Buy Ajanta Pharma; target of Rs 1500: Reliance Securities

Reliance Securities's research report on Ajanta Pharma

Led by recovery in domestic formulations business and robust performance in African business, Ajanta Pharma (AJP) has delivered a better-than-expected performance in 2QFY18. Its revenues, EBITDA and PAT stood at Rs 5.4bn (vs. our estimate of Rs 4.8bn), Rs 1.8bn (vs. our estimate of Rs 1.4bn) and Rs 1.3bn (vs. our estimate of Rs 1.0bn), respectively. EBITDA margin at 34.0% exceeded our estimate of 29.0% led by better product-mix and recovery in domestic business. Notably, AJP’s US sales dipped 63% YoY to Rs260mn primarily owing to price erosion in base business product portfolio following channel consolidation. Notably, AJP plans to file 12-15 ANDAs with the US FDA in FY18. Domestic business grew by 12.7% YoY to Rs1.8bn owing to inventory restocking post GST roll-out and new product launches. Its African business surged by 24.6% YoY on account of strong growth in institutional anti-malaria business. We expect AJP to sustain growth momentum owing to new product launches in domestic market and likely healthy exports post US FDA clearance to its Dahej unit.

Outlook
We maintain our BUY recommendation on the stock with a Target Price of Rs1,500, valuing the stock at 25x FY19 EPS of Rs60.

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