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Strong performance on all fronts…

About the stock: Ajanta Pharma is a focused player in branded, which constitutes ~70% of overall sales, which are spread across geographies, including India.

* As of FY21, overall exports: domestic formulations ratio was at 70:30

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

Q2FY22 Results: Strong numbers, which were ahead of estimates on sales front

* Sales were up 23.6% YoY to | 884.8 crore

* EBITDA in Q2FY22 was at | 263 crore, down 4% YoY with margins at 29.7%

* Consequent PAT was at | 195.9 crore (up 15.1% 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 ~| 2126 levels in October 2021).

* We retain our BUY rating on the stock with focused approach

Target Price and Valuation: We value Ajanta at | 2500 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 | 9800

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