Ajanta Pharma May2015

8/21/2019 Ajanta Pharma May2015

1/15

May 11, 2015

ICICI Securities Ltd | Retail Equity Research

Result Update

Maintains growth tempo…

• Revenues grew 18.6% YoY to | 368.8 crore vs. I-direct estimate of| 358.9 crore on the back of higher-than-expected export growth (up18.9% to | 245 crore)

• EBITDA margins improved 261 bps YoY to 38.2%, higher than I-direct estimate of 35.2%. EBITDA increased 27.3% YoY to | 140.7crore vs. I-direct estimate of | 126.4 crore

• Adjusted net profit increased 30.3% YoY to | 91.3 crore, higher thanour estimate (| 86.4 crore) driven by strong operational performance

Domestic formulations - Focus on new launches, few therapies

Domestic formulations constitute 32.7% of the total consolidated turnover(FY15). The main distinguishing factor compared to its peers is the

uncanny knack of launching maximum number of first time launches with focus on new drug delivery system (NDDS). Of 181 actively marketedbrands, 127 brands were first in India. The focus on specialty therapiesand niche product led APL to post strong growth at 26.5% CAGR in FY10-15, far higher than industry growth of ~12%. Going ahead we expectdomestic formulations to grow at a CAGR of 23% in FY15-17E to | 724.6crore driven by a mix of existing products + new launches.

Exports traction mainly from emerging markets

Export formulations constitute 65% of the total consolidated turnover(FY15). APL is currently deriving almost its entire export revenues fromemerging regions like Africa (Franco Africa), Asia and LatAm having apresence in more than 35 countries. As opposed to the common practice

of forging alliances with regional pharmaceutical players, APL’s front-endmarketing team interacts directly with doctors. The company hasconsistently introduced new products in these markets. Overall, export formulations have grown at a CAGR of 29.4% in FY10-15 to | 952 crore.We expect exports to grow at a CAGR of 17.3% between FY15 and FY17Eto | 1309 crore driven by consistent product launches.

Low profile but focused; US foray important for scalability

With focus on niche therapies in domestic formulations and a calculatedapproach in the exports market, APL remains an interesting candidate from the midcap pharma space with high growth rates, strong margins,commendable return ratios and lighter balance sheet. Defying the normaltrend of targeting the developed markets for generic generics initially, thecompany focused on branded generics in the semi-regulated markets. Atthis juncture, the company is well poised to foray in the US marketespecially once the newly constructed Dahej plant gets USFDA approval.The company has filed 25 ANDAs with the USFDA and received twoproduct approvals.

FMCG attributes in pharma mould justify high valuation; maintain BUY

The company has maintained its strong growth trajectory in Q4 with a

marked improvement in operating margins. In domestic formulations, the

company continues to register robust growth. In the exports space, both

the Philippines and Franco-African markets continue to thrive on the back

of consistent product launches and base business growth. On the margin

front, the company is constituently improving its margins on the back of

an improved product mix (management guidance 32-34 EBITDA).

Brand focus, consistent growth, strong margins, robust return ratios and

debt-free status are some of the core attributes of Ajanta. We have

ascribed a target price of | 1488 i.e. 28x FY17E EPS of | 53.1.

ting matrix

ating : Buy

rget : | 1488

rget Period : 12-15 months

otential Upside : 17%

hat’s Changed?

rget Changed from | 1288 to | 1488

PS FY16E Changed from | 41.5 to | 45.6

PS FY17E Changed from | 51.1 to | 53.1

ating Unchanged

arterly Performance

Q4FY15 Q4FY14 YoY (%) Q3FY15 QoQ (%)

venue 368.8 311.1 18.6 362.6 1.7

ITDA 140.8 112.3 25.3 131.4 7.1

ITDA (%) 38.2 36.1 205 bps 36.2 192 bps

j. Net Profit 90.8 71.4 27.2 82.9 9.5

y Financials

crore) FY14 FY15E FY16E FY17E

venues 1208.3 1462.3 1735.9 2071.7

ITDA 368.8 509.5 598.9 704.4

t Profit 233.9 338.4 402.7 469.6

S (|) 26.5 38.3 45.6 53.1

uation summary

FY14 FY15E FY16E FY17E

(x) 47.9 33.1 27.8 23.9

Cap/ Revenues (x) 9.5 7.8 6.6 5.5

to EBITDA (x) 9.5 7.8 6.5 5.3

ce to book (x) 18.9 13.9 10.7 8.6

NW (%) 39.4 41.9 38.5 35.9

CE (%) 44.9 50.6 48.7 46.4

ock data

rticular

arket Capitalisation

bt (FY17E)

sh & cash equivalents (FY17E)

week H/L 1380/400

uity capital | 17.7 crore

ce value | 2

| 10683 crore

Amount

| 11203 crore

| 57 crore

| 577 crore

ce performance (%)

1M 3M 6M 1Y

anta Pharma 2.2 34.5 75.8 215.4

a Labs -2.3 1.8 -5.3 -25.4

rrent Pharma -2.8 11.7 27.9 90.0

Ajanta Pharmaceuticals (AJAPHA) | 1268

earch Analyst

ddhant Khandekar

[email protected] Shah

[email protected]

ndan Kamat

[email protected]


