Ajanta Pharmaceuticals (AJAPHA) 1543

Transcription

1 Result Update Rating matrix Rating : Buy Target : 178 Target Period : months Potential Upside : 15% What s Changed? Target Unchanged EPS FY16P Changed from 44.1 to 45.7 EPS FY17E Changed from 49.3 to 48.9 EPS FY18E Unchanged Rating Unchanged Quarterly Performance Q4FY16 Q4FY15 YoY (%) Q3FY16 QoQ (%) Revenue EBITDA EBITDA (%) bps bps Adj. Net Profit Key Financials ( crore) FY15 FY16P FY17E FY18E Revenues EBITDA Net Profit EPS ( ) Valuation summary FY15 FY16E FY17E FY18E PE (x) M.Cap/ Revenues (x) EV to EBITDA (x) Price to book (x) RoNW (%) RoCE (%) Stock data Particular Market Capitalisation Debt (FY16P) Cash (FY16P) EV 52 week H/L Amount crore 73 crore 55 crore 1369 crore 172/113 Equity capital Face value 17.6 crore 2 crore Price performance (%) 1M 3M 6M 1Y Ajanta Pharma Alembic Pharma Torrent Pharma Exports drive overall growth May 2, 216 Ajanta Pharmaceuticals (AJAPHA) 1543 Revenues grew 14.6% YoY to crore (I-direct estimate: crore) on the back of 2.5% growth in exports to 3 crore. Domestic sales grew 7.6% to crore EBITDA margins declined 21 bps YoY to 33% (I-direct estimates: 36.6%) mainly on account of an increase in employee cost and higher R&D. R&D as a percentage of sales increased to 8.5% from 6.4% in Q4FY15. EBITDA increased 7.7% YoY to 14.5 crore (Idirect estimate: 16 crore) Adjusted net profit increased 33% YoY to 16.3 crore, (I-direct estimate: 13.7 crore) on the back of lower taxation Domestic formulations - Focus on new launches, few therapies Domestic branded formulations constitute 28.7% of FY16P revenue. The main distinguishing factor is the uncanny knack of launching maximum number of first time launches with focus on new drug delivery system (NDDS). Of ~19 actively marketed brands, ~135 were first in India. The focus on specialty therapies and niche product led APL to post strong growth at 28.5% CAGR in FY11-16P, far higher than industry growth of ~12%. Going ahead, we expect domestic formulations to grow at a CAGR of 21.6% in FY16P-18E to crore driven by a mix of existing products and new launches. Exports traction manly from emerging markets Export formulations constitute 67.2% of FY16P revenues. APL is currently deriving almost its entire export revenues from emerging regions such as Africa (Franco Africa), Asia and LatAm with a presence in more than 35 countries. As opposed to the common practice of forging alliances with regional pharmaceutical players, APL s front-end marketing team interacts directly with doctors. The company has consistently introduced new products in these markets. Similarly, the African WHO tender business has also provided strong growth traction. Overall export formulations have grown at a CAGR of 32.1% in FY11-16P to crore. We expect exports to grow at a CAGR of 9.9% in FY16P-18E to 144 crore driven by consistent product launches. Low profile but focused; US foray important for scalability With a focus on niche therapies in domestic formulations and a calculated approach in the exports market, APL remains an interesting candidate from the midcap pharma space with high growth rates, strong margins, commendable return ratios and a lighter balance sheet. Defying the normal trend of targeting developed markets for generic generics initially, the company focused on branded generics in the semi-regulated markets. At this juncture, the company is well poised to foray into the US market especially once the newly constructed Dahej plant gets USFDA approval. The company has filed 26 ANDAs with the USFDA and received seven product approvals. Visibility intact amid near term challenges; maintain BUY The company is entering the stretched phase of capex across two to three years to bolster the domestic business and exports franchise, especially the US. This, we believe is a calculated move as Ajanta prepares to scale up in the backdrop of 1) challenges in the domestic Derma space 2) currency translation issues in emerging markets and 3) slower-than-expected offtake in the US. With a strong balance sheet and high return ratios, we believe the time is ripe for the company to enter the capex cycle, the benefit of which is likely to pan out beyond FY18. We maintain our target price of 178 based on 28x FY18E EPS of ICICI Securities Ltd Retail Equity Research

