Ajanta Pharma has been one of the greatest wealth creator stocks. In the last five years (01.11.2009), the stock has given a phenomenal return of 6025%. In the last 3 years (01.11.2011), the return is 1604%. In the last one year, the stock has given a return of 113%.
Ajanta Pharma reported robust Q2FY15 results. The sales grew 20.5% yoy to Rs 337.3 cr while the EBITDA margins increased to 32.8% v/s 30.1% in Q2FY14 and 31.2% in Q1FY15. For the full year, the management has maintained its sales growth guidance of 20% (at constant currency of Rs 60/$) and 30% EBITDA margins.
Ajanta Pharma is presently quoting at Rs. 1900, at a P/E of 24.77. On the issue as to what investors should do now with Ajanta Pharma, brokerages are divided:
ICICI Direct has in its report dated 22.09.2014 (issued prior to the Q2FY15 results) called Ajanta Pharma a “compelling investment argument”. It recommends a buy on the basis that the company is well poised to foray into the US market, especially once the newly constructed Dahej plant gets USFDA approval. It expects revenues, EBITDA and net profit to grow at a CAGR of 24%, 20% and 17%, respectively.
Nirmal Bang has arrived at the same price target as ICICI Direct but have recommended a ‘Hold’ instead of a buy. Nirmal Bang has factored in 21% growth with 30.2% EBITDA for FY15 (against 32% margins in 1HFY15), on constant currency. It points out that the company has healthy balance sheet (debt:equity is 0.1x) and strong return ratios (more than 30%). The stock has re-rated substantially in last three years and considering the growth momentum and improving profitability, it can sustain at these valuations. Given the continuous out-performance, healthy outlook, investors can hold shares for price target of Rs 2150 (18x of FY17E EPS), Bang says.
IndiaNivesh has advised a sell on the basis that:
“We maintain our earnings estimates for FY15/FY16 and price target of Rs. 1,569 based on 17x FY16E EPS of Rs92.3. We remain confident on business model of AJP due to superior historical performance as well as key drivers in place to maintain momentum going forward. However, the current valuation of 24.1x FY15E and 20.5x FY16E earnings seems to have moved ahead of fundamentals. Hence we downgrade the stock to SELL from HOLD.”
Disclosure: I have Ajanta Pharma in my portfolio and will continue to hold it. If there is a correction, I intend to add to that position