%

10%

15%

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

5000

10000

15000

20000

25000

30000

FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Sales (Rs. Mn) Growth (%)

76.3%

79.3% 79.6%

79.3% 79.3%

74%

75%

76%

77%

78%

79%

80%

FY16 FY17 FY18E FY19E FY20E



Exhibit 33:R&D costs to remain high towards developing ANDAs for the US market


Exhibit 34: EBITDA margin to decline from FY17 levels


Working capital position to increase with increase in US business

AJP business has revived its business over the past with a transition from low-margin

tender, OTC business to higher-margin branded generic business. This is also reflected in its

working capital requirement, with overall cash cycle days declining to 76 days in FY17 from

93 days in FY12. However, we expect overall cash cycle days to increase marginally with

traction in the US business, which has higher working capital requirements.

Exhibit 35:Cash-cycle days improved over years; likely to remain at current levels


4% 5%

6%

8%

9% 9% 10%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

0

500

1000

1500

2000

2500

3000

FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Rs. Mn % of sales

31%

34%

34%

34%

30%

31%

32%

27%

28%

29%

30%

31%

32%

33%

34%

35%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

FY14 FY15 FY16 FY17 FY18 FY19 FY20

Rs. Mn % of Sales

0

20

40

60

80

100

120

140

160

180

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Payable days

Receivable days

Inventory days



Capex to remain in range of Rs. 3bn; funding through internal accruals

In line with FY18, AJP is expected to incur a capex of Rs 3bn each in FY19 and FY20, mainly

towards Dahej and Paithan expansions (~Rs 1.2bn annually), a new corporate office

(Rs 0.75bn), a new R&D site and regular maintenance expenditure (~Rs 1bn-1.25bn

annually). Projects will be funded through internal accruals.

Some of the above-referred investments won‟t yield any returns, while a few would start

contributing post FY20, thus denting AJP‟s return ratios.

Exhibit 36:Operating cash flows to remain strong; could easily fund capex


*FY17 saw robust jump in operating cash flows owing to launch of gZegerid and gAxert.

Declining tax rate to aid PAT and return ratios

AJP‟s tax rate increased significantly soon after FY12 as it exhausted carried forward

losses. Tax rates moved up to 29-30% of PBT, but are expected to decline with

commercialization of the Dahej and Guwahati facilities which are built in a SEZ. The

Guwahati facility is 100% tax-exempt for 10 years, while Dahej is 100% tax exempt for the

first 5 years, and 50% exempt for the subsequent 5 years. Resultant, FY18/FY19/FY20E

tax rates are expected to be ~24%/23%/22%.

Exhibit 37: Tax rates to decline with Guwahati and Dahej facilities

commercialization


Return ratios to decline

AJP‟s ROE/ROIC are expected to decline to 27%/27% in FY20 from 37%/37% in FY17 owing to

a slowdown in revenue growth, lower profitability margins due to negative operating

leverage and partial utilization of Dahej facility. Some of the investments currently done by

the company are expected to yield returns not any time before FY20.

Exhibit 38:ROE/Core ROIC declining due to slowdown in earnings growth


0

1,000

2,000

3,000

4,000

5,000

6,000

7,000


(Rs. Mn)

0%

5%

10%

15%

20%

25%

30%

35%

40%

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Tax rate

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%


ROE (%) ROIC (%)



Forecast: Key Assumptions & Sensitivity

Exhibit 39:Key Assumptions

Particulars (Rs. Mn) FY17 FY18E FY19E FY20E

Domestic 6140 6618 7807 9065

Africa 7120 7160 6728 7176

Asia 4180 4190 4819 5397

USA 1850 1716 2144 3438


Investment risks and concerns

NLEM expansion: Applicability or expansion of NLEM (National List of Essential

Medicines) may lead to price cuts in the portfolio.

Delay in key approvals: AJP plans to expedite ANDA filings, which are likely to get

approved within in a year owing to the latest GDUFDA timelines. Any delay can

impact our future earnings estimates.

