Buy Ajanta Pharmaceuticals Ltd For Target Rs.1,532 - Anand Rathi Share and Stock Brokers Ltd
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Growth momentum intact; maintaining a Buy
Powered by strong growth (on the Covid-impacted low base) in India (22%), Africa (branded generics, 36%) and Asia (46%), Ajanta Pharma’s Q1 FY23 sales grew 27% y/y to Rs9.5bn. The lower gross margin (70.5%, generally 75-77%) is attributable to a one-time inventory write-off, higher packaging costs, US price erosion and currency fluctuations. This pushed the EBITDA margin down to 23.3%. Launches in cardiology and dermatology, together with price hikes (India), strong execution and market-share gains (Asia, Africa) should yield a 15% CAGR over FY22- 24 in branded generics. At the CMP of Rs1,273, the stock trades at 23x/19x FY23e/FY24e EPS. We maintain a Buy with a lower target of Rs1,532 (earlier Rs1,592) at 23x FY24e.
Robust growth in non-US markets. Product launches in cardiology and dermatology, along with price hikes (12% of drugs under NLEM) would propel domestic market growth to the mid-teens. Branded generics in Asia and Africa are set to grow in the mid-teens on better execution by the added field force and launches. We expect a ~14-15% revenue CAGR over FY22-24 for the branded business.
US business to be flat. Sales in the US, grew 6.5% y/y despite price erosion and lack of launches. The company plans to file 10-12 ANDAs in FY23 and believes that the US is expected to see the pre-Covid price erosion of 5-8%. This flat guidance (subject to lack of launches) should compress gross margins slightly. Also, further higher freight costs would impact EBITDA margins; hence, FY23 guidance now at 26-27% (earlier 28%).
Valuation. We expect 12%/10% revenue/PAT CAGRs over FY22-24. At the CMP of Rs1,273, the stock trades at 23x/19x FY23e/FY24e EPS. We maintain a Buy with a lower target of Rs1,532 (earlier Rs1,592) at 23x FY24e. Risks: Currency fluctuations, ramping-up delays, pricing risk in India.
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