CMP 940.00

Target Price 1025.00

ISIN: INE031B01031

JAN. 28th

2014

AJANTA PHARMA LTD.

Result Update: Q3 FY14

BUYBUYBUYBUY

Index Details

Stock Data

Sector Pharmaceutical

BSE Code 532331

Face Value 5.00

52wk. High / Low (Rs.) 1019.95/355.51

Volume (2wk. Avg.) 33000

Market Cap (Rs. in mn.) 33219.60

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY13A FY14E FY15E

Net Sales 8392.00 11200.25 14224.32

EBITDA 2146.90 3572.27 4425.12

Net Profit 1011.20 2151.23 2707.71

EPS 42.85 60.87 76.62

P/E 21.94 15.44 12.27

Shareholding Pattern (%)

1 Year Comparative Graph

AJANTA PHARMA LTD S&P BSE SENSEX

SYNOPSIS

Ajanta Pharma is a specialty pharmaceutical

formutation company, having leading brands in

therapeutic segments of Ophthatmotogy,

Dermatotogy and Cardiology in India.

Ajanta Pharma Ltd. achieved a turnover of Rs.

3008.50 million for the 3rd quarter of the current

year 2013-14 as against Rs. 2293.40 millions in the

corresponding quarter of the previous year.

The company’s net profit registered 91.65% increase

and stood at a record Rs. 624.20 million from Rs.

325.70 million over the corresponding quarter last

year.

Exports contributed 65% of the total operating

income for the quarter.

During the quarter, company filed 4 more ANDAs

with US FDA taking totality to 22 ANDAs (2 approved

& 20 awaiting approval).

Company filed 109 product registration dossiers in

the emerging markets during the quarter.

Ajanta Pharma Limited featured among the ‘Forbes

Asia’s 200 Best under a Billion’ list consecutively for

the second year.

Company has launched 8 new products during Q3

FY14.

Company is in-process of setting up two more

manufacturing facilities in India, one for regulated

markets & another for India & emerging markets.

Net Sales and PAT of the company are expected to

grow at a CAGR of 33% and 60% over 2012 to 2015E

respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. Mn. (Rs.) Ratio Ratio (%)

Ajanta Pharma Ltd 940.00 33219.60 42.85 21.94 6.23 125.00

Cipla Ltd. 409.00 329438.60 18.15 22.61 3.71 100.00

Lupin Ltd. 879.65 393646.10 40.17 21.86 8.12 200.00

Cadila Healthcare Ltd. 818.00 167484.30 34.58 23.66 5.75 150.00

QUARTERLY HIGHLIGHTS (STANDALONE)

Results updates- Q3 FY14,

Months DEC-13 DEC-12 % Change

Net Sales 3008.50 2293.40 31.18%

PAT 624.20 325.70 91.65%

EPS 17.66 27.60 -36.01%

EBITDA 1012.50 603.10 67.88%

Ajanta Pharma Ltd. achieved a turnover of Rs. 3008.50 million for the 3rd quarter of the current year 2013-14 as

against Rs. 2293.40 millions in the corresponding quarter of the previous year. The company has reported an

EBITDA of Rs. 1012.50 millions and a net profit of Rs. 624.20 million against Rs. 325.70 million reported

respectively in the corresponding quarter of the previous year. The company has reported an EPS of Rs. 17.66 for

the 3rd quarter as against an EPS of Rs. 27.60 in the corresponding quarter of the previous year.

Break up of Expenditure

Particulars

Rs. Million

Q3 FY14 Q3 FY13

Cost of Material Consumed 860.20 799.50

Employee Benefit Expenses 383.80 277.70

Depreciation & Amortization

Expense 94.90 80.60

Other Expenses 717.80 556.60

Purchase of stock in trade 101.40 80.00

Latest Updates

� During the quarter, company filed 4 more ANDAs with US FDA taking totality to 22 ANDAs (2 approved & 20

awaiting approval).

� Ajanta has estabtished strong presence across Africa (including anti-malaria), ClS, West Asia, South-East Asia

and Latin America. For the 3rd quarter, exports to these markets were Rs. 1950 mn, registering a growth of

26% over last year Q3. Nine months (9M) sates were Rs. 4890 mn, a growth of 36% over 9 M last years.

COMPANY PROFILE

Ajanta Pharma is a specialty pharmaceutical formulation company, having leading brands in therapeutic

segments of Ophthatmology, Dermatology and Cardiology in India. Many of company's products are first in the

market place kind and are reading in their sub therapeutic segments. Company has a well established branded

generic business in emerging markets of Asia, Africa and Latin America. It is in process of entering USA by

building a portfolio of ANDAs for this market. It has also received marketing authorization in 11 EU countries

including UK, for one of its product.

