Ajanta Pharma: Healthy growth ahead

Praveena Nair
15 November 2010

Ajanta Pharma, maker of ‘Artefan’, the first branded generic anti-malarial

product to get WHO pre-qualified, was founded by Mr. Purushottam B.
Agrawal in 1973. During the 1980’s, the company became one of the biggest
players in the OTC market in Maharashtra,Gujarat, Andhra Pradesh and
Karnataka with its brands, ‘Pinkoo' Gripe Water and `Apcose D' glucose
powder.

Ajanta Pharma is currently one of India’s leading players in the therapeutic areas of
Cardiology, Dermatology and Ophthalmology with its brands Met XL, Melacare and Unibrom
respectively. The company develops, manufactures and markets a wide range of innovative
generic prescription products in the fields of respiratory, gastrointestinal, musculoskeletal
and anti-malarials in addition to cardiology, dermatology and ophthalmology. The company
also has a considerable global presence in the Male Erectile Dysfunction (MED) segment
through its brand ‘KAMAGRA’.

The company first entered the international markets in the 90s with exports to CIS
and Afghanistan; today its products are sold in more than 40 countries worldwide. The
company is on the brink of entering the US markets with the filing of two ANDAs by
its US subsidiary and is also in the process of formulating products to be able to file product
dossiers in the other regulated markets.

Stock data (12 November 2010) BSE

Share Price (Rs.) 238

No. Of Shares (Million Nos.) 11.7

Market Cap (Rs million) 2,787.50

52 week high/low (Rs.) 273.65/90.15

Average Volume (6month) 79,184.30

Source: BSE

Shareholding Pattern

The shareholding pattern as on 31st March 2010 is as follows:

1. Promoter Group – 66.82%
2. Public - 24.14%
3. Private Corporate Bodies – 6.19%
4. Banks, Financial Institutions, Insurance Companies (Central/State Govt.
Institutions/Non-Government Institutions)– 2.15%
5. Others (Mutual Funds/ NRIs/OCBs/FII’s) – 0.70%

Key Milestones

The key milestones achieved by the company are given in the table below:
Timeline Milestone / Event
 - Signed a memorandum of understanding (MOU) with Medicago Inc. to
2009 commercialise Medicago's pandemic and seasonal influenza VLP-based vaccines
in India and other territories

- Entered into an agreement to out licence the technology of its anti-scar

2007 product 'Vaniza' to the Taiwanese pharmaceutical company, Orient Europharma
(OE)

- Became one of the first companies to launch 'Ezemibe', the latest drug for
lowering cholesterol in heart patients, in India
- Launched Tadalis® (Tadalafil), a medical breakthrough in the management of
2004
erectile dysfunction (ED or impotence) in men
- Entered into a tie-up with US-based Allergen, Inc. to market its Gatifloxacin
(liquid eye drops) in the regulated markets

- Introduced umbrella-branding concept under which the company launched a

2001 cough syrup, specially made for children under 12, under its ‘Pinkoo’ brand and
a pain balm under the `Trimol' brand

- Entered the bulk drug segment as a backward integration with semi synthetic
penicillin and then switched over to cefalosporins
- Decided to exit from the bulk drug business and hive off its bulk drug
1998-00
manufacturing facility
- Transferred entire bulk drug unit has been to Orchid Chemicals &
Pharmaceuticals Ltd.

- Entered prescription drug market in India with its patented product CAROFIT
1997 - Pilot Plant set up at Paithan for Herbal Extraction, which carries out solvent
and aqueous extraction on a pilot scale.

- Commenced production at its Mauritius plant

1996 - Established a modern, state-of-the-art Research and Development center at

Kandivli, Mumbai, This center is recognized by the Department of Scientific and
Industrial Research, Government of India

- Expanded into the international markets with exports to CIS (countries in the
1992
former Soviet Union) and Afghanistan

1990 - Forayed into the national market with the launch of “Thirty Plus”

1986 - Became a public limited company

- Second manufacturing facility set up at Paithan near Aurangabad to cater to

1984
the demand in tablets, capsule and powder preparations

- Entered the institutional segment like hospitals, defense, municipalities and

1981 Government health sectors.
- With this addition the company entered prescription products market inIndia

- Launched flagship OTC brand ‘Pinkoo’ gripe water

1974 - 79 - Became a major OTC player in 4 Western and Southern states in India; namely
- Andhra Pradesh, Maharashtra, Karnataka and Gujarat

1973 - Company founded in Aurangabad

Source: Company/ Religare Technova

Financial performance
The standalone revenue and EBITDA of the company has grown at a CAGR of 16.7% and
26.3% respectively over the last five years as compared to industry CAGR of 14% between
2004 to 2009 September. The company has established its brands in the global markets and
generated nearly 61% of its revenue from exports. The company’s net profit margin
increased to 7.5% in FY10 as compared to 6.7% in FY09, despite depreciation costs
increasing by 50% in FY10 because of the completion of various projects and capital
expenditure plans during the year. This increase in profit margin could mainly be attributed
to declining interest cost brought about by better cash flow management and co-operation
of the company’s bankers.