2/15

ICICI Securities Ltd | Retail Equity Research Page 2

Variance analysis

Q4FY15 Q4FY15E Q4FY14 Q3FY15 YoY (%) QoQ (%) Comments

Revenue 368.8 358.9 311.1 362.6 18.6 1.7 Growth in revenues was on account of 26% growth in domestic formulation and

19% growth in export formulations

Raw Material Expenses 103.3 98.7 88.7 100.3 16.4 3.0

Employee Expenses 50.8 47.7 37.7 48.2 34.9 5.5

Other Expenditure 74.0 86.1 72.3 82.7 2.3 -10.5 Reduction in other expenditure as percentage of revenue by 320 bps YoY wasmainly due to lower R&D and selling cost

Total Operating Expenditure 228.1 232.5 198.7 231.2 14.8 -1.3

EBITDA 140.8 126.4 112.3 131.4 25.3 7.1

EBITDA (%) 38.2 35.2 36.1 36.2 205 bps 192 bps Improvement in margin was mainly due to contraction in other expenditure as

percentage of sales

Interest 1.1 1.3 2.2 1.2 -52.3 -12.5

Depreciation 12.6 12.3 14.9 12.6 -15.4 0.0

Other income 2.3 10.6 3.0 3.6 -23.0 -35.4

PBT before EO 129.5 123.4 98.3 121.2 31.7 6.8

Less: Exceptional Items 6.5 0.0 1.8 -2.7 264.4 LP

PBT 123.0 123.4 96.5 123.9 27.5 -0.7

Tax 38.7 37.0 26.4 39.2 46.4 -1.3

MI & Share of loss/ (gain) asso. 0.0 0.0 0.0 0.0 0.0 0.0

Adj. Net Profit 90.8 86.4 71.4 82.9 27.2 9.5 Strong adjusted net profit growth was mainly due to a robust operational

performance and increase in other income

Key Metrics

Domestic 114.0 127.1 95.0 132.0 20.0 -13.6 The growth was driven by therapies like cardiology (37%), ophthalmology (31%)

and dermatology (11%)

Exports 245 225.7 206 223 18.9 9.9 The growth was mainly driven by 30% YoY growth in African business

Source: Company, ICICIdirect.com Research

Change in estimates

(| Crore) Old New % Change Old New % Change Comments

Revenue 1,767.7 1,735.9 -1.8 2,183.3 2,071.7 -5.1 We have trimmed down our revenue expectations on the back of a s lowdown in export

growth owing to higher base

EBITDA 565.7 598.9 5.9 687.7 704.4 2.4EBITDA Margin (%) 32.0 34.5 250 bps 31.5 34.0 250 bps We have revised upward our EBITDA margin expectations on the back of an

improvement in operational efficiency, better product mix and rupee depreciation

PAT 366.4 402.7 9.9 455.1 469.6 3.2

EPS (|) 41.5 45.6 9.9 51.5 53.1 3.2

FY16E FY17E


Assumptions

Comments

(| crore) FY14 FY15 FY16E FY17E FY16E FY17E

Branded - domestic 319.0 417.6 529.5 663.2 534.5 701.5 FY17 reduct ion in domest ic revenues estimates due to a s lowdown in Derma port folio

Institutions- domestic 66.0 61.4 61.4 61.4 53.0 63.0Exports Total 793.0 951.8 1,113.3 1,309.1 1,238.0 1,380.4 Reduction in total export sales on the back of a slowdown in growth owing to higher

base

Current Earlier



3/15


Company Analysis

Established in 1973, APL is mainly into exports as well as domestic formulations. As of FY15, the exports-domestic formulation ratio stood at65:35. The company owns five manufacturing facilities - four inAurangabad, Maharashtra and one in Mauritius. Of these five facilities,

only one in Aurangabad is an API facility while the rest are all formulations. The consolidated revenues, EBITDA and PAT have grown ata CAGR of 29%, 46% and 58%, respectively, in FY10-15. APL had comeout with a maiden IPO in March 2000. It raised | 68 crore, which wasearmarked for capacity expansion and debt repayment.

Domestic formulations constitute 35% of the total consolidated turnover(FY15). This segment has been further segregated into two sub-segments- 1) branded formulations and 2) institutional business. Initially,the company was catering to the institutional business. The institutionalsub-segment accounts for ~13% of domestic formulations and is mainlyconfined to government and institutional tenders. It is only in the last 10

years that the focus has shifted to the branded formulations business,which now accounts for ~87% of domestic formulations.

The company focuses on only a few so called specialty therapies –ophthalmology, dermatology and cardiology. Together, these therapiesconstitute ~79% of domestic branded formulations. The companyinvested heavily in the technology and field force, especially in the first five years, after the changed focus. The focus was also to offer a noveldelivery system. From | 17 crore in FY05, branded formulations havegrown at a CAGR of 38% to | 417.6 crore in FY15. Till date, the companyhas launched 181 products out of which 127 are first time launches. Thecurrent MR strength is ~2500. Overall, domestic formulations have grownat a CAGR of 26.5% in FY10-15 to | 479 crore. The company has only one

product under the National List of Essential Medicines (NLEM) 2011 list.