Regulatory risks: Any adverse action by any regulator (USFDA, WHO) can affect the

company‟s existing as well as future revenues

Currency fluctuations: INR appreciation against currencies of economies where AJP

operates can hit profitability as well as viability of the business.

Adverse Government intervention: Any change in policies (like outsourcing the

manufacturing base) could likely hurt revenues as AJP generates 15% of domestic

revenues via products manufactured through third parties.

Exhibit 40: Sensitivity Analysis; Impact on EBITDA/PAT if margins drop by 100bps

Particulars (Rs. Mn) FY18E FY19E FY20E

Impact EBITDA -3% -3% -3%

Impact on PAT 4% 0% -3%


Corporate Governance

Composition: AJP‟s Board of Directors comprises 9 directors, including 7 non-executive

directors, of which 5 are Independent Directors. There are 3 Directors belonging to the

promoter‟s family, and all are executive. Composition of the Board of Directors is in

compliance with the stipulated requirement for independent functioning of the Board.

Background: All Independent Directors possess requisite qualification and are highly

experienced and qualified in their respective fields. No Director is a member of more

than 10 committees or a Chairman of more than 5 committees in public listed companies,

where they are Directors.

Meeting frequency of Independent Directors and Board of directors: Independent

Directors meet at least once a year every fiscal, in the absence of AJP‟s Executive

Directors, to discuss the company‟s affairs. Additionally, the Board of Directors met eight

times during FY17 against the stipulated requirement of four times to discuss strategic

plans.

Auditor: From FY18, AJP has roped in BSR & co LLP (KPMG) as auditor, replacing Kapoor

and Parekh Associates.

Disclosure norms: As per our preliminary study, we do not find any issues on this front.

The company follows disclosure norms as stipulated by the listing agreement of the

exchanges and is timely in coming up with quarterly results and other disclosures.

However, management doesn‟t conduct quarterly earnings calls.



Valuations

AJP currently trades at 31x/26x/21x P/E and an EV/EBITDA of 21x/19x/16x on our

FY18/19/20 estimates – at premium valuations vs. other pharmaceutical companies as it

derives most of its revenues from the branded generics segment (expected to grow

further going forward), which is far more sustainable than the US business (pure generic

business). AJP growth was hit in FY18, but should revive in the coming years; however,

this is partially factored into the current price (+28% over last 3 months). We initiate

coverage with ADD and a Jun‟19 TP of Rs 1,648 set at 27x P/E.

Exhibit 41:TTM P/E vs. 2 year forward EPS Growth


Exhibit 42:TTM EV/EBITDA vs. 2 year forward EBITDA Growth


Exhibit 43:TTM P/B vs. 2 year forward ROE


0%

10%

20%

30%

40%

50%

60%

70%

80%

0

500

1000

1500

2000

2500

3000

Mar-

08

Sep-0

8

Mar-

09

Sep-0

9

Mar-

10

Sep-1

0

Mar-

11

Sep-1

1

Mar-

12

Sep-1

2

Mar-

13

Sep-1

3

Mar-

14

Sep-1

4

Mar-

15

Sep-1

5

Mar-

16

Sep-1

6

Mar-

17

Sep-1

7

Mar-

18

Sep-1

8

Mar-

19

Sep-1

9

5x

10x

20x

30x

40x EPS Growth

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

-50000

0

50000

100000

150000

200000

250000

300000

Mar-

08

Sep-0

8

Mar-

09

Sep-0

9

Mar-

10

Sep-1

0

Mar-

11

Sep-1

1

Mar-

12

Sep-1

2

Mar-

13

Sep-1

3

Mar-

14

Sep-1

4

Mar-

15

Sep-1

5

Mar-

16

Sep-1

6

Mar-

17

Sep-1

7

Mar-

18

Sep-1

8

Mar-

19

Sep-1

9

4x

8x

12x

16x

22x

EBITDA Growth

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0

500

1000

1500

2000

2500

3000

3500

4000

4500

Mar-

08

Sep-0

8

Mar-

09

Sep-0

9

Mar-

10

Sep-1

0

Mar-

11

Sep-1

1

Mar-

12

Sep-1

2

Mar-

13

Sep-1

3

Mar-

14

Sep-1

4

Mar-

15

Sep-1

5

Mar-

16

Sep-1

6

Mar-

17

Sep-1

7

Mar-

18

Sep-1

8

Mar-

19

Sep-1

9

1x

3x

5x

7x

10x

1x

3x

5x

7x

10x

1x

3x

5x

7x

10x

RoE



Peer Evaluation:

Sales CAGR

in %

EBITDA

CAGR in %

Earnings

CAGR in % EV/Sales EV/EBITDA P/E Price/ Book value ROE in %

Company Name FY17-FY20 FY17-FY20 FY17-FY20 FY17 FY18 FY19 FY17 FY18 FY19 FY17 FY18 FY19 FY17 FY18 FY19 FY17 FY18 FY19

Ajanta Pharmaceutical 9% 6% 7% 6.7 6.6 5.9 19.3 21.6 19.3 27 31 27 9 7 6 37% 25% 25%

Alkem Laboratories Ltd. 12% 15% 12% 4.6 4.3 3.7 25.4 24.8 19.9 29 33 25 6 6 6 23% 17% 19%

Alembic Pharmaceuticals 9% 10% 10% 3.3 3.5 2.9 16.7 19.9 15.2 25 32 24 5 5 4 23% 16% 18%

Aurobindo Pharmaceuticals 8% 7% 5% 2.6 2.4 2.2 11.6 10.0 9.7 16 15 15 4 3 3 28% 24% 20%

Cadila Healthcare 15% 31% 28% 5.1 4.2 3.7 25.3 17.7 12.7 32 26 18 6 5 4 23% 23% 27%

Cipla Ltd. 14% 23% 39% 3.5 3.1 2.6 20.4 14.9 12.2 47 26 20 4 3 3 8% 14% 16%

Dr. Reddy's Laboratories Ltd. 11% 23% 28% 2.7 2.5 2.1 15.9 14.3 9.1 34 33 18 3 3 3 10% 10% 15%

Eris Lifesciences Ltd. 28% 29% 27% 15.0 11.4 8.3 38.3 30.4 22.0 44 34 26 19 12 8 44% 46% 41%

Granules India Ltd. 20% 21% 18% 2.9 2.7 2.2 13.6 12.7 10.3 19 17 15 3 3 3 21% 20% 19%

IPCA Ltd. 11% 18% 27% 2.4 2.4 2.0 17.4 18.8 12.5 38 39 23 3 3 3 8% 7% 11%

Lupin Ltd. 2% 0% -4% 2.7 3.1 2.8 11.1 14.7 13.2 16 25 23 3 3 3 21% 12% 11%

Natco Pharmaceuticals 3% -4% -9% 9.2 8.0 7.5 26.5 18.2 20.9 34 23 28 11 8 7 35% 39% 25%

Sun Pharmaceutical Industries Ltd. 7% 1% -1% 4.2 4.6 3.7 13.0 21.8 14.6 20 40 26 4 4 3 20% 9% 13%

Torrent Ltd. 11% 10% 8% 4.3 4.2 3.5 18.2 18.4 15.7 26 27 23 6 5 4 24% 19% 19%




Business overview

AJP derives majority of its revenues from Africa (~37%) followed by the domestic market

(~32%), Asia (~22%), USA (10%) and LATAM. In Africa, it caters to both institutional tenders

as well as the branded business, while the company sells only branded generics in Asia and

the domestic market.

Exhibit 44: Sales breakup for FY17 revenues


Domestic business: AJP‟s domestic revenues are largely generated from cardiology (41%),

followed by ophthalmology (25%), dermatology (23%), pain management (7%) and the

institutional business (3%). The company‟s focus has been on innovation, which is evident

from the number of innovative products introduced in the domestic market. Of 200+

launches in the domestic market so far, 70% are first-time market introductions.

AJP‟s domestic business is a strategic initiative taken in 2005, when the company decided

to move to prescription-based drugs from OTC and the tender business. Over time, the

proportion of tender revenues declined from 18% in FY13 to 3% in FY17.

