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1
Ajanta Pharma Ltd
BUY Target Price: Rs.160.00
CMP: Rs.137.00 Market Cap.:Rs. 1616.05mn.
Date: February 05, 2010
Key Ratios:
Particulars FY09 FY10E FY11E
OPM (%) 19.13 18.66 18.49
NPM (%) 6.69 7.34 7.22
ROE (%) 14.05 15.53 14.94
ROCE (%) 12.23 11.83 12.02
P/BV(x) 1.06 0.90 0.76
P/E(x) 7.56 5.78 5.11
EV/EBDITA(x) 2.64 2.27 1.99
Debt-Equity Ratio 1.58 1.47 1.31
Key Data:
Sector Pharma
Face Value Rs.10.00
52 wk. High/Low (Rs.) 149.70/50.00
Volume (2 wk. Avg.) 73182
BSE Code 532331
SYNOPSIS
We initiated the coverage of Ajanta Pharma and set
a target price of Rs.160.00 for Medium to Long term
gains.
Ajanta Pharma is a specialty pharmaceutical
company engaged in the development,
manufacture and commercialization of
pharmaceutical products.
The company focuses on specialty segments in India
and simultaneous opening of new international
markets have been the key growth drivers for it over
the years.
The company engages in contract research for
leading multinational pharmaceutical companies to
expand its revenue base.
The Board of Directors has approved buyback of
Company's shares through stock exchange for an
amount of Rs. 113.6 million at a price not exceeding
Rs. 101 per share.
The top line and Bottom line of the company are
expected to grow at a CAGR of 15% & 21% over
2008 to 2011E.
Share Holding Pattern:
V.S.R. Sastry
Vice President
Equity Research Desk
91-22-25276077
vsrsastry@firstcallindiaequity.com
Dr. V.V.L.N. Sastry Ph.D.
Chief Research Officer
drsastry@firstcallindia.com
2
Table of Content
Investment Highlights ............................................................................................................ 3
Company Profile……………………………………………………………………………………………………………………..5
Peer Group comparison………………………………………………………………………………………………….….….08
Keyconcern………………………………………………………………………………………………………………….…………08
Financials……………………………………………………………………………………………………………………………….09
Charts………………………………………………………………………………………………………………………….………...11
Outlook and conclusions…………………………………………………………………………………………………….....13
Industry Overview…….…………………….……………………………………………………………….………….…….. …14
3
Investment Highlights
Q3 FY10 Results Update
Ajanta Pharma reported a phenomenal rise in standalone net profit for the quarter ended
December 2009. During the quarter, the profit of the company rose 67.37% to Rs 76.94
million from Rs 45.97 million in the same quarter last year. Net sales for the quarter for
the quarter rose 26.49% to Rs 946.59 million, while total income for the quarter rose
26.88% to Rs 949.52 million, when compared with the prior year period. It reported
earnings of Rs 6.52 a share during the quarter, registering 67.37% growth over prior year
period.
Quarterly Results - Standalone (Rs in mn)
As at Dec - 09 Dec - 08 %Change
Net Sales 946.59 748.37 26.49
Net Profit 76.94 45.97 67.37
Basic EPS 6.52 3.90 67.37
Net Sales & PAT Growth
4
EPS Growth
Board approves Buy-Back of Shares
The Board of Directors of the Ajanta Pharma has approved buyback of Company's shares
through stock exchange for an amount of Rs. 113.6 million at a price not exceeding Rs.
101 per share, subject to necessary applicable regulatory approvals.
Care reaffirms `A` rating
Credit rating agency, CARE has reaffirmed the `CARE A` (Single A) rating assigned to the
Long-term Bank Facilities of Ajanta Pharma (APL). This rating is applicable to facilities
having tenure of more than one year. Facilities with this rating are considered to offer
adequate safety for timely servicing of debt obligations. Such facilities carry low credit
risk.