Export formulations constitute 65% of the total consolidated turnover(FY15). Exports are mainly confined to emerging markets and constitutebranded generics. APL exports its products in ~35 emerging marketswith a significant presence in Franco African countries and Philippines.

Africa accounts for ~56% of export formulations followed by Asia. Thecompany also participates in anti-malarial tenders in Africa. APL operatesthrough 450+ MRs in these emerging markets and owns a portfolio of1445 registered brands in these markets encompassing major therapiessuch as anti-infectives, anti-malarials, ophthalmic, dermatology,

cardiovascular, GI etc. The company also has a marginal presence in LatinAmerica. APL has also forayed into regulated markets such as US where ithas filed 25 ANDAs, received approvals for two and launched oneproduct. Overall export formulations have grown at a CAGR of 29.4%between FY10 and FY15 to | 951.8 crore.

Ajanta Pharma has five subsidiaries including one step down subsidiary inMauritius, Philippines and the US. The Mauritius subsidiary with anindependent manufacturing base mainly caters to the Franco Africanmarkets. The subsidiary in Philippines, which is a marketing arm, caters tothe Philippines market. The US subsidiary is an administrative office to facilitate US operations.

We expect revenues to grow at a CAGR of 19% to | 2071.7 crore in FY15-17E, on the back of strong growth in both exports and domestic formulation segments. Exports are likely to grow at a CAGR of 17.3% to


4/15


| 1309.1 crore during the same period to be driven by growth in thelegacy export markets of Africa & Asia and commencement of USshipments. Similarly, the domestic formulations segment is likely toregister a CAGR of 23% to | 724.6 crore during the same period, to bedriven by branded formulations.Exhibit 1: Revenue growth trend

407.7 504.9

677.4

930.8

1208.3

1462.3

1735.9

2071.7

0

500

1000

1500

2000

2500

FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E

( | c r o r e )

Revenues


Domestic formulations – The India business contributed ~35% of sales.APL operates in the branded (prescription: Rx, 87% of domestic sales)and tender business (13% of domestic sales). In the branded space, it hasa presence in fast growing specialty therapies viz. ophthalmology,dermatology, chronic therapies such as cardiovascular (CVS) while in theacute space it has a marginal presence in pain management andgastrointestinal. APL currently markets 181 brands through 2500 medicalrepresentatives (MRs) covering 3 lakh doctors.

Over the years, the company has developed a knack of launchingmaximum number of first launches with focus on new drug deliverysystem (NDDS). APL was one of the very few companies to launchproducts such as Metoprolol (CVS), Rosuvastatin + Clopidogrel (CVS),Hydroquinone + Mometasone + Tretinoin (Derma), etc. in the Indianmarket. The company’s first differentiated (NDDS) product Nimesulide(Pain) daily once was launched under the brand name Nimlodi in FY02.Out of 181 actively marketed brands, 127 were first launches in India. The focus on specialty therapies and niche product led APL to post a strongCAGR of 26.5% in FY10-15, which is far higher than the industry growthof ~12% (AIOCD data).

As per the latest AIOCD data, APL ranks 41st in the Indian pharmaceuticalmarket with a market share 0.50%. Currently, only 12% of total domesticsales are under NLEM. They are mainly from the CVS category.

The company markets CVS, ophthalmology and dermatology productsunder the divisions Anvaxx, Illuma and Ansca. Till FY15, it has launched58 brands in dermatology, 61 brands in ophthalmic and 32 brands in CVS.Of this, 40, 51 and 11 were first launches in India. The company launches~20 new products every year including line extensions. We expectcompany to continue with15-20 product launches every year. Overall, weexpect domestic sales to grow at a CAGR of 23% to | 724.6 crore in FY15-17E.


5/15


Exhibit 2:

Domestic formulation growth likely to be at CAGR of 23% in FY15-17E

148.0 170.0227.0

292.0

385.0

479.0

590.9

724.6

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0


Total Domestic


Formulation exportsExports account for 65% of revenues. APL currently derives almost itsentire export revenues from emerging regions like Africa (Franco Africa),Asia and LatAm having a presence in more than 35 countries. Exportshave grown at 29.4% CAGR in FY10-15.

The company markets its products through a team of 450+ MRs. Atpresent, the company is marketing 200+ products in these regions. In all,the company owns 1445 registered brands while another 1609 brands areunder registration.

APL’s success story in emerging markets was carved out of the so calleddifferentiated approach. According to this, products were developed on

the basis of unmet medical needs in a particular geography. As a result,the product basket varied from nation to nation. Similarly, the companyresorted to a different strategy of product marketing. As opposed to thecommon practice of forging alliances with local/regional pharmaceuticalplayers, APL’s front-end marketing team interacts directly with doctors.The company has consistently introduced new products in these markets.Overall, we expect export sales to grow at a CAGR of 17.3% to | 1309.1crore in FY15-17E.

Exhibit 3:

Exports to grow at CAGR of 17.3% in FY15-17E

262.0 328.0

445.0

629.0

793.0951.8

1113.3

1309.1

0.0

200.0

400.0

600.0

800.0

1000.0

1200.0

1400.0


Total Exports



6/15


Exhibit 4:

Derma sales(domestic) to grow at CAGR of 20% in FY15-17E

36.0 47.0

62.079.0 100.0

116.7

140.1

168.1

0.0

200.0

FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17EDerma


Exhibit 5:

Cardio sales(domestic) to grow at 27.5% CAGR in FY15-17E

32.0 35.0 49.0

72.0104.0

145.7189.4

236.8

0.0

200.0

400.0

FY10 FY11 FY12 FY13 FY14 FY15 FY16E F Y17E

Cardio

Source: Company, ICICIdirect.com, Research

Exhibit 6:

Ophthalmic sales (domestic) growing at 25% CAGR in FY15-17E

35.0 37.0 46.0

64.0

85.0

115.3

144.1

180.1

0.0

200.0


Ophthalmic


Exhibit 7:

Institutional domestic business

45.0 39.053.0 54.0

66.0 61.4 61.4 61.4

0.0

200.0


Institutional Domestic


Exhibit 8:

Africa sales export growth at 12.6% CAGR in FY15-17E

107.0170.0

256.0340.0

440.0

529.2591.3

670.6

0.0

100.0

200.0

300.0400.0

500.0

600.0

700.0

800.0

FY10 FY11 FY12 FY13 FY14 FY15 FY16E F Y17E

Africa


Exhibit 9:

Asia exports growth at 15.8% CAGR in FY15-17E

148.0 149.0 179.0

263.0

337.0

410.6

484.2

550.7

0.0

200.0

400.0

600.0


Asia



7/15


Exhibit 10:

EBITDA to grow at CAGR of 17.6% in FY15-17E

77.1 96.3140.7

221.6

368.8

509.5

598.9

704.4

18.9 19.1 20.8

23.8

30.5

34.8 34.5 34.0

0

100

200

300

400

500

600

700

800


( |

c r o r e )

0

4

8

12

16

20

24

28

32

36

40

( % )

EBITDA EBITDA Margins (%)


Exhibit 11:

Net profit to grow at CAGR of 17.8% in FY15-17E

34.0 50.7

77.3112.1

233.9

338.4

402.7

469.6

8.310.0

11.4 12.0

19.4

23.1 23.2 22.7

050

100

150

200

250

300

350

400

450

500


( | c r o r e )

0

4

8

12

16

20

24

28

( % )

Net Profit Net Profit Margins (%)


Exhibit 12: Trends in return ratios

13.717.1

21.9

36.2

44.9

50.648.7

46.4

18.4

22.2

25.928.5

39.441.9

38.535.9

10

18

26

34

42

50

58


( % )

RoCE (%) RoNW (%)



8/15


Exhibit 13:

Trends in quarterly financials(| crore) Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 YoY (%) QoQ (%)

Net Sales 172.7 171.8 183.7 225.7 249.2 215.4 270.8 292.6 301.1 280.8 331.2 356.3 360.4 19.7 1.1

Other operating income 3.4 2.3 2.7 3.7 0.2 3.6 9.1 8.3 9.9 6.7 6.1 6.3 8.5 -14.4 34.8

Revenues 176.1 174.1 186.4 229.3 249.4 218.9 279.8 300.9 311.1 287.5 337.3 362.6 368.8 18.6 1.7

Dec/(Inc) in stock-in-trade -18.8 15.5 -6.7 -2.7 -17.5 16.1 27.3 -4.7 -31.6 12.5 -19.7 1.9 14.5 -146.0 677.0

Consumtion of RM & packing mat 78.0 44.4 60.4 80.0 99.4 50.8 57.2 86.0 105.9 57.8 103.4 86.6 73.3 -30.7 -15.3

Purcahsed of traded good 6.0 5.3 6.6 8.0 7.5 7.6 8.5 10.1 14.4 10.0 12.9 11.9 15.5 7.1 30.5

RM Cost 65.2 65.1 60.3 85.2 89.4 74.6 92.9 91.5 88.7 80.3 96.7 100.3 103.3 16.5 3.0

% of Revenue 37.0 37.4 32.3 37.2 35.8 34.1 33.2 30.4 28.5 27.9 28.7 27.7 28.0 -51 bps 35 bps

Gross Profit 110.9 108.9 126.1 144.1 160.1 144.4 186.9 209.4 222.3 207.2 240.7 262.3 265.5 19.4 1.2

Gross Profit Margin (%) 63.0 62.6 67.7 62.8 64.2 65.9 66.8 69.6 71.5 72.1 71.3 72.3 72.0 51 bps -35 bps

Employee Cost 24.9 25.6 27.5 27.8 34.5 33.9 37.4 38.4 37.7 42.8 44.5 48.2 50.8 34.9 5.5

% of Revenue 14.1 14.7 14.7 12.1 13.8 15.5 13.3 12.8 12.1 14.9 13.2 13.3 13.8 167 bps 49 bps

Other expenditure 46.2 46.2 55.3 55.7 56.5 59.4 65.4 71.8 72.3 74.6 85.4 82.7 74.0 2.3 -10.5

% of Revenue 26.2 26.5 29.6 24.3 22.6 27.1 23.4 23.9 23.3 26.0 25.3 22.8 20.1 -320 bps -274 bps

Total Expenditure 136.3 137.0 143.2 169.5 181.0 165.8 195.2 203.6 200.5 197.8 226.6 231.2 228.1 13.8 -1.3

