Buy Ajanta Pharma Ltd For Target Rs. 2,130 - Yes Secruities
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Domestic rebound drives EPS upgrade ‐ BUY stays
Our view: Ajanta Pharma has revised its FY21 domestic growth guidance from ‐5% to +2% to +3% growth along with sustained 32% margin. We reckon US business will continue to clock 18‐20% growth on FY21 base driven by 7‐8 approvals and ~5% R&D spending. While margin gain has been front loaded, improvement in US business and minor operating leverage from Rs1.3bn ophthalmic block added in Guwahati would offset the revived cost base (as domestic revenues rebound). We revise our FY21/22/23 EPS on back of strong beat in Q3 by 17%/6%/6% and revise TP to Rs2,130 (from Rs2,000 earlier) based on unchanged target 25x FY23 EPS. AJP continues to be amongst Top BUYs along with TRP IN (TP Rs3,300) and IPCA IN (TP Rs2,750)
Management interaction highlights
* Overall revenue guidance of 10% in FY21 and sustainable margin of ~32% beyond FY21
* Domestic business breakup ‐ vol ‐ 60%, price increase and new launches 20% contribution each in Q3
* Domestic business now expected to be flat to +1‐2% growth vs ‐5% decline expected earlier as Derma and Ophthal have come back. 85% doctors now operating out of clinic and MRs fully on ground
* India growth seen at 8‐10% on annualized basis over 2 years
* US growth at 18‐20% driven by 7‐8 launches including niche ones. US business margin while very low should improve as revenues scale up and mix changes
* Branded market growth – Asia + Africa seen in the range of 9‐11%.
* Africa Institutional – Rs2.4bn expected for FY21; volatile segment and next year guidance of Rs2bn retained for now. While order size is known for full year in March‐April, during the year as competition fails to supply or additional demand leads to fresh orders during the year
* Costs – back to Rs1.8‐1.9bn other expense run rate ex‐R&D from Q4 since revenues have revived
* Margin guidance of 32% on sustainable basis – US margin expansion and operating leverage related to Rs1.3bn Ophthal block capex in Guwahati to offset the increase in costs.
* Capex‐ Only maintenance at Rs1.3bn
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