Dividend declaration
The Board of Directors of the Ajanta Pharma has recommended the Dividend @ Rs 2.50
(i.e. 25%) per share, subject to the approval of the shareholders for the financial year
2008-09.
5
Company Profile
Ajanta Pharma is a specialty pharmaceutical company engaged in the development,
manufacture and commercialization of pharmaceutical products. The company employs over
2,500 people worldwide and its products are sold in over 25 countries. Ajanta operates with 5
state-of-the art manufacturing facilities that produce high quality pharmaceutical products. It
focus on commercializing unique generic products and pioneering synergistic combination
products in the therapeutic areas of anti- malarial, cardiology, dermatology,
gastroenterology, musculoskeletal, ophthalmology and respiratory.
Committed to patient care since 1973, Ajanta Pharma is a fully-integrated pharmaceutical
company with headquarters in Mumbai, India. The company had an advanced Research &
Development Centre for API synthesis and finished formulations of different dosage forms. The
company focuses on specialty segments in India and simultaneous opening of new international
markets have been the key growth drivers for it over the years. The company also engages in
contract research for leading multinational pharmaceutical companies to expand its revenue
base. The company’s team members are driven to fulfill its mission; a commitment to ‘Serving
Global Healthcare needs with Empathy, Innovation & Technology’.
Research & Development
Ajanta Pharma views Research and Development as a vital component of business strategy that
will provide a long-term competitive advantage. Its R&D facility Advent has more than 150
diligent and committed scientists. Advent, located in Mumbai, houses a range of state-of -the-
art equipment for formulation development, working on different dosage forms ranging from
topical creams, ophthalmological preparations, nasal sprays and dry powder inhalers to name a
few. The company has an equally well equipped API lab at Advent to synthesize high value APIs
for some of its key products.
Ajanta R&D hub covers an area of 30,000 sq feet (2,800 sq metres) and is fully equipped with
modern amenities and technology for accessing reference material, environmental monitoring,
data collection & analysis, record keeping and archiving. A separate Regulatory Affairs team
works closely with R&D, Manufacturing and Quality Assurance teams to compile dossiers for
submission to various Ministries of Health and / or respective FDAs. The R&D team is
completely involved in any project from concept to Phase IV study tracking market acceptability
and after-launch status.
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Manufacturing Facilities
Ajanta Pharma operates 5 state-of-the-art manufacturing facilities; 4 within India and 1 in
Mauritius. One of these, located at Paithan, India is approved by the US FDA, health authorities
of Brazil and Colombia and also holds a WHO pre-qualification for one of its products. These
modern manufacturing sites provide it with a high level of flexibility, thus ensuring efficient and
timely delivery of its products to patients and clinicians worldwide. Committed to quality,
company uses its proprietary technology and synergistic manufacturing platforms to produce
high quality products efficiently. Its manufacturing capabilities include a comprehensive range
of dosage formulations of allopathic drugs including tablets, capsules, ointments, injections and
powders.
Ajanta’s worldwide manufacturing operations have a long-standing commitment to operational
excellence and continuous improvement, which is why company regularly upgrades its
manufacturing units. To cater to the growing marketing needs, company is in the process of
expanding its manufacturing scope with more facilities and capacity enhancements in the
existing plants.
Global Presence
The management efforts are always underway to expand Ajanta Pharma’s presence into new
territories. The company started its overseas expansion in the late 90’s and now its products
are sold in over 25 countries through an established presence across Africa, Asia, Latin America
and The CIS. Ajanta pharma are now in the process of formulating products to be able to file
product dossiers in the regulated markets.
Ajanta has established a strong marketing set-up that is supplemented by a wide distribution
network in many international markets. All activities are centered on establishing its brands in
respective markets for sustained sales.
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Company Products
Ajanta Pharma develops and commercializes a diverse range of scientifically and medically
innovative generic products. The company is amongst the front runners in the segments of
Cardiology, Dermatology and Ophthalmology in India. Many of its brands hold leading positions
in their respective sub-therapeutic segments. It is also expanding its presence in the fields of
Respiratory, Gastrointestinal and Musculoskeletal medicine by introducing innovative products
in these segments. A clear therapeutic focus has lead to a strong product portfolio for it.
