Ajanta Pharma ranks among the Top 50 Pharmaceutical companies in India (IMS ORG MAT March 2012) with sales growing at 27% CAGR over FY06-12.
Link to company financials – http://www.screener.in/company/?q=532331
Main Generic Brands:
- Ophthalmology (Olopat, Diflucor, Zaha, Unibrom, Nepaflam)
- Dermatology (Melacare, Pacroma, Salicia KT, Sunstop)
- Cardiology (Atorfit CV, Met XL, Rosufit)
- Anti-Malarials (Artefan – Artemether & Lumefentrine)
- Gastroenterology (Lafutax – Lafutidine)
- Male Erectile Dysfunction (Kamagra – Sildenafil Citrate)
In the Dermatology segment, the company ranks 18th and has 34 generic brands – with 4 leading brands and more than 10 first-time products. In the Opthalmalogy segment, the company is ranked 7th and has 30 generic brands – with 9 leading brands and more than 16 first-time products in India. In the Cardiology segment, the company ranks 31st and has 51 generic brands – with 3 leading brands and more than 6 first-time products in India.
Over last 3 years, things seem to have really changed for the company. Ajanta is growing at about 25% CAGR now and at the same time its improving its operating margins, reducing loans and bringing working capital efficiency. Hence the ROE has improved from about 15-16% in earlier years to about 24% in 2012. The markets have noticed the same and the stock has been re-rated from usual 5-7 times PE multiples to about 10 now. However, we feel that given the strong branded formulation play and good rankings in several segments, the stock is available at a reasonable valuation considering the high multiples enjoyed by the pharma sector (Industry PE 26).
Here is a snapshot of improvement in key ratios:
Another very noticeable thing in the company over last few years is the huge outlay on R&D. The company is now spending close to 6% of its turnover on R&D expenses:
Usually a R&D spend of 2-3% of turnover is considered good and anything above it in the right direction can be very positive.
As per FY 2012 annual report of the company, the company expects the current capacities to peak out in 2 years and hence they would be needing fresh capacities. Co has chalked out an expansion plan of 400 Cr. They have planned two separate manufacturing facilities – one for regulated markets & other for domestic and emerging export markets.
Hence considering the growth prospects and leadership position of the company in several segments, the stocks looks attractive at CMP of 385 for long term investing.
Other stock idea which we have been working on and looks interesting is MPS Ltd, formerly known as Macmillan Ltd. MPS is a provider of publishing solutions – they handle everything from production of book, journal, or magazine right through to subscription management and BPO services. The company was sold to a new management a year back and the new management has done a superb job of delivering a quick turnaround. The interesting thing is that the company is paying out very liberal dividends (MPS has declared an interim dividend of Rs 5/share in Q2FY12 results) and hence the story will be very interesting if they can grow from here.
At CMP of 111, the stock looks good to create positions and do more homework.
One of our favorite stock Astral Poly is doing lot of branding work by partnering with Dabaang 2. I’m sure most of us must have enjoyed the same. If not then here is the video: