Buy Ajanta Pharma; target of Rs 2350: YES Securities

YES Securities' research report on Ajanta Pharma

Ajanta clocked 15% growth in 4Q, higher than our 4% forecast driven by resilient performance in India business along with strong performance in branded business. Margins during the quarter were impacted due to one-time write off of certain products and high price erosion in US. Increased raw material prices also impacted margins but the company is still sure of maintaining 75% gross margin in FY23. US business is expected to pick up once the FDA commences inspections of various facilities as company is sitting on a healthy pipeline awaiting approvals. Branded business is expected to grow in mid-teens despite having a high base. R&D spends have gone back to pre-Covid levels while working capital is on the higher side but could be new normal as US share in revenues inches up compared to previous years.

Outlook

Reduced FY24 estimate lead to corresponding cut in TP to Rs2,350 (earlier Rs2,620) though BUY stays based on unchanged 26x PE. Key trigger would be a successful FDA inspection which would open up approval to several important products.

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