Buy Ajanta Pharma; target of Rs 1800: Motilal Oswal

Motilal Oswal's research report on Ajanta Pharma

Ajanta Pharma (AJP) posted in-line sales with better-than-expected profitability in 1QFY24. AJP benefited from lower raw material cost/freight cost in 1QFY24 and expects the same to sustain over the near-to-medium term. We raise our earnings estimates for FY24/FY25 by 7.5% each factoring in: a) the lower intensity of price erosion in the US generics segment, b) superior execution in branded generics segment and c) lower operational cost.

Outlook

We value AJP at 22x 12M forward earnings to arrive at our TP of INR1,800.  We expect 23% earnings CAGR over FY23-25, led by 15% sales CAGR in Domestic Formulation (DF)/Asia and 13% sales CAGR in the US segment, supported by 370bp margin expansion. Considering the earnings outlook and attractive valuation, we reiterate our BUY rating on the stock.