Mar 20, 2017 03:19 PM IST | Source: Moneycontrol.com

Motilal Oswal initiates buy on Ajanta Pharma with buy, expects strong US growth

Motilal Oswal initiates buy on Ajanta Pharma with buy, expects strong US growth

Moneycontrol News

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
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