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Buy Ajanta Pharmaceuticals Ltd For Target Rs.2695

India growth drives steady numbers…

About the stock: Ajanta Pharma is mainly into domestic as well as exports formulations. As of FY21, the exports: domestic formulations ratio was at 70:30

* Domestic formulations constitute 30% of the total consolidated turnover and is segregated into branded formulations & institutional business

* Asia accounts for ~35% of export formulations, Africa 33% & US 32%. The company participates in anti-malarial tenders in Africa (included in Africa).

Q1FY22 Results: Ajanta reported good Q1FY22 results.

* Sales were up 11.9% YoY to | 748 crore

* EBITDA in Q1FY22 was at | 220 crore, down 1% YoY with margins at 29.4%  Consequent PAT was at | 173.8 crore (up 17.6% YoY)

What should investors do?

Ajanta’s share price has grown by ~1.4x over the past five years (from ~| 1502 in June 2016 to ~| 2148 levels in June 2021).

* We retain our BUY rating on the stock

Target Price and Valuation: We value Ajanta at | 2695 i.e. 30x P/E on FY23E EPS

Key triggers for future price performance:

* Focus on launching maximum number of first time launches with focus on new drug delivery system (NDDS)

* In emerging markets, front-end marketing for direct interaction with doctors.

* Calculated focus, healthy margins, return profile and lighter balance sheet are some key differentiators for Ajanta

* Margins are likely to improve amid operational leverage.

Alternate Stock Idea: Apart from Ajanta, in healthcare coverage we like Sanofi

* Strong growth in top brands, measured new launches (including innovative launches) besides strong balance sheet and comfort on corporate governance front are key attributes of the company

* BUY with a target price of | 9750

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