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Earnings certainty to sustain multiples

Result Synopsis

Ajanta management alluded to higher other expenses and marginal rise in R&D spending in H2 though margin performance YTD results in 1% raise in margin guidance. Growth outlook remains unchanged for domestic business even as cardiac growth recovers post NLEM impact on MetXL. Branded exports might be tad weaker as Asia business remained under pressure; albeit company expects to H2 recovery with low teens growth. US surprised on the upside and with similar sales expectations, this warrants an increase in our FY24 US growth to 8-9% vs flat earlier (on back of strong flu season in Q3 last year which may not be repeated). Broadly, we reckon there is not much change to growth expectation while we push up margin by ~100bps in FY24 resulting in +7% change to FY24 EPS with no major change to FY25 numbers. We raise target PE to 28x (from 26x earlier) which is a slight premium to historic mean of 26x as margin outlook appears particularly steady and also to narrow some of the valuation gap with other domestic plays like JB Chem (at 30x FY25 PE). Believe stock returns might be linked to EBIDTA/PAT growth with little likelihood of PE rerating. Our revised TP is Rs2,020 (earlier Rs1,850) and retain Ajanta as a preferred pick with potential of steady returns.

Result Highlights

Revenues up 9.6% YoY driven by strong performance across domestic and US businesses

India revenues up 13% YoY, largely in line, driven by strong performance in ophthalmology (+18%), derma (+20%) and pain (+21%) while cardiac lagged market growth at 9%

Mixed showing in other branded markets with growth in Africa offset by decline in Asia; US up 11% QoQ vs flat expectation

Margin at 28% beat estimate on lower expenses YoY and QoQ adjusted for forex loss: R&D too lower at Rs500mn vs Rs550mn in Q2 last year

Healthy topline and margin beat drive ~25% YoY rise in PAT

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