For the financial year ended 31st March 2013, Ajanta’s consotidated turnover was Rs. 9310 mn and Profit after

Tax was Rs. 1120 mn. For last 10 years, company's consolidated performance has been outstanding with CAGR of

23% in revenue and 53% in net profit.

Ajanta Pharma has its state of the art R&D centre for formulation development, located at Mumbai, having a team

of more than 350 people. Company has word class manufacturing facilities - 4 located in India and 1 at Mauritius.

One of the manufacturing facitities in India is approved by US FDA, UK MHRA, pre-qualification from World

Heath Organization (WHO), apart from having the approval from FDA of many other countries. Company is in-

process of setting up two more manufacturing facilities in India, one for regulated markets and another for India

and emerging markets.

FINANCIAL HIGHLIGHT (STANDALONE) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at March31, 2012 -2015E

AJANTA PHARMA LTD. FY-12A FY-13A FY-14E FY-15E

SOURCES OF FUNDS

Shareholder's Funds

Capital 118.00 118.00 176.70 176.70

Reserves and Surplus 2600.40 3444.80 5596.03 8303.75

a) Total Net worth 2718.40 3562.80 5772.73 8480.45

Non Current Liabilities

Long-term borrowing 753.60 722.00 830.30 913.33

Differed Tax Liabilities 170.90 236.50 279.07 312.56

Other Long term liabilities 25.00 25.00 26.00 26.00

Long term Provisions 49.10 29.80 58.11 75.54

b) Total Non Current Liabilities 998.60 1013.30 1193.48 1327.43

Current Liabilities

Short term borrowings 868.70 512.60 317.81 228.82

Trade payables 1059.20 1300.40 1256.19 1130.57

Other Current liabilities 422.20 168.10 285.77 365.79

Short term Provisions 104.50 196.60 50.00 56.00

c) Total Current Liabilities 2454.60 2177.70 1909.77 1781.18

Total Liabilities (a+b+c) 6171.60 6753.80 8875.98 11605.66

APPLICATION OF FUNDS

Non-Current Assets

Tangible assets 2233.00 2530.90 3163.63 3954.53

Intangible assets 132.60 96.40 110.86 125.27

Capital Work in Progress 25.20 124.90 174.86 236.06

Non- Current Investments 170.50 188.60 213.12 242.95

Long Term loans and advances 505.60 484.10 532.51 591.09

Other non-current investments 12.80 70.90 170.16 280.76

d) Total Non-Current Assets 3079.70 3495.80 4365.13 5430.67

Current Assets

Inventories 1623.50 1435.10 1686.67 2007.14

Trade receivables 1254.20 1351.90 1879.14 2721.14

Cash and Bank Balances 50.80 251.10 474.58 721.36

Short-terms loans & advances 156.10 213.20 443.46 674.05

Other current assets 7.30 6.70 27.00 51.30

e) Total Current Assets 3091.90 3258.00 4510.85 6174.99

Total Assets (d+e) 6171.60 6753.80 8875.98 11605.66

Annual Profit & Loss Statement for the period of 2012 to 2015E

Value(Rs. mn) FY12A FY13A FY14E FY15E

Description 12m 12m 12m 12m

Net Sales 6042.68 8392.00 11200.25 14224.32

Other Income 12.08 74.10 222.28 300.07

Total Income 6054.76 8466.10 11422.53 14524.39

Expenditure -4723.26 -6319.20 -7850.26 -10099.27

Operating Profit 1331.50 2146.90 3572.27 4425.12

Interest -227.16 -184.80 -86.36 -64.77

Gross profit 1104.34 1962.10 3485.91 4360.35

Depreciation -306.80 -327.00 -370.45 -407.49

Profit Before Tax 797.54 1635.10 3115.47 3952.86

Tax -132.62 -623.90 -964.23 -1245.15

Net Profit 664.92 1011.20 2151.23 2707.71

Equity capital 117.96 118.00 176.70 176.70

Reserves 2600.38 3444.80 5596.03 8303.75

Face value 10.00 5.00 5.00 5.00

EPS 56.37 42.85 60.87 76.62

Quarterly Profit & Loss Statement for the period of 30 JUNE, 2013 to 31 MARCH, 2014E