Exhibit 45:Therapy-wise FY17 domestic revenues breakup


Africa Business: AJP‟s 60% Africa sales comes from the tender business, while the

remaining 40% are from branded generic business in Anglo and Franco Africa. Franco Africa

is estimated to be 70% of Africa‟s braded business, and the remaining 30% of Africa branded

business is sourced from Anglo Africa. AJP‟s focus has been only on Franco Africa over the

years, and was ranked among top-10 companies in Franco Africa. AJP conducts majority of

Africa‟s branded operations through its Mauritius subsidiary, which also houses a

manufacturing facility.

In 2015, AJP ventured into Anglo African countries through its subsidiary in Nigeria. As most

Anglo African countries are crude dependent, currencies saw steep erosion. Thereby

impacted the growth of incumbent companies.

Domestic 32%

Africa 37%

Asia 22%

USA 10%

LATAM 0%

Ophthalmology 25%

Cardiology 41%

Dermatology 23%

Pain Management

7%

Institutional 3%



Exhibit 46:Africa business breakup


Asia Business: Asia contributes ~22% of Ajanta‟s revenues. Philippines constitutes 30% of

the Asia business, while rest comes largely from CIS and East Asia countries. Asia business

grew at 15% CAGR between FY13-FY17, largely driven by Philippines (21% CAGR) which grew

from 23.5% of sales to ~30% of Asia sales. Lately Asia was impacted owing to currency

volatility, leading to a decline in FY17 over FY16.

Exhibit 47:Asia business grew at 15% CAGR over FY13-FY17


USA operations began in 2013; constitutes 10% of revenues: AJP launched 16 products in

the USA till date, out of 21 approved by the USFDA. It has 16 ANDAs which are still awaiting

approval and 2 TA. US revenues has seen sharp jump over the past with the launch of few

niche launches, gAxert and gZegerid, which later declined owing to additional competition

in these products. The company has recently secured approval for gKapvay, gComtan and

gRelpax, which could be meaningful opportunities and possibly could revive revenues.

Exhibit 48:USA revenues saw robust jump with low competition introduction


Africa

Branded

(40%)

Institutional

Tender (40%)

Anglo Africa

(30%)

Franco Africa

(70%)

2390 3110 4020 4610 4180

19%

30% 29%

15%

-9%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

FY13 FY14 FY15 FY16 FY17

Rs. Mn Growth (%)

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

FY15 FY16 FY17

(Rs. Mn)



Exhibit 49: Company History


Key Management Profile:

Mr. Yogesh Agarwal- Managing Director:

Mr. Yogesh Agrawal is the Managing Director of Ajanta Pharma. A management graduate

from Johnson & Wales University, USA, he joined the company in 1996 and grew-up the

ranks to become the Managing Director. It is under his leadership that Ajanta Pharma

made a corporate turnaround and emerged as a leading branded generic player from

India having strong footprint in its chosen markets. He spearheads Ajanta's foray in the

regulated and emerging international markets. His passion towards research and

development has fuelled the company‟s growth.

Mr. Rajesh Agarwal – Joint MD

Rajesh Agrawal is the Jt. MD of Ajanta Pharma. A graduate in Business Studies from

University of Buckingham, UK and MBA from Bentley College, USA, he joined the company

in 1999. He has transformed Ajanta's domestic business to one of the best performing

market for the company. Under his leadership, Ajanta has emerged as a specialty focused

company, especially in India and has improved its rank in the domestic market

significantly. His keen focus on new products and strategizing has made Ajanta a leading

player in the segments of cardiology, dermatology and ophthalmology in a very short

period.

2017Inaugurated & commissioned 1st phase at a new facility in Guwahati, Assam, India

USFDA completes inspection at Dahej plant without any observations

2014

Income growth of 30% and profit growth of 62% CAGR over last 5 years.

2nd Dedicated R&D Centre set up in Kandivli for India and Emerging markets.

