Strong Buy Of Ajanta Pharma Ltd For 24% Upside

Company Overview

Ajanta Pharma (AJP) is a specialty pharmaceutical company engaged in development, manufacturing and marketing of finished dosages. The company has manufacturing facilities at Dahej, Aurangabad, Guwahati, Pithampura, Walnuj and Mauritius. The company has designed customized basket of products for various markets. The branded generic business of the company is spread in India and more than 30 emerging countries across South East Asia, Middle East, Africa, CIS . In India it caters 4 therapeutic areas; Cardiology, Ophthalmology, Dermatology and Pain management. The company is building its presence in US with select product portfolio. The company participates in Anti-malarial Institutional tender business in Africa .

Outlook & Valuation

On the basis of improved growth visibility across different geographies , sustained outperformance in the domestic business, commissioning of new plants to cater expected higher demand and robust R&D pipeline we are assigning a multiple of 19.3x to the FY22E EPS INR91.3 to arrive at a Target Price of INR1758.

Investment Rationale

 US continues to be a driver of growth: The company is steadily building its presence in US with select product portfolio, which includes complex technology products to get the competitive advantage in the market. US business of the company grew 46% during FY19. and contributed almost 14% to the topline. During Q1FY20, Q2FY20 and Q3FY20 US business growth jumped 67%, 41% and 141% YoY respectively. During first 9 months US revenue contributed 19.5% to its topline.

 Series of new product launch is driving growth: AJP has launched 22-25 products in India with ~40% being first to market. In past 9 months the company has launched around 10 new products and increased market share gain in existing products. The company is targeting 10-12 product filing every year. In the latest quarter the company received USFDA approval for Sildenafil Citrate, Montelukast Sodium, Zolmitriptan,Captopril, Valganciclovir Hydrochloride. Series of new product launch is likely to boost topline of the company with access to various therapeutic areas.

 New Facilities are coming on stream to cater higher demand: Guwahati ophthalmic drug manufacturing facility is expected to commence operation from Q1FY21. Pithampura facility is expected to commence commercial operation in Q4FY20.