Value (Rs. mn) 30-Jun-13 30-Sep-13 31-Dec-13 31-March-14E

Description 3m 3m 3m 3m

Net Sales 2189.40 2798.30 3008.50 3204.05

Other income 68.60 63.00 40.30 50.38

Total Income 2258.00 2861.30 3048.80 3254.43

Expenditure -1678.50 -1956.70 -2036.30 -2178.76

Operating profit 579.50 904.60 1012.50 1075.67

Interest -16.30 -22.10 -21.80 -26.16

Gross profit 563.20 882.50 990.70 1049.51

Depreciation -86.00 -89.90 -94.90 -99.65

Profit Before Tax 477.20 792.60 895.80 949.87

Tax -151.80 -234.50 -271.60 -306.33

Net Profit 325.40 558.10 624.20 643.53

Equity capital 118.10 176.70 176.70 176.70

Face value 5.00 5.00 5.00 5.00

EPS 13.78 15.79 17.66 18.21

Ratio Analysis

Particulars FY12A FY13A FY14E FY15E

EPS (Rs.) 56.37 42.85 60.87 76.62

EBITDA Margin (%) 22.03% 25.58% 31.89% 31.11%

PBT Margin (%) 13.20% 19.48% 27.82% 27.79%

PAT Margin (%) 11.00% 12.05% 19.21% 19.04%

P/E Ratio (x) 16.68 21.94 15.44 12.27

ROE (%) 24.46% 28.38% 37.27% 31.93%

ROCE (%) 37.74% 51.57% 56.97% 50.13%

Debt Equity Ratio 0.60 0.35 0.20 0.14

EV/EBITDA (x) 9.51 10.79 9.49 7.61

Book Value (Rs.) 230.45 150.97 163.35 239.97

P/BV 4.08 6.23 5.75 3.92

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs. 940.00, the stock P/E ratio is at 15.44 x FY14E and 12.27 x FY15E

respectively.

� Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.60.87 and

Rs.76.62 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 33% and 60% over 2012 to 2015E

respectively.

� On the basis of EV/EBITDA, the stock trades at 9.49 x for FY14E and 7.61 x for FY15E.

� Price to Book Value of the stock is expected to be at 5.75 x and 3.92 x respectively for FY14E and FY15E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.1025.00 for Medium to Long term

investment.

INDUSTRY OVERVIEW

India is now among the top five pharmaceutical emerging markets globally and is a front runner in a wide range

of specialties involving complex drugs' manufacture, development, and technology. The Indian pharmaceutical

industry is a highly knowledge based industry which is growing steadily and plays a major role in the Indian

economy. As a highly organised sector, the number of pharmaceutical companies are increasing their operations

in India. The industry is expected to touch US$ 35.9 billion by 2016.

The Department of Pharmaceuticals has prepared a 'Pharma Vision 2020' document for making India one of the

leading destinations for end-to-end drug discovery and innovation. The department provides requisite support

by way of world class infrastructure, internationally competitive scientific manpower for pharma research and

development (R&D), venture fund for research in the public and private domain and such other measures.

Sector Structure/ Market Size

The domestic pharma market has reported total sales of Rs 6,370 crore (US$ 1.03 billion) in the month of May

2013, registering a growth of 6.8 per cent, as per IMS Health. The major factors responsible are increasing sales

of generic medicines, continued growth in chronic therapies and a greater penetration in rural markets.

The cumulative drugs and pharmaceuticals sector has attracted foreign direct investments (FDI) worth US$

11,304.91 million during April 2000 to April 2013, according to the latest data published by Department of

Industrial Policy and Promotion (DIPP).

Growth

The Indian pharmaceutical industry would continue to experience strong growth as structural growth drivers

continue to remain impervious. The industry is expected to revert a growth of 10-12 percent in 2013-14,

according to a study by ICRA. It is also expected that in-organic investments will gain momentum in the medium-

term as companies plan to create stronger presence in emerging markets and build expertise in select therapy

areas.

Among the top 10 companies, Cipla with total sales of Rs 302 crore (US$ 49.13 million), Sun Rs 297 crore (US$

48.32 miliion), Alkem Rs 222 crore (US$ 36.12 million) and Sanofi Rs 186 crore (US$ 30.26 million) were the

fastest growing corporations for the month of May 2013.

Exports

Pharmaceutical exports from the country during 2012-13 stood at US$14.6 billion, up from US$13.2 billion the

previous year, as per P V Appaji, Director General, Pharmexcil.

The Ministry of Commerce has targeted Indian pharma sector exports at US$ 25 billion by 2016. The Government

has also planned a ‘Pharma India’ brand promotion action plan spanning over a three-year period to give an

impetus to generic exports.

In order to boost the export capability, Export-Import Bank of India (Exim Bank), has decided to expand the

scope of its finance to pharmaceutical companies for extended repayment periods. Eligible export oriented

companies can avail finance from Exim Bank for a maximum repayment period of 10 years with a moratorium of

up to 36 months.

“Of the export markets, Indian pharma will focus on the US market which presents significant opportunities for

the next two years for generics, due to patent cliffs and recent changes in healthcare policies,” said the India

Ratings report on outlook for Indian pharmaceuticals for 2013.