Inaugurated a new facility in Dahej, Bharuch, Gujarat, India

2013 Began sales in USA

2012 Ranked among top 10 pharmaceutical companies in Franco Africa

2011Emerged as strong specialty player in domestic market in Ophthalmology,

Dermatology, and Cardiology with many brands holding leadership position.

2010Entered Philippines market with unique product portfolio through Ajanta Pharma

Philippines inc.

2009

Bought a manufacturing facility at Chitegaon to fuel company‟s growth

API facility set up in Waluj for captive consumption

1st Generic company in the world to get WHO Geneva Pre-qualification for Anti-Malarial drugs.

2007 Set-up dedicated fully equipped R&D facility in Mumbai

2005Strategic shift from OTC to innovative specialized prescription products in Ophthalmology,

Dermatology, & Cardiology

2000 Got listed on NSE and BSE

1995 Established subsidiary in Mauritius with manufacturing facility

1992 Foray in international market.

1989 Launched block buster OTC products „30+‟ in India.

1986 Started Production at 2nd Manufacturing facility in Paithan, India.

1979Launched branded OTC (over the counter) products

1st Manufacturing facility set up in Chikalthana, India.

1973 Ajanta started with re-packaging of generic products



Consolidated Quarterly Earnings Forecast and Key Drivers Rs in Mn 1Q17A 2Q17A 3Q17A 4Q17A 1Q18A 2Q18A 3Q18E 4Q18E 1Q19E 2Q19E 3Q19E 4Q19E FY17A FY18E FY19E FY20E

Revenue 4,759 5,158 5,331 4,768 4,731 5,404 5,013 5,070 5,170 5,718 5,679 5,714 20,016 20,219 22,281 25,616 Cost of Goods Sold 994 1,166 1,064 923 936 1,090 1,041 1,065 1,040 1,171 1,197 1,204 4,146 4,133 4,611 5,290

Employee Cost 703 722 774 755 867 894 900 900 949 979 986 986 2,954 3,561 3,899 4,328

Other Expenditure 1,083 1,174 1,263 1,087 1,151 1,102 1,150 1,141 1,243 1,190 1,242 1,232 4,496 4,544 4,908 5,398 Research & Development Expenditure

320 370 450 390 470 480 451 456 465 515 511 514 1,530 1,858 2,005 2,433

User Defined Subsidiary Expense 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 EBITDA 1,660 1,727 1,780 1,614 1,307 1,837 1,471 1,508 1,471 1,863 1,744 1,779 6,890 6,123 6,857 8,165 Depreciation 130 140 0 189 134 146 151 151 174 174 174 174 612 582 695 806 EBIT 1,530 1,588 1,780 1,425 1,173 1,692 1,320 1,357 1,298 1,689 1,570 1,605 6,278 5,541 6,162 7,360 Interest 4 3 8 9 1 1 2 2 2 2 2 2 35 5 6 6 Other Income 55 67 192 24 15 92 78 78 121 121 121 121 239 264 483 653 PBT 1,580 1,651 1,964 1,440 1,187 1,783 1,396 1,434 1,417 1,809 1,689 1,725 6,482 5,800 6,639 8,007 Tax 385 345 385 300 239 464 335 344 326 416 389 397 1,413 1,383 1,527 1,721 PAT bef. MI & Assoc. 1,196 1,307 1,579 1,140 948 1,319 1,061 1,090 1,091 1,393 1,301 1,328 5,068 4,418 5,112 6,285 Minority Interest 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Profit from Assoc. 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Recurring PAT 1,196 1,307 1,579 1,140 948 1,319 1,061 1,090 1,091 1,393 1,301 1,328 5,068 4,418 5,112 6,285 Extraordinaries 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Reported PAT 1,196 1,307 1,579 1,140 948 1,319 1,061 1,090 1,091 1,393 1,301 1,328 5,068 4,418 5,112 6,285

EPS (Rs) 13.51 14.77 17.85 12.89 10.71 14.91 12.00 12.32 12.33 15.74 14.70 15.01 57.29 49.94 57.79 71.04