Ajanta Pharma’s expertise covers a broad spectrum of products targeting various diseases.
Some of its major brands are:
1. Anti-Malarial (Artefan – Artemether & Lumefentrine)
2. Cardiology (Met XL – Metoprolol Succinate)
3. Dermatology (Melacare – Hydroquinone, Tretinoin, Mometasone)
4. Gastroenterology (Mucopide – Rebamipide)
5. Musculoskeletal (Feburic – Febuxostat)
6. Ophthalmology (Unibrom – Bromfenac)
7. Respiratory (Fivasa – Fluticasone Furoate Nasal Spray)
The company also have a significant global presence in the Male Erectile Dysfunction (MED)
segment and equally strong equity in anti-malarial segment through ‘ARTEFAN’ where it was
the first branded generic to get WHO pre-qualified.
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Peer Group Comparison
Name of the company
CMP (Rs. )
(As on Feb.
05, 2010
Market Cap.
(Rs. mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend(%)
Ajanta Pharma 137.00 1,616.05 23.57 5.81 1.05 25.00
Sun Pharma 1474.10 305,310.30 51.53 28.61 5.93 275.00
Cipla 309.45 248,464.00 13.19 23.46 5.72 100.00
Dr Reddys Labs 1149.30 194,030.60 44.37 25.90 3.69 125.00
Key Concerns
Global economic slowdown
More number of players and tough competition
Foreign exchange fluctuations.
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Financials Results
12 Months Ended Profit & Loss Account (Standalone)
Value(Rs.in.mn) FY08 FY09 FY10E FY11E
Description 12m 12m 12m 12m
Net Sales 2851.30 3194.77 3812.21 4384.04
Other Income 7.71 13.76 9.49 10.44
Total Income 2859.01 3208.53 3821.70 4394.48
Expenditure -2391.98 -2597.33 -3110.45 -3583.95
Operating Profit 467.03 611.20 711.25 810.52
Interest -150.90 -220.31 -196.92 -206.77
Gross profit 316.13 390.89 514.32 603.75
Deprecation -69.71 -131.48 -185.52 -222.63
Profit Before Tax 246.42 259.41 328.80 381.13
Tax -68.50 -45.64 -49.17 -64.79
Profit After Tax 177.92 213.77 279.63 316.33
Equity capital 117.96 117.96 117.96 117.96
Reserves 1223.99 1403.52 1683.15 1999.49
Face value 10.00 10.00 10.00 10.00
Total No. of Shares 11.80 11.80 11.80 11.80
EPS 15.08 18.12 23.71 26.82
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Quarterly Ended Profit & Loss Account (Standalone)
Value(Rs.in.mn) 30-Jun-09 30-Sep-09 31-Dec-09 31-Mar-10(E)
Description 3m 3m 3m 3m
Net sales 845.32 945.92 946.59 1074.38
Other income 0.46 3.02 2.93 3.08
Total Income 845.78 948.94 949.52 1077.46
Expenditure -691.57 -770.63 -772.63 -875.62
Operating profit 154.21 178.31 176.89 201.84
Interest -49.80 -59.69 -42.86 -44.57
Gross profit 104.41 118.62 134.03 157.26
Deprecation -43.11 -44.90 -47.80 -49.71
Profit Before Tax 61.30 73.72 86.23 107.55
Tax -17.56 -9.41 -9.29 -12.91
Profit After Tax 43.74 64.31 76.94 94.64
Equity capital 117.96 117.96 117.96 117.96
Face value 10.00 10.00 10.00 10.00
Total No. of Shares 11.80 11.80 11.80 11.80
EPS 3.71 5.45 6.52 8.02
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1 Year Comparative Graph
Outlook and Conclusion
At the current market price of Rs.137.00, the stock is trading at 5.78x for FY10E and
5.11x for FY11E respectively.
