The growth drivers for this small drugs manufacturer are firmly in place
Moneylife Digital Team
Ajanta Pharma is a small company with a presence in the anti-malarial, cardiology, dermatology, gastroenterology, musculoskeletal, ophthalmology and respiratory segments, with four manufacturing facilities in India and one in Mauritius. One of the Indian units, located at Paithan (Maharashtra), is approved by the USFDA (United States Food and Drug Administration) and health authorities of Brazil and Colombia and it also holds a WHO (World Health Organization) pre-qualification for one of its products. This modern manufacturing facility provides flexibility to the company, thus ensuring efficient and timely delivery of products.
In the Indian market, Ajanta ranks 63rd among pharma companies in revenues. Its revenues have been growing at 27% CAGR (compounded annual growth rate) over FY06-11 due to its strong foothold in ophthalmology (CAGR 35%), dermatology (CAGR 57%) and cardiology (CAGR 34%). The management has provided guidance for 16%-18% CAGR from domestic revenues over FY11-13E, driven by 10-12 new product launches, line extensions and therapy expansions.
During FY10-11, domestic revenues contributed 37% to the company’s total revenues, while the exports business contributed 63% of the total revenues; Asia and Africa collectively contributed 95% to the export revenues and the rest was from the Latin American region. The return on equity of the company was a healthy 24.5% for FY10-11.
During the quarter ended March 2011, the company’s revenue was Rs125.85 crore, a growth of 16% over Rs108.12 crore in the previous corresponding quarter. Profit after tax was Rs17.47 crore over Rs10.04 crore in the year-ago period, a jump of 74%. Operating profit for the March quarter was Rs28 crore, a rise of 32% over Rs21.15 crore in the fourth quarter of FY09-10.
Over the past five quarters, Ajanta Pharma has reported average revenue and operating profit growth of 20% and 22%, respectively. Its operating profit margin for the March quarter was 22%; for the past five quarters, it was 19%.
On 3 May 2011, Ajanta Pharma signed a deal with Dabur India to offload its over-the-counter (OTC) brand ‘30 Plus’—one of Ajanta Pharma’s key healthcare energiser brands that was launched in 1990—for an undisclosed amount. The company is expected to use the funds generated to pay off a part of its debt.
The company has planned a capital expenditure (capex) of Rs100 crore to Rs125 crore over FY13-14E to gear up for its entry into the regulated market of the US.A large part of the capex will be towards setting up of manufacturing units. The company anticipates 10-12 ANDA (abbreviated new drug application) filings. The company has already filed two ANDAs, the approval for which is expected within a year’s time.
Introduction of mass healthcare projects, such as the National Rural Health Mission (NRHM), and increasing rural penetration by pharmaceutical companies would contribute to the growth of domestic drug sales. The Indian pharma industry is expected to grow at a CAGR of 13.1% and would touch $11.20 billion by 2011-12. The stock is reasonably priced. Based on the annualised results for the March 2011 quarter, its market-cap to revenue was 0.72 times and market-cap to operating profit was 3.24 times. Ajanta Pharma makes a good buy at the current price.