Ajanta Pharma or Torrent Pharma

Discussion in 'Ask A Query About Your Stock Picks And Portfolio' started by jeett, May 8, 2015.

  1. jeett

    jeett Member

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    Guys - I am holding both Ajanta Pharma and Torrent Pharma and want to consolidate - any idea on which is a better one? My analysis says Ajanta is better, but wanted your views as well.

    Cheers,
    Bhavesh.
     
  2. Meenakshi Razdan

    Meenakshi Razdan Administrator Staff Member Moderator

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    What is the basis of your analysis which suggests that Ajanta Pharma is better?

    There is a comparison between Ajanta Pharma and Torrent Pharma available at equitymaster:

    https://www.equitymaster.com/research-it/compare/compare_comp.asp?symbol=TORR-AJPH&value=TORRENT-PHARMA-AJANTA-PHARMA

    Ajanta's P/E is nearly 40x while that of Torrent is 26X. Both enjoy high ROE of nearly 35%. Ajanta has grown at a faster pace that Torrent in the past five years. Ajanta's profit growth is CAGR of 56% as compared to 30% for Torrent.

    The downside of Ajanta is the high P/E. If there is any tapering down of growth, the stock can get severely punished as we saw in the case of Hawkins, Symphony, Cera etc. So, there is very little valuation comfort in Ajanta while Torrent offers some breathing space.
     
  3. jeett

    jeett Member

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    Thanks Meenakshi. This is very helpful.

    My thoughts are based on the below facts:

    1. Ajanta has Lower Equity capital and higher % of Free reserves as compared with Torrent

    2. Ajanta has Lower Debt levels as compared with Torrent.

    3. As mentioned by you, Ajanta has grown at a faster pace as compared with Torrent.

    4. Ajanta has plans to enter into US market and they already have 23 ANDA pending approval.

    5. Ajanta has a higher ROE, Return on Assets and Return on Capital for the last 3 / 5 years as compared wiht Torrent.

    6. Ajanta has historically has a better history of introducing new products as compared wiht Torrent.

    I agree with your point that a higher PE and any tapering of growth will have a significant impact on the price.

    Thanks,
    Bhavesh.
     
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