Key Drivers

Domestic 1,620 1,580 1,540 1,400 1,430 1,780 1,792 1,615 1,841 2,043 2,065 1,858 6,140 6,618 7,807 9,065 USA 100 710 590 450 540 260 446 470 514 563 655 655 1,850 1,716 2,388 3,438 Africa 1,940 1,750 2,110 1,320 1,680 2,180 1,650 1,650 1,576 1,780 1,686 1,686 7,120 7,160 6,728 7,176 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - -

Sequential Growth (%)

Revenue 11 % 8 % 3 % -11 % -1 % 14 % -7 % 1 % 2 % 11 % -1 % 1 % - - - - Cost of Goods Sold 4 % 17 % -9 % -13 % 1 % 16 % -4 % 2 % -2 % 13 % 2 % 1 % - - - - EBITDA 17 % 4 % 3 % -9 % -19 % 41 % -20 % 3 % -2 % 27 % -6 % 2 % - - - - EBIT 17 % 4 % 12 % -20 % -18 % 44 % -22 % 3 % -4 % 30 % -7 % 2 % - - - - Recurring PAT 8 % 9 % 21 % -28 % -17 % 39 % -20 % 3 % 0 % 28 % -7 % 2 % - - - -

EPS 8 % 9 % 21 % -28 % -17 % 39 % -20 % 3 % 0 % 28 % -7 % 2 % - - - -

Yearly Growth (%)

Revenue 22 % 17 % 12 % 11 % -1 % 5 % -6 % 6 % 9 % 6 % 13 % 13 % 14 % 1 % 10 % 15 % EBITDA 35 % 12 % 9 % 14 % -21 % 6 % -17 % -7 % 13 % 1 % 19 % 18 % 17 % -11 % 12 % 19 % EBIT 36 % 11 % 17 % 9 % -23 % 7 % -26 % -5 % 11 % 0 % 19 % 18 % 16 % -12 % 11 % 19 % Recurring PAT 39 % 26 % 39 % 3 % -21 % 1 % -33 % -4 % 15 % 6 % 23 % 22 % 22 % -13 % 16 % 23 %

EPS 39 % 26 % 39 % 3 % -21 % 1 % -33 % -4 % 15 % 6 % 23 % 22 % 22 % -13 % 16 % 23 %

Margin (%)

EBITDA 35 % 33 % 33 % 34 % 28 % 34 % 29 % 30 % 28 % 33 % 31 % 31 % 34 % 30 % 31 % 32 % EBIT 32 % 31 % 33 % 30 % 25 % 31 % 26 % 27 % 25 % 30 % 28 % 28 % 31 % 27 % 28 % 29 % PBT 33 % 32 % 37 % 30 % 25 % 33 % 28 % 28 % 27 % 32 % 30 % 30 % 32 % 29 % 30 % 31 %

PAT 25 % 25 % 30 % 24 % 20 % 24 % 21 % 21 % 21 % 24 % 23 % 23 % 25 % 22 % 23 % 25 %



Consolidated Financials P&L (Rs Mn) FY17A FY18E FY19E FY20E

Balance Sheet (Rs Mn) FY17A FY18E FY19E FY20E

Cash Flow (Rs Mn) FY17A FY18E FY19E FY20E

Revenue 20,016 20,219 22,281 25,616 Equity Capital 177 177 177 177 PBT 6,482 5,800 6,639 8,007

Op. Expenditure 13,126 14,096 15,424 17,450 Reserve 15,500 18,884 21,604 24,947 Depreciation 612 582 695 806

EBITDA 6,890 6,123 6,857 8,165 Networth 15,677 19,061 21,781 25,124 Others 700 0 0 0

Depreciation 612 582 695 806 Long Term Debt 322 322 322 322 Taxes Paid 1,428 1,383 1,527 1,721

EBIT 6,278 5,541 6,162 7,360 Def Tax Liability 305 305 305 305 Change in WC -285 -261 -486 -818

Interest Expense 35 5 6 6 Minority Interest 0 0 0 0 Operating C/F 6,081 4,739 5,321 6,273

Other Income 239 264 483 653 Account Payables 1,396 1,393 1,554 1,783 Capex -3,004 -3,000 -3,000 -3,000

PBT 6,482 5,800 6,639 8,007 Other Curr Liabi 528 528 528 528 Change in Invest -914 0 0 0

Tax 1,413 1,383 1,527 1,721 Total Liabilities & Equity 18,227 21,608 24,489 28,062 Others 10 0 0 0

PAT bef. MI & Assoc. 5,068 4,418 5,112 6,285 Net Fixed Assets 5,892 10,758 12,208 15,003 Investing C/F -3,908 -3,000 -3,000 -3,000

Minority Interest 0 0 0 0 Capital WIP 3,393 945 1,800 1,200 Change in Debt -746 0 0 0

Profit from Assoc. 0 0 0 0 Others 476 476 476 476 Change in Equity 0 0 0 0

Recurring PAT 5,068 4,418 5,112 6,285

Inventory 2,110 2,216 2,442 2,807 Others -1,322 -1,034 -2,393 -2,941

Extraordinaires 0 0 0 0 Account Receivables 3,218 3,324 3,663 4,211 Financing C/F -2,068 -1,034 -2,393 -2,941

Reported PAT 5,068 4,418 5,112 6,285 Other Current Assets 762 809 891 1,025 Net change in cash 105 705 -72 331

FDEPS (Rs) 57.3 49.9 57.8 71.0 Cash 2,376 3,081 3,010 3,341 RoE (%) 37 % 25 % 25 % 27 %

DPS (Rs) 13.0 10.0 23.1 28.4 Total Assets 18,227 21,608 24,489 28,062

RoIC (%) 35 % 25 % 24 % 26 %

CEPS (Rs) 64.2 56.5 65.6 80.1 Non-cash Working Capital 4,167 4,427 4,914 5,732

Core RoIC (%) 37 % 27 % 26 % 27 %

FCFPS (Rs) 24.9 19.7 26.3 37.0 Cash Conv Cycle 76.0 79.9 80.5 81.7 Div Payout (%) 0 % 23 % 47 % 47 %

BVPS (Rs) 177.2 215.4 246.2 284.0 WC Turnover 4.8 4.6 4.5 4.5 P/E 26.8 30.7 26.5 21.6

EBITDAM (%) 34 % 30 % 31 % 32 % FA Turnover 2.2 1.7 1.6 1.6 P/B 8.7 7.1 6.2 5.4

PATM (%) 25 % 22 % 23 % 25 % Net D/E -0.1 -0.1 -0.1 -0.1 P/FCFF 61.7 77.8 58.3 41.4

Tax Rate (%) 22 % 24 % 23 % 22 % Revenue/Capital Employed 1.4 1.1 1.1 1.1 EV/EBITDA 19.3 21.6 19.3 16.2

Sales Growth (%) 14 % 1 % 10 % 15 %

Capital Employed/Equity 1.1 1.0 1.0 1.0

EV/Sales 6.7 6.6 5.9 5.2

FDEPS Growth (%) 22 % -13 % 16 % 23 %

Dividend Yield (%) 0.8 % 0.7 % 1.5 % 1.9 %

TTM P/E vs. 2 yr forward EPS growth TTM EV/EBITDA vs. 2 yr forward EBITDA growth TTM P/B vs. 2 yr forward RoE

0%

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80%

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Mar

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-11

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EPS Growth

-10%0%10%20%30%40%50%60%70%80%

-50000

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100000

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-11

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-11

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-14

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-14

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-15

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-16

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22xEBITDA Growth

0%

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-12

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-14

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-15

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RoE

1x

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10x



Historical Consolidated Financials

P&L (Rs Mn) FY14A FY15A FY16A FY17A

Balance Sheet (Rs Mn) FY14A FY15A FY16A FY17A

Cash Flow (Rs Mn) FY14A FY15A FY16A FY17A

Revenue 12,083 14,736 17,494 20,016 Equity Capital 177 177 177 177 PBT 3,299 4,645 5,589 6,482