Particulars FY06 FY07 FY08 FY09 FY10

Revenues (Rs. Mn) 2,060.1 2,386.9 2,849.2 3,193.3 3,816.5
EBITDA (Rs. Mn) 291.8 366.7 475.5 631.2 742.3
PAT (Rs. Mn) 103.5 137.1 177.9 213.8 285.4
EBITDA (%) 14.2 15.4 16.7 19.8 19.4
PAT (%) 5.0 5.7 6.2 6.7 7.5
ROCE (%) 26.4 29.9 34.1 40.6 41.5
ROE (%) 9.4 11.4 13.3 14.1 16.2
Debt-Equity (x) 0.8 0.9 1.2 1.6 1.2
Shares in Issue
(Mn) 11.7 11.7 11.7 11.7 11.7
EPS (Basic) Rs. 8.8 11.7 15.2 18.3 24.4
Source: Religare Technova Database

Capacity expansion to drive growth: During FY10, the company acquired a formulation
facility near Aurangabad to expand its manufacturing capabilities. This acquisition, along
with the expansion at the company’s existing Aurangabad plant with tablet capacity getting
increased to 1500m from 900m, will enable to cater to the demand from the rest of the
world markets.

The company’s active pharma ingredients (API) manufacturing facility at Waluj

(Aurangabad) has also commenced its operations during the year, marking a major step in
the direction of mapping the complete pharma value chain. This plant is equipped to
produce different scale of volumes ranging from laboratory to pilot to commercial level,
which will enable the company to carry out innovations in both product quality and cost.

Global Presence – The Company’s Mauritian subsidiary, Ajanta Pharma (Mauritius) Limited
(APML) has established its niche in the African markets with strong brand equity. For 2009,
APML has registered a growth of 36% in sales. APML has its own manufacturing facility,
which is WHO GMP certificated and is also approved by FDA’s of various African countries.

APML has recently commenced operations the Philippines market and this is expected to
contribute significantly to its operating performance during 2011.

The company has filled 2 ANDA applications with USFDA during the year and is working on
few more in the current year. In addition, the company’s manufacturing facility at
Paithan, Aurangabad has received USFDA approval. Once the company receives ANDA
approvals as well, it is well poised to expand its presence to the USmarkets.

Q2FY11 Result Analysis (Standalone)

The company’s revenue increased by 18.9% QoQ while EBITDA increased by 7.1% QoQ.
PAT increased by an impressive 56.3% QoQ.
 Particulars Q2FY10 Q2FY11
Revenue (Rs. Mn) 945.92 1,125.06
EBITDA (Rs. Mn) 133.40 153.78
PAT (Rs. Mn) 64.30 100.52
EBITDA Margin (%) 19.95 17.97
PAT Margin (%) 6.80 8.93
EPS (Rs ) 5.49 8.58
Source - Company

SWOT Analysis
Strengths Weaknesses

• State of the Art R&D facility ‘ADVENT’ located • Excessive dependence on exports (61% of total
at Mumbai, fully equipped with the modern revenue)
amenities and technology • Joint Venture in Turkmenistan has performed
• Manufacturing facility at well below expectations though it has continued
Paithan, Aurangabadhas been approved by its operations during the previous year. The
USFDA company is continuing to look for exit options
from this Joint Venture.
• 2 ANDA applications have been filed during the
year, with few more expected in the current
year

Opportunities Threats
• The company will be able to enter the • Risk from Currency Fluctuations - In the event
regulated US market once its ANDA filings are rupee appreciates significantly then margins
approved since it already has the added would be under pressure
advantage of USFDA approval for its plant
• With India’s changing epidemiological profile,
demand is expected to increase for drugs for
cardio-vascular problems, disorders of the
central nervous system and other chronic
diseases
• India's pharmaceutical market is expected to
maintain a steady growth rate over the coming
few years, and is estimated to expand by more
than 12% a year, reaching USD 20 billion by
2015

Source: Valuenotes Research

Valuation and recommendation

Ajanta Pharma has a broad and established portfolio of brands which are sold in more than
25 countries across Africa, Asia, Latin America and the CIS. On receipt of ANDA approvals
from the USFDA (2 ANDAs filed till date), the company will also be in a position to make an
entry into the regulated markets. The commencement of operations at the company’s API
facility as well as capacity addition will further add to this growth.

The company’s revenue and PAT are expected to grow at a CAGR of 12.0% and 18.2%
respectively over the next two years.

Particulars FY10 FY11E FY12E

Revenues (Rs. Mn) 3816.6 4236.5 4787.2
EBITDA (Rs. Mn) 724.9 818.6 924.7
PAT (Rs. Mn) 285.37 340.89 398.91
 EBITDA (%) 18.99 19.32 19.32
PAT (%) 7.48 8.05 8.33
EPS (Rs) 24.19 28.90 33.82
Shares in Issue (Mn) 11.7 11.7 11.7
P/E* (x) 9.85 8.24 7.04
Source: Company reports/Analyst Estimates

At a current market price of Rs. 238.25, the company is trading at 8.2 times its estimated
FY11 earnings and 7 times its estimated FY12 earnings. The company’s current valuations
are attractive and looking at its future growth potential, I recommend a ‘BUY’ on the stock.

vneditor@valuenotes.com

Disclaimer:
The author has taken due care and caution in compilation of data and analysis. The recommendations are his/her
personal views. He/She shall not accept any liability whatsoever arising from the use of any of the above content.

Sources have been mentioned at relevant places in the article. In spite of this, the author does not guarantee the
accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for
the results obtained from the use of such information.
The author does not hold positions in the stock.