Ajanta Pharma Reports Improvement

[Ed. Note – This article does not meet our new editorial guidelines, nor does the company profiled meet our investment criteria. Both will be removed from the site in the future.]

Ajanta Pharma (BSE:532331) is a midcap (market cap around 18190 million rupees) specialty pharmaceutical, multinational Indian company engaged in the research, development, production and marketing of pharmaceutical products. The products are marketed in more than 30 countries, including US and Europe.  It has five manufacturing facilities and an R&D centre.  It caters to specialty segments in home market and simultaneously penetrates new global markets successfully. Overseas markets have been the key growth drivers for this firm in this decade. It has been conducting contract research for reputed multinationals as well. This shows its commitment to ‘Serving Global Healthcare needs with Empathy, Innovation & Technology’. It has a manufacturing facility in Mauritius and its Paithan facility (Aurangabad) has got WHO, FDA (US) and MHRA (UK) approvals. It holds 45th place in Indian formulation market. Its branded generic business is strong in Europe and US.

With the help of world class research facility in Mumbai, Ajanta Pharma has been able to develop, manufacture and commercialize a diverse range of improved innovative generic medicines. It has a strong presence in the segments of Cardiology, Dermatology and Ophthalmology in the home market. Many of their strong brands hold leading positions. In the areas of Gastrointestinal and Musculoskeletal segments, innovative products are in the pipeline.  Strong therapeutic focus of the research has resulted in globally trusted product portfolio.

Ajanta Pharma reported impressive results for fourth quarter of FY 2012 – 2013 (unaudited) as well as for entire F Y 2012  –  2013  (Audited).

  • For Q4 Income was up 41.6%   to 2494 million rupees from 1761 million rupees (Q4 of FY 2011 – 12).
  • Q4 Pretax net profit was up 93%   to 603.8 million rupees from 312.5 million rupees.
  • For FY 2012 – 2013 ended 31st March 2013, the audited results were as below:
  • Revenue growth was 37% at 9310 million rupees from 6770 million rupees.
  • EBITDA  growth 64% at 2240 million rupees, from 1370 million rupees.
  • Net profit (after tax) growth 45%   at 1120 million rupees from 770 million rupees.

According to their filings, in Q4, a onetime tax belonging to previous years amounting t0 150 million rupees was paid, which has depressed Q4 net profit as well as FY2012 – 2013 net profit. If we do not consider this, Q4 net profit would have been 420.9 instead of presently reported figure of 270.9 million rupees, and net profit for FY 2012 – 13 net would have been 1271 million Rupees, instead of the present figure of 1121.1 million rupees.

With the equity of 118 million rupees, face value Rs 5.0, the present EPS works out to be 47.76 rupees, and on a market price of 777 rupees, PE ratio works out to be 16.6.  If we consider the net profit as 1271 million (not considering onetime tax arrears paid, EPS  works out to be  54.7 rupees and PE ratio comes to 14.3

The company’s ratio of raw materials to sales has dropped from 2320/6770 i.e. 34.6% to 2860/9310 i.e.  31%. This is an indicator of improving efficiency.

Considering Pretax profit figures of Q4 as an indicator of improvement, the EPS of  FY 2013 – 14 can be projected to the range of Rupees  58- 60, and on the present PE of 16.6 , market price projection is Rupees 850 – 950. Hence it is a good buy for long term. If we consider industry PE of 25 – 30, it has good probability of appreciation even in medium term. Pharmaceutical stocks in general have low downward risk in India, as there is no recession in this sector in countries with large population.

Risk factors:  Due to recent announcements of Indian Finance Minister, reducing withholding tax rate of foreign investors on debt instruments, and clarity on the issue of tax residency certificates, rupee has started to appreciate and export income may be marginally affected by this.  Indian stock market may react at times to political developments during election year. These would be opportunities to accumulate good stocks at lower prices.