% of Revenue 77.4 78.7 76.8 73.9 72.6 75.7 69.8 67.7 64.5 68.8 67.2 63.8 61.8 -261 bps -191 bps

EBITDA 39.8 37.1 43.2 59.8 68.4 53.1 84.6 97.2 110.6 89.7 110.7 131.4 140.7 27.3 7.1

EBITDA Margin (%) 22.6 21.3 23.2 26.1 27.4 24.3 30.2 32.3 35.5 31.2 32.8 36.2 38.2 261 bps 191 bps

Other income -2.0 9.8 0.4 0.5 6.3 4.8 5.8 4.0 3.0 8.6 14.7 3.6 2.3 -23.0 -35.4

Interest -1.7 16.0 4.6 3.4 5.4 1.6 2.2 2.2 2.2 1.4 1.3 1.2 1.1 -52.3 -12.5

Depreciation 8.2 7.8 7.9 8.1 9.0 8.6 9.0 9.5 14.9 12.0 12.2 12.6 12.6 -15.4 0.0

PBT (bef Excep's) 31.2 23.1 31.1 48.9 60.4 47.7 79.3 89.6 96.5 84.8 111.9 121.2 129.4 34.1 6.7

Exceptional Items 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 1.2 2.7 -6.5

PBT 31.2 23.1 31.1 48.9 60.4 47.7 79.3 89.6 96.5 84.9 113.1 123.9 123.0 27.4 -0.7

Tax 7.7 3.5 9.3 16.3 33.3 15.2 23.5 27.2 26.4 26.2 34.5 39.2 38.7 46.4 -1.3

Tax rate (%) 24.5 15.3 29.7 33.4 55.1 31.8 29.6 30.3 27.4 30.9 30.5 31.6 31.4 407 bps -19 bps

PAT 23.6 19.6 21.9 32.6 27.1 32.5 55.8 62.4 70.1 58.7 78.6 84.7 84.3 20.3 -0.5

PAT Margin (%) 13.4 11.2 11.7 14.2 10.9 14.9 19.9 20.7 22.5 20.4 23.3 23.4 22.9 32 bps -51 bps


SWOT AnalysisStrengths - Industry beating growth on a consistent basis, focused

approach in the exports space, high return ratios, and knack of launching

new products on a consistent basis

Weakness - Product concentration

Opportunities- US generics space

Threats - Extension of NLEM scope to include some of its flagship

products, government driven price controls in some of the export markets


9/15


Conference call highlights

• The company has guided for 32-34% EBITDA margins for FY16with 16-18% revenue growth. In the domestic market, it expects~25% YoY growth while in exports APL expects 14-15% growthon a higher base

•

Ajanta Pharma has launched six new products in India during thisquarter, out of which one was first to market launch

• The global field force strength has gone up from 450 to 572 inFY15

• The African division has 1118 registered brands, 1106 brandsunder registration, with a field force of 257. Major segments inAfrican markets are antibiotic, anti-malarial and ortho

• Asian markets have 294 registered brands, 360 brands underregistration and 315 MRs

• In this quarter, five new products were launched in Africanmarkets and nine in the Asian markets

• Total 25 ANDAs have been filed in the US market, out of which

two have been approved. Sales during this quarter accounted for| 1 crore. The company expects | 7-8 crore revenues from USsales in FY16

• APL plans to file more than six ANDAs every year. The expectedsize of ANDAs filed till now is approximately US$1.5 billion

• Capex guidance is at | 180-200 crore in FY16

• The tax rate is expected to remain at the current level (full tax) butwill go down in FY17 by 300-400 bps due to commencement ofthe Savli facility


10/15


Valuation

The Q3 numbers have once again demonstrated Ajanta’s consistency indelivering above average numbers both in India as well as abroad. Indomestic formulations, the company continues to register robust growth.In the exports space, both Philippines and Franco-African marketscontinue to thrive on the back of consistent product launches and basebusiness growth. On the margin front, the company is constituentlyimproving its margin on the back of improved product mix. We expectrevenues, EBITDA and net profit to grow at a CAGR of 19%, 17.6% and17.8%, respectively. We have ascribed a target price of | 1488, based on28x of FY17E EPS of | 53.1.

Exhibit 14:

One year forward PE

[

0

200

400

600

800

1000

1200

1400

1600

M a r - 0 6

S e p - 0 6

M a r - 0 7

S e p - 0 7

M a r - 0 8

S e p - 0 8

M a r - 0 9

S e p - 0 9

M a r - 1 0

S e p - 1 0

M a r - 1 1

S e p - 1 1

M a r - 1 2

S e p - 1 2

M a r - 1 3

S e p - 1 3

M a r - 1 4

S e p - 1 4

M a r - 1 5

( | )

Price 15.3x 12.7x 10.0x 7.4x 4.1x


Exhibit 15: One year forward PE of company vs. CNX Pharma Index

0

5

10

15

20

25

30

35

40

45

M a r - 0 6

J u l - 0 6

N o v - 0 6

M a r - 0 7

J u l - 0 7

N o v - 0 7

M a r - 0 8

J u l - 0 8

N o v - 0 8

M a r - 0 9

J u l - 0 9

N o v - 0 9

M a r - 1 0

J u l - 1 0

N o v - 1 0

M a r - 1 1

J u l - 1 1

N o v - 1 1

M a r - 1 2

J u l - 1 2

N o v - 1 2

M a r - 1 3

J u l - 1 3

N o v - 1 3

M a r - 1 4

J u l - 1 4

N o v - 1 4

M a r - 1 5

Ajanta CNX Pharma


Exhibit 16:

