Motilal Oswal initiates buy on Ajanta Pharma with buy, expects strong US growth
Shares of Ajanta Pharma rallied 3 percent intraday Monday after Motilal Oswal has initiated coverage on the stock with a buy rating and a target price of Rs 2,028, citing strong US growth.
The brokerage house expects the company to be on a high-growth path in the US market, led by a healthy product pipeline and annual filings of around 12-15 ANDAs (abbreviated new drug application) over next 2-3 years, subject to subsequent approvals. From Rs 4 crore in FY15, US revenues are expected to reach Rs 190 crore by FY17, it says.
Over FY11-16, Ajanta Pharma delivered a phenomenal 30 percent CAGR in domestic formulations sales, as against industry CAGR of 14-15 percent. Motilal Oswal believes that company's good pace of product launches, leading position in some products and improving MR efficiency should help it to outperform, despite industry growth lowering to 11-12 percent.
The pharma firm has made good strides in the Africa and Asia markets, is one of the leading companies in the anti-malaria business in East Africa, and has outperformed industry growth in branded generics in the Franco Africa and Asia regions.
Although a brief pause is expected over the near term, the research firm believes the long-term drivers remain intact for the company to support sustainable growth.
It expects Ajanta Pharma to deliver an 18 percent CAGR in sales and a 19 percent CAGR in earnings over FY17-20, led by a 46 percent CAGR in US sales and a 20.4 percent CAGR in domestic formulations sales.
The brokerage house has valued the stock at a premium compared to P/E multiple of 20-21x for midcap pharma companies, at 25x FY19 earnings estimates, on the back of its proven superior track record in terms of revenue growth and profitability.
The company has a very low US base business and minimal regulatory risks over the medium term while its peers with a higher exposure to the US market are facing pricing pressure in the base business, with some also facing regulatory headwinds, the brokerage house says.
Ajanta Pharma is a specialty pharmaceuticals company engaged in the development, manufacture and marketing of finished dosages. It has established itself as a strong specialty player in the domestic market in ophthalmology, dermatology and cardiology. In addition, it has strong presence in the international markets of Africa and Asia, and continues to build a strong foundation for the US market.
At 15:00 hours IST, the stock was quoting at Rs 1,820.00, up Rs 26.75, or 1.49 percent amid high volumes on the BSE.Posted by Sunil Shankar Matkar