Generics

Generics will continue to dominate the market while patent-protected products are likely to constitute 10 per

cent of the pie till 2015, according to McKinsey report 'India Pharma 2015- Unlocking the potential of Indian

Pharmaceuticals market'.

Global demand for generic drugs from Indian companies is booming as developed nations battle rising healthcare

costs. As a result, generics companies are increasingly focusing on expanding presence in relatively under-

penetrated markets (i.e. France, Spain & Italy), branded generic markets of East Europe and niche areas like

complex generics, OTCs etc.

Diagnostics Outsourcing/ Clinical Trials

India is fast becoming the preferred destination for high-end pathology and diagnostic services. The highly

fragmented diagnostics and pathology labs market in India is pegged at US$ 3.4 billion, according to a report by

PricewaterhouseCoopers.

An increasing number of hospitals from the UK, US, Middle East and neighbouring countries are tying up with

Indian diagnostic centres to conduct laboratory tests. The Indian diagnostic services market is expected to grow

at a compound annual growth rate (CAGR) of around 26 per cent during 2012-2015 on back of huge investments,

fast expansion into tier II & III cities, and strong government support strengthening the healthcare infrastructure

in the country.

According to RNCOs research report “Booming Clinical Trials Market in India”, the number of clinical studies by

domestic and global players has sharply risen. India, over the last decade, has developed significant capabilities

in clinical trials, along with certain capabilities in project management and data management.According to

RNCOs research report “Booming Clinical Trials Market in India”, the number of clinical studies by domestic and

global players has sharply risen. India, over the last decade, has developed significant capabilities in clinical

trials, along with certain capabilities in project management and data management.

Investments

Some of the investments in the sector are:

• Piramal’s healthcare vertical plans to invest US$ 2.5 million to upgrade their antibody drug conjugate

(ADC) manufacturing suites. The upgrade will give Piramal two commercial grade ADC suites at the

Grangemouth facility, while retaining clinical phase manufacturing capacity in other suites on-site

• Dr Reddy's Laboratories (DRL) has launched Donepezil Hydrochloride tablets in the US market following

the approval by the United States Food and Drug Administration (USFDA)

• US-based drug maker MSD has tied up with Mumbai-based Lupin to market MSD's 23-valent

Pneumococcal Polysaccharide Vaccine in India. Lupin would have a non-exclusive licence to market,

promote and distribute the vaccine under a different brand name

• Aurobindo Pharma, Natco Pharma and Glenmark have received approvals from the US Food and Drug

Administration (USFDA) to launch their migraine drugs in the US market

• Elder Pharmaceuticals has acquired UK-based Max Healthcare. The acquisition is through Elder's fully-

owned UK subsidiary, NutraHealth, and will mark the re-entry of Elder Pharma into the over-the-counter

(OTC) pharmaceutical category

• Zydus Group has launched LipaglynTM (Saroglitazar), a novel drug targeted for treating diabetic

dyslipidemia or hypertriglyceridemia in Type II diabetes. The drug has been approved for launch in India

by the Drug Controller General of India (DCGI)

Government Initiatives

The Foreign Investment Promotion Board (FIPB) has cleared seven FDI proposals for investment in the Indian

pharmaceutical companies. Currently, 100 per cent FDI in pharma sector is permitted through automatic

approval route in the new projects but the foreign investment in the existing pharma companies requires FIPB

approval.

In the Union Budget 2013-14, investment allowance of 15 per cent on new plant and machinery has been

allowed. The allowance is expected to increase investments in new projects while simultaneously providing tax

benefit to the industry.

In order to provide relief to the common man in the area of healthcare, a countrywide campaign in the name of

‘Jan Aushadhi Campaign’ has been initiated by the Department of Pharmaceuticals, Government of India, in

collaboration with the State Governments, by way of opening up of Jan Aushadhi Generic Stores in the

Government Hospitals by way of supply of generic medicines through Central Pharma Public Sector

Undertakings, to make available quality generic medicines at affordable prices to all.

Road Ahead

In spite of some recent adverse developments, with the support of Pharmexcil and the Government in the form of

Brand India Pharma project iPHEX, the sector would continue to grow and meet the healthcare requirements of

the developing world.

The country will see the largest number of merger and acquisitions (M&A) in the pharmaceutical and healthcare

sector, according to consulting firm Grant Thornton. A survey conducted across 100 companies has revealed that

one-fourth of the respondents were optimistic about acquisitions in the pharmaceutical sector.

The pharma companies such as Cipla, Ranbaxy, Dr Reddy's Labs and Lupin might soon be part of the

government's ambitious 'Jan Aushadhi' project. In an attempt to commercialise the project, the Government is

likely to rope in the private sector to bulk-procure generic drugs from them.

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.

Firstcall India Equity Research: Email – info@firstcallindia.com

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