Valuation

Revenues Growth EPS Growth P/E EV/EBITDA RoNW RoCE

(| crore) (%) (|) (%) (x) (X) (%) (%)

FY14 1178 30 26.5 109 47.9 30.4 39.4 44.9

FY15 1431 31 38.3 45 33.1 21.8 41.9 50.6

FY16E 1704 32 45.6 19 27.8 18.4 38.5 48.7

FY17E 2034 38 53.1 17 23.9 15.4 35.9 46.4 Source: Company, ICICIdirect.com Research


11/15


Company snapshot

Target Price: | 1488

0

200

400

600

800

1,000

1,200

1,400

1,600

J a n - 0 9

A p r - 0 9

J u l - 0 9

O c t - 0 9

J a n - 1 0

A p r - 1 0

J u l - 1 0

O c t - 1 0

J a n - 1 1

A p r - 1 1

J u l - 1 1

O c t - 1 1

J a n - 1 2

A p r - 1 2

J u l - 1 2

O c t - 1 2

J a n - 1 3

A p r - 1 3

J u l - 1 3

O c t - 1 3

J a n - 1 4

A p r - 1 4

J u l - 1 4

O c t - 1 4

J a n - 1 5

A p r - 1 5

J u l - 1 5

O c t - 1 5

J a n - 1 6

A p r - 1 6

Source: Bloomberg, Company, ICICIdirect.com Research

Key events

Date Event

Jun-08 Commissions dedicated R&D facility in Kandivali, Mumbai

Mar-09 Enters the Philippines market via incorporation of a subsidiary

Mar-09 USFDA approves Paithan faciliy

Mar-10 Acquires formulation facility near Aurangabad to cater to ROW markets

Dec-12 Enters regulated markets with first product approval in the US and one for Europe.

Mar-13 Launches first product in the US

Jan-15 Board approves subdivision of sharesfrom | 5 to | 2


Top 10 Shareholders Shareholding Pattern

Rank Name Latest Filing Date % O/S Position (m) Position Chan

1 Gabs Investments Pvt. Ltd. 31-Mar 9.54 8.39 0

2 Agrawal (Rajesh) 31-Mar 7.29 6.41 0

3 Agrawal (Yogesh Mannalal) 31-Mar 7.26 6.38 0

4 Agrawal (Mannalal B) 31-Mar 6.15 5.41 0

5 Agrawal (Purushottam B) 31-Mar 6.13 5.39 0

6 Agrawal (Madhusudan B) 31-Mar 6.13 5.39 0

7 Agrawal (Vimal & Mamata) 31-Mar 5.84 5.14 0

8 Matthews International Capital Management, L.L.C. 31-Mar 3.58 3.15 0.47

9 Agrawal (Madhusudan B) HUF 31-Mar 3.5 3.08 0

10 Agrawal (Mannalal B) HUF 31-Mar 3.48 3.06 0

(in %) Mar-14 Jun-14 Sep-14 Dec-14 Mar-15

Promoter 73.6 73.6 73.8 73.8 73.8

FII 3.8 7.9 7.4 7.3 7.6

DII 0.1 0.8 1.3 1.5 1.6

Others 22.5 17.7 17.5 17.4 17.0

Source: Reuters, ICICIdirect.com Research

Recent Activity

Investor name Value Shares Investor name Value Shares

Matthews International Capital Management, L.L.C. 9.25m 0.47m Agarwal (Narendra Kumar) -22.34m -1.13m

Grandeur Peak Global Advisors, LLC 4.59m 0.36m Van Eck Associates Corporation -5.82m -0.39m

Motilal Oswal Asset Management Company Ltd. 4.48m 0.23m SBI Funds Management Pvt. Ltd. -1.73m -0.09m

APG Asset Management 1.30m 0.11m Daiwa Asset Management (India) Private Limited -1.33m -0.07m

The Vanguard Group, Inc. 0.68m 0.07m

Buys Sells

Source: Reuters, ICICIdirect.com Research


12/15


.