Price to Book Value of the stock is expected to be at 0.90x and 0.76x respectively for
FY10E and FY11E.
Earning per share (EPS) of the company for the earnings for FY10E and FY11E is seen at
Rs.23.71 and Rs.26.82 respectively.
The revenue of the company is expected to grow at a CAGR of 15% over 2008 to 2011E
respectively.
On the basis of EV/EBITDA, the stock trades at 2.27x for FY10E and 1.99x for FY11E.
The Board of Directors has approved buyback of Company's shares through stock
exchange for an amount of Rs. 113.6 million at a price not exceeding Rs. 101 per share.
AJANTA PHARMA BSE SENSEX
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The company employs over 2,500 people worldwide and its products are sold in over 25
countries.
Ajanta operates with 5 state-of-the art manufacturing facilities that produce high quality
pharmaceutical products.
The company engages in contract research for leading multinational pharmaceutical
companies to expand its revenue base.
The company focuses on specialty segments in India and simultaneous opening of new
international markets have been the key growth drivers for it over the years.
We expect that the company will keep its growth story in the coming quarters also. We
recommend ‘BUY’ in this particular scrip with a target price of Rs.160.00 for Medium to
Long term investment.
Industry Overview
Sector structure/Market size
India's pharmaceutical industry is now the third largest in the world in terms of volume and
accounts for 10 per cent of the world’s production. According to the Mr. Srikant Kumar Jena,
Minister of State for Chemicals and Fertilizers, the Indian pharmaceutical industry is now over
US$ 20 billion.
India ranks fourteenth in terms of value. The country ranks fourth in terms of generic
production and seventeenth in terms of export value of bulk actives and dosage forms,
according to Mr. Jena.
By 2015, India is expected to rank among the top 10 global pharmaceutical markets. The
industry is typically growing at around 1.5-1.6 times the country’s gross domestic product (GDP)
growth.
Moreover, according to a FICCI-Ernst & Young study, the increasing population of the higher-
income group in the country will be by 2015, open a potential US$ 8 billion market for
multinational companies selling costly drugs. Besides, the report said the domestic pharma
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market is likely to touch US$ 20 billion by 2015, making India a lucrative destination for clinical
trials for global giants.
The Indian pharmaceutical offshoring industry is slated to become a US$ 2.5 billion opportunity
by 2012, thanks to lower R&D costs and a high-talent pool in India.
Exports
India's exports of drugs, pharmaceuticals and fine chemicals grew by 29 per cent in 2008-09 to
US$ 8.25 billion compared to 2007-08.
According to Mr. Anand Sharma, Union Minister of Commerce and Industry, the Indian
pharmaceutical sector has emerged as one of the major contributors to Indian exports with
export earnings rising from a negligible amount in the early 1990s to US$ 6.08 billion by 2007-
08.
A report by industry research firm, RNCOS, forecasts that pharmaceutical exports will grow at a
compound annual growth rate (CAGR) of 18.5 per cent between 2007-08 and 2011-12. This
growth will be fuelled by multi-billion dollar patent expirations and growth in the global
generics market.
Growth
The domestic pharma market will outshine the global market, growing at a compounded annual
rate of 12-15 per cent as against a global average of 4-7 per cent during 2008-2013; according
to a study by market research firm IMS.
The socio-economic factors such as rising income levels, increasing affordability, gradual
penetration of health insurance and the rise in chronic diseases would see the Indian
formulation market touch US$ 13.7 billion by 2013, at a CAGR of 12.2 per cent over the period
from fiscal year 2008 to 2013 (estimated).
Denmark-based world leader in diabetes care, Novo Nordisk, is looking at making India the hub
for manufacturing insulin for the sub-continent. The company has set up a dedicated facility
with a capacity of 26 million vials per annum in partnership with Ahmedabad-based Torrent
Pharmaceuticals Ltd.
