Buy Ajanta Pharma; target of Rs 1410: Motilal Oswal

Motilal Oswal's research report on Ajanta Pharma

We met with the management of Ajanta Pharma (AJP) recently to understand its business outlook in further details. AJP has enhanced its efforts to improve profitability over the next 2-3 years. Superior execution in the branded generics segment across domestic formulation (DF), Asia and Africa would result in industry outperformance. This will be further supported by relief on the cost front, which would pave the way for at least 200bp margin expansion over FY23-25E. However, the US generics growth prospects might moderate due to slowdown in the pace of approvals over the near term. We expect 15% earnings CAGR over FY23-25 v/s 4% YoY earnings decline in FY23. We continue to value AJP at 22x 12M forward earnings to arrive at our TP of INR1,410. AJP had multiple headwinds such as higher raw material costs and operating deleverage over the past 12-15M, leading to historically lower margins in 9MFY23. However, with efforts in place to overcome these hurdles, there is scope of better margins from FY24 onwards. Maintain BUY. Inferior execution in branded generics market of India/Asia/Africa, untoward regulatory outcome at Dahej, Paithan site and adverse currency headwinds are the key risk to our rating/estimates.

Outlook

Further, AJP is trading at 20x FY24E EPS of INR60 and 17x FY25E EPS of INR69. We continue to value AJP at 22x 12M forward earnings to arrive at our TP of INR1,410. Maintain BUY.