Financial summary

Profit and loss statement | Crore

(Year-end March)/ (| crore) FY13 FY14 FY15E FY16E FY17E

Revenues 930.8 1,208.3 1,462.3 1,735.9 2,071.7

Growth (%) 37.4 29.8 21.0 18.7 19.3

Raw Material Expenses 302.6 345.5 410.4 477.4 580.1

Gross Profit 628.2 862.8 1,051.9 1,258.5 1,491.6

Gross Profit Margins (%) 67.5 71.4 71.9 72.5 72.0

Employee Expenses 123.2 157.0 200.9 243.0 290.0

Other Expenditure 283.5 337.1 341.5 416.6 497.2

Total Expenditure 709.3 839.6 952.8 1,137.0 1,367.3

EBITDA 221.6 368.8 509.5 598.9 704.4

Growth (%) 57.4 66.4 38.2 17.5 17.6

Interest 19.1 8.7 5.0 4.6 3.4

Depreciation 34.2 43.9 49.7 52.8 70.7

Other Income 8.5 13.7 28.6 33.8 40.5

PBT be fo re Exceptiona l Items 176.8 329.9 483.4 575.3 670.8

Less: Exceptional Items 0.0 0.0 0.0 0.0 0.0

PBT 176.8 329.9 483.4 575.3 670.8Total Tax 64.7 96.0 145.0 172.6 201.2

PAT before MI 112.1 233.9 338.4 402.7 469.6

MI & Profit from associates 0.0 0.0 0.0 0.0 0.0

PAT 112.1 233.9 338.4 402.7 469.6

Growth (%) 45.1 108.6 44.7 19.0 16.6

EPS (|) 12.7 26.5 38.3 45.6 53.1


Cash flow statement | Crore


Profit After Tax 112.1 233.9 338.4 402.7 469.6

Add: Depreciation 34.2 43.9 49.7 52.8 70.7

(inc)/Dec in Current Assets 5.4 -81.9 -85.2 -103.7 -109.2

inc/(Dec) in Current Liabilities 44.4 26.7 64.7 82.8 105.8

Others 0.0 0.0 0.0 0.0 0.0

CF from Operating activities 196.1 222.6 367.6 434.6 536.8

Long term Loans & Advances 0.0 0.0 0.0 0.0 0.0

Other Investments 0.0 0.0 0.0 0.0 0.0

Liquid Investments 0.0 -55.0 -50.0 -50.0 -50.0

(Purchase)/Sale of Fixed Assets -70.5 -131.8 -125.0 -200.0 -125.0

Deferred Tax Liability 6.6 -0.7 0.0 0.0 0.0

Long Term Provision 0.0 0.0 0.0 0.0 0.0

Others 0.0 0.0 0.0 0.0 0.0

CF from Investing activities -69.6 -179.9 -184.9 -258.6 -186.5

(inc)/Dec in Secured Loan -76.8 10.4 -28.0 -25.0 -20.0

(inc)/Dec in Unsecured Loan 1.8 -5.0 0.0 0.0 0.0

Dividend & Dividend tax -17.1 -41.2 -124.0 -165.4 -206.7

Others 0.0 0.0 0.0 0.0 0.0

CF from Financing activities -92.2 -35.8 -152.0 -190.4 -226.7

Net Cash Flow 34.4 6.9 30.6 -14.4 123.5

Cash and Cash equ. at beginning 11.4 46.3 60.4 90.9 76.6

Cash 46.3 60.4 90.9 76.6 200.1


Balance sheet | Crore


Equity Capital 11.8 17.7 17.7 17.7 17.7

Reserve and Surplus 381.6 575.6 790.0 1 ,027.3 1 ,290.1Total Shareho lders funds 393.4 593.3 807.6 1,045.0 1,307.8

Total Debt 124.6 130.0 102.0 77.0 57.0

Deferred Tax Liability 23.7 23.0 23.0 23.0 23.0

Long Term Provision 2.5 2.5 2.5 2.5 2.5

Minority Interest 3.0 2.8 3.8 4.8 4.8

Source of Funds 547.2 751.6 938.9 1,152.3 1,395.1

Total Gross Block 438.4 490.3 550.3 610.3 820.3

Accumulated Depreciation 165.9 210.9 260.6 313.3 384.0

Net Block 272.5 279.4 289.7 297.0 436.3

Capital WIP 12.5 93.6 158.6 298.6 213.6

Fixed Assets 285.0 372.9 448.3 595.5 649.8

Investments 8.5 63.5 113.5 163.5 213.5

Long term Loans & Advances 48.6 39.2 50.1 59.6 71.2

Other Non current assets 7.1 8.8 8.8 8.8 8.8

Inventory 147.6 155.4 196.0 256.8 306.4

Debtors 150.5 202.2 235.2 275.5 323.2

Loans and Advances 24.0 46.4 57.2 59.6 71.2

Other Current Assets 0.7 0.6 1.4 1.7 2.0

Cash 46.3 60.4 90.9 76.6 200.1

Total Current Assets 369.1 465.0 580.8 670.2 902.9

Creditors 131.7 124.5 156.8 210.1 278.6

Provisions 19.9 42.7 62.7 84.0 111.4

Other current libilities 19.5 30.5 42.9 51.1 61.0

Total Current Liabilities 171.1 197.8 262.4 345.3 451.0

Net Current Assets 198.0 267.3 318.4 324.9 451.9

Application of Funds 547.2 751.6 938.9 1 ,152.3 1 ,395.1


Key ratios

(Year-end March) FY13 FY14 FY15E FY16E FY17E

Per share data (|)

EPS 12.7 26.5 38.3 45.6 53.1Cash EPS 16.6 31.4 43.9 51.6 61.1

BV 44.5 67.2 91.4 118.3 148.0

Cash per Share 5.2 6.8 10.3 8.7 22.6

DPS 6.2 10.0 12.0 16.0 20.0

Operating Ratios (%)

EBITDA margins 23.8 30.5 34.8 34.5 34.0

PBT margins 19.2 28.0 33.8 33.8 33.0

Net Profit margins 12.0 19.4 23.1 23.2 22.7

Inventory days 59 48 50 55 55

Debtor days 60 63 60 59 58

Creditor days 52 39 40 45 50

Asset turnover ratio (x times) 1.7 1.8 1.7 1.6 1.6

Return Ratios (%)