16
Rural Market
According to estimates, rural areas account for 21 per cent of the country's pharmaceuticals
market. In 2006-07, the rural Indian pharmaceuticals market was estimated at around US$ 1.4
billion, having grown at about 40 per cent in 2006-07 against 21 per cent in the previous year.
French company Aventis Pharma has launched a rural market division with 10 products and a
sales team of 300 people as it eyes a bigger share of the fast growing Indian rural market.
Pharmaceutical Retail
The Indian drug retail market grew by a 29.24 per cent in value terms in October 2009 over the
same period a year ago. This is more than double the average monthly revenue growth rate of
13-14 per cent posted in the recent past, as per market research firm ORG IMS.
Generics
According to a report by IMS Health, the Indian generic manufacturers will grow to more than
US$ 70 billion as drugs worth approximately US$ 20 billion in annual sales faced patent expiry in
2008. With nearly US$ 80 billion worth of patent-protected drugs to go off patent by 2012,
Indian generic manufacturers are positioning themselves to offer generic versions of these
drugs.
Indian generic drug makers received half a dozen more approvals from the US Food and Drug
Administration (FDA) in 2009, over the previous year. Dr Reddy's Laboratories received the
highest number of tentative and final approvals in 2009 at 32, followed by Aurobindo at 26 and
Wockhardt at 23.
Diagnostics Outsourcing/Clinical Trials
The Indian diagnostics and pathology laboratory business is presently around US$ 864 million
and is growing at a rate of 20 per cent annually, according to industry experts.
Moreover, the US$ 200 million Indian clinical research outsourcing market is estimated to reach
up to US$ 600 million by 2010, according to a joint study done by KPMG and the Confederation
of Indian Industry (CII).
17
Research & Development
The search for innovative drug molecules and better technologies by pharmaceutical MNCs is
expected to offer a windfall for the smaller research-oriented Indian firms.
With their drug pipelines drying up and more blockbuster drugs going off-patent, MNCs are
looking at alliances for drug co-development, buying or licensing out innovative molecules
which can further be developed into finished drugs.
Moreover, in a bid to boost R&D in the pharmaceutical sector, the government will provide US$
422.96 million for establishing six National Institutes of Pharmaceutical Education and Research
over the next five years.
Government Initiative
The government has taken various policy initiatives for the pharmaceutical sector:
• The government has offered tax breaks to the pharmaceutical sector. Units are eligible
for weighted tax deduction at 150 per cent for the research and development (R&D)
expenditure incurred
• Steps have been taken to streamline procedures covering development of new drug
molecules and clinical research
• The government has launched two new schemes—New Millennium Indian Technology
Leadership Initiative and the Drugs and Pharmaceuticals Research Programme—
especially targeted at drugs and pharmaceutical research.
According to Mr. Ashok Kumar, Pharmaceuticals Secretary, the government is planning to set
up a US$ 439.94 million corpus fund for the pharma industry soon. The fund would be set up
with the help of the government and the industry and will be used for helping the pharma
industry in R&D.
Investment
• According to the Ministry of Commerce, domestic investment in the pharmaceutical
sector is estimated at US$ 6.31 billion.
• The drugs and pharmaceuticals sector has attracted foreign direct investment (FDI)
worth US$ 1.43 billion between April 2000 and December 2008.
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Road Ahead
The Indian pharmaceutical industry will see tremendous growth in the coming years as
consumer spending on healthcare increases in India. Consumer spending on healthcare is
expected to increase to 13 per cent of GDP by 2015, up from 7 per cent in 2007.
________________ ____ _________________________
Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation
for the purchase or sale of any financial instrument or as an official confirmation of any
transaction. The information contained herein is from publicly available data or other
sources believed to be reliable but do not represent that it is accurate or complete and it
should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s
affiliates shall not be in any way responsible for any loss or damage that may arise to any
person from any inadvertent error in the information contained in this report. This document
is provide for assistance only and is not intended to be and must not alone be taken as the
basis for an investment decision.
19
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