Op. Expenditure 8,396 9,683 11,623 13,126 Reserve 5,756 8,868 11,732 15,500 Depreciation 439 516 444 612

EBITDA 3,688 5,052 5,871 6,890 Networth 5,933 9,044 11,909 15,677 Others -1,421 -1,723 -2,400 700

Depreciation 439 516 444 612 Long Term Debt 1,154 837 1,021 322 Taxes Paid 937 1,461 1,615 1,428

EBIT 3,249 4,536 5,426 6,278 Def Tax Liability 258 185 219 305 Change in WC 745 817 1,244 -285

Interest Expense 87 59 49 35 Minority Interest 0 0 0 0 Operating C/F 2,124 2,794 3,261 6,081

Other Income 137 168 212 239 Account Payables 1,245 1,091 1,456 1,396 Capex -1,312 -1,036 -2,975 -3,004

PBT 3,299 4,645 5,589 6,482 Other Curr Liabi 903 277 276 528 Change in Invest -658 -611 778 -914

Tax 960 1,462 1,433 1,413 Total Liabilities & Equity 9,494 11,434 14,880 18,227 Others 93 63 106 10

PAT bef. MI & Assoc. 2,339 3,183 4,156 5,068 Net Fixed Assets 2,794 2,870 4,507 5,892 Investing C/F -1,878 -1,584 -2,091 -3,908

Minority Interest 0 0 0 0 Capital WIP 936 1,702 2,398 3,393 Change in Debt 57 -581 218 -746

Profit from Assoc. 0 0 0 0 Others 564 650 342 476 Change in Equity 0 0 0 0

Recurring PAT 2,339 3,183 4,156 5,068 Inventory 1,554 1,590 2,046 2,110 Others -258 -471 -1,391 -1,322

Extraordinaires 0 0 0 0 Account Receivables 2,022 2,588 3,724 3,218 Financing C/F -201 -1,052 -1,173 -2,068

Reported PAT 2,339 3,183 4,156 5,068 Other Current Assets 470 596 662 762 Net change in cash 45 159 -2 105

EPS (Rs) 26.4 36.0 47.0 57.3 Cash 1,154 1,438 1,202 2,376

RoE (%) 47 % 43 % 40 % 37 %

DPS (Rs) 4.0 11.3 8.0 13.0

Total Assets 9,494 11,434 14,880 18,227

RoIC (%) 37 % 37 % 36 % 35 %

CEPS (Rs) 31.4 41.8 52.0 64.2 Non-cash Working Capital 1,898 3,406 4,700 4,167 Core RoIC (%) 40 % 42 % 39 % 37 %

FCFPS (Rs) 3.5 14.1 13.6 24.9 Cash Conv Cycle 57.3 84.4 98.1 76.0 Div Payout (%) 0 % 0 % 0 % 0 %

BVPS (Rs) 67.1 102.2 134.6 177.2 WC Turnover 6.4 4.3 3.7 4.8

P/E 58.0 42.6 32.6 26.8

EBITDAM (%) 31 % 34 % 34 % 34 % FA Turnover 3.2 3.2 2.5 2.2 P/B 22.9 15.0 11.4 8.7

PATM (%) 19 % 22 % 24 % 25 % Net D/E 0.0 -0.1 0.0 -0.1 P/FCFF 440.1 108.4 112.4 61.7

Tax Rate (%) 29 % 31 % 26 % 22 % Revenue/Capital Employed 1.9 1.7 1.5 1.4 EV/EBITDA 36.7 26.7 23.0 19.3

Sales growth (%) 30 % 22 % 19 % 14 %

Capital Employed/Equity 1.5 1.3 1.2 1.1

EV/Sales 11.2 9.1 7.7 6.7

FDEPS growth (%) 109 % 36 % 31 % 22 %

Dividend Yield (%) 0.3 % 0.4 % 0.5 % 0.8 %



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Ajanta Pharma Ltd. Initiating Coverage - Business Standardbsmedia.business-standard.com/_media/bs/data/...Torrent Pharma ADD 1,425 2,41,013 1,394 30th Sep‟18 54.9 53.1 61.3 26.0