RoE 28.5 39.4 41.9 38.5 35.9

RoCE 36.2 44.9 50.6 48.7 46.4

RoIC 38.4 59.9 78.7 87.8 81.6

Valuation Ratios (x)

P/E 99.9 47.9 33.1 27.8 23.9

EV / EBITDA 12.3 9.5 7.8 6.5 5.3

EV / Revenues 2.3 2.0 1.8 1.6 1.6

Market Cap / Revenues 12.2 9.5 7.8 6.6 5.5

Price to Book Value 28.5 18.9 13.9 10.7 8.6

Solvency Ratios

Debt/EBITDA 0.3 0.2 0.1 0.1 0.0

Debt / Equity 0.6 0.4 0.2 0.1 0.1

Current Ratio 2.2 2.4 2.2 1.9 2.0

Quick Ratio 1.3 1.6 1.5 1.2 1.3



13/15


ICICIdirect.com coverage universe (Healthcare)

ICICIdirect Healthcare coverage Universe

I-Direct CMP TP Rating M Cap

Code (|) (|) (| Cr ) FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E

Ajanta Pharma AJAPHA 1268 1488 BUY 11901.3 26.5 38.3 45.6 47.9 33.1 27.8 32.3 23.4 19.7 44.9 40.6 38.1 39.4 32.8 28.9

Apollo Hospitals APOHOS 1187 1455 BUY 16379.8 22.8 26.8 36.8 52.1 44.3 32.3 25.7 22.8 16.1 11.6 12.0 15.5 10.6 11.5 14.2

Aurobindo Pharma AURPHA 1285 1303 BUY 36364.2 47.3 57.4 70.5 27.2 22.4 18.2 18.7 15.5 12.6 24.1 23.4 24.4 31.3 31.6 28.6

Biocon BIOCON 434 447 HOLD 8537.2 20.7 20.1 22.5 35.1 29.2 32.4 21.2 21.1 18.0 12.2 10.7 11.7 13.7 15.2 12.4

Cadila Healthcare CADHEA 1690 1634 HOLD 34724.3 39.2 51.1 66.2 43.1 33.1 25.5 30.7 22.9 17.9 15.9 19.0 21.7 23.4 24.6 25.4

Cipla CIPLA 654.7 648 HOLD 50767.6 17.3 15.9 21.7 37.9 41.1 30.1 24.2 21.9 17.6 15.5 14.2 17.6 13.8 11.3 14.2

Dr Reddy's Labs DRREDD 3237 3332 HOLD 56331.4 126.7 130.7 150.5 26.5 25.6 22.3 17.0 15.8 13.9 19.2 18.7 20.1 23.7 19.9 19.5

Glenmark Pharma GLEPHA 835.8 824 HOLD 22565.2 20.0 21.5 34.0 41.8 38.9 24.6 19.1 20.6 13.6 16.0 17.1 23.5 18.3 17.4 22.8

Indoco Remedies INDREM 334 375 BUY 3130.8 6.3 9.5 13.3 53.1 35.1 25.0 26.5 18.0 13.9 16.6 21.8 28.1 12.6 16.4 19.4

Ipca Laboratories IPCLAB 630.5 622 HOLD 7958.0 37.9 25.6 31.8 16.6 24.6 19.8 10.5 13.8 13.2 27.6 16.1 17.8 24.4 14.7 16.0

Jubilant Life Sciences VAMORG 170 138 SELL 2559.4 6.8 -6.5 20.0 24.9 -26.3 8.5 6.4 11.6 5.6 10.1 4.5 7.6 4.2 -3.5 7.6

Lupin LUPIN 1770 1866 BUY 78862.6 41.0 54.4 61.0 43.2 32.5 29.0 27.1 2 0.7 18.6 34.5 3 4.7 32.0 26.5 27.4 24.6

Natco Pharma NATPHA 2073 1354 HOLD 6727.9 30.3 32.5 44.9 58.4 54.4 39.4 38.8 32.2 25.9 15.3 16.7 18.7 14.1 13.5 16.1

Sun Pharma SUNPHA 940.3 1036 BUY 224876.6 29.0 34.8 39.9 32.4 27.0 23.6 23.1 22.5 19.2 32.4 31.2 28.8 27.0 25.3 23.1

Torrent Pharma TORPHA 1198 1165 HOLD 20539.4 39.2 47.2 50.4 30.5 25.4 23.8 21.8 19.3 15.5 28.5 21.4 26.7 34.9 32.4 28.0

Unichem Laborator ies UNILAB 199.3 206 HOLD 1821.3 18.7 6.1 13.0 10.7 32.9 15.3 10.1 16.7 10.4 15.7 6.4 12.9 20.7 6.8 13.8

RoNW (%)

Company

EPS (|) PE(x) EV/EBITDA (x) RoCE (%)



14/15


ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them

as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional

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Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;

Buy: >10%/15% for large caps/midcaps, respectively;

Hold: Up to +/-10%;

Sell: -10% or more;

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Head – Research

[email protected]

ICICIdirect.com Research Desk,

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15/15

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Documents

Ajanta Pharma May2015