2 Variance analysis Q4FY16 Q4FY16E Q4FY15 Q3FY16 YoY (%) QoQ (%) Comments Revenue YoY growth in revenues on account of 2.5% growth in export formulation led by African tender business Raw Material Expenses Employee Expenses Other Expenditure R&D spend was 8.5% as % of sales against 6.4% in Q4FY15 Total Operating Expenditure EBITDA EBITDA (%) bps -157 bps Decline in EBITDA margins was mainly due to higher employee and R&D expenses. Miss vis-à-vis I-Direct expectations due to higher-than-expected R&D spend Interest Depreciation Other income PBT before EO Less: Exceptional Items PL. PBT Tax Lower Taxation was mainly due to higher tax benefits on incremental R&D capex MI & Share of loss/ (gain) asso Adj. Net Profit Strong YoY growth mainly on account of lower taxation Key Metrics Domestic YoY growth driven by 22% growth in cardiology segment Exports The growth was driven by 3.8% YoY growth in Africa led by tender business Change in estimates FY17E FY18E ( Crore) Old New % Change Old New % Change Comments Revenue 1,94.3 2, , , Increased on the back of higher African tender business guidance EBITDA EBITDA Margin (%) bps bps Changed as per management guidance PAT EPS ( ) Changed mainly on account of changes in EBITDA and taxation Assumptions Current Earlier ( crore) FY15 FY16P FY17E FY18E FY17E FY18E Branded - domestic Institutions- domestic Exports Total , , ,44. 1, ,466.5 Comments ICICI Securities Ltd Retail Equity Research Page 2

3 Company Analysis Established in 1973, APL is mainly into exports as well as domestic formulations. As of FY15, the exports: domestic formulation ratio was at 65:35. The company owns five manufacturing facilities - four in Aurangabad, Maharashtra and one in Mauritius. Of these five facilities, only one in Aurangabad is an API facility, rest all are formulations. Consolidated revenues, EBITDA and PAT have grown at a CAGR of 31.1%, 48.6% and 58%, respectively, in FY11-16P. APL had come out with a maiden IPO in March 2. It raised 68 crore, which was earmarked for capacity expansion and debt repayment. Domestic formulations constitute 3.7% of the total consolidated turnover (FY16P). This segment has been further segregated into two subsegments- 1) Branded formulations and 2) Institutional business. Initially, the company was catering to the institutional business. Institutional subsegment accounts for ~6.6% of domestic formulations and is mainly confined to government and institutional tenders. It is only in the last 1 years that the focus was shifted to the branded formulations business, which now accounts for ~93.4% of domestic formulations. The company focuses on only a few so called specialty therapies ophthalmology, dermatology and cardiology. Together, these therapies constitute ~85% of domestic branded formulations. The company invested heavily in the technology and field force especially in the first five years after the changed focus. The focus was also on offering a novel delivery system. From 17 crore in FY5, branded formulations have grown at a CAGR of 34% to crore in FY16P. Till date, the company has launched ~19 products out of which ~135 are first time launches. The current MR strength is ~3. Overall, domestic formulations have grown at a CAGR of 28.5% in FY11-16P to crore. The company has only one product under the National List of Essential Medicines (NLEM) 211 list. Export formulations constitute 67.2% of the total consolidated turnover (FY15). Exports are mainly confined to emerging markets and constitute branded generics. APL exports its products in ~35 emerging markets with a significant presence in Franco African countries and Philippines. Africa accounts for ~59% of export formulations followed by Asia. The company also participates in anti-malarial tenders in Africa. It operates through 45+ MRs in these emerging markets and owns a portfolio of 1351 registered brands in these markets encompassing major therapies such as anti-infectives, anti-malarials, ophthalmic, dermatology, cardiovascular, GI etc. Ajanta also has a marginal presence in Latin America. It has also forayed into regulated markets such as the US where it has filed 26 ANDAs, received approvals for 1 and launched five products. Overall, export formulations have grown at a CAGR of 28.8% in FY11-16P to crore. Ajanta Pharma has five subsidiaries including one step-down subsidiary in Mauritius, Philippines and the US. The Mauritius subsidiary with an independent manufacturing base mainly caters to the Franco African markets. The subsidiary in Philippines, which is a marketing arm, caters to the Philippines market. The US subsidiary is an administrative office to facilitate US operations. We expect revenues to grow at a CAGR of 17% to crore in FY16P-18E, on the back of strong growth in both exports and domestic ICICI Securities Ltd Retail Equity Research Page 3

4 formulation segments. Exports are likely to grow at a CAGR of 9.9% to 144 crore during the same period to be driven by growth in the legacy export markets of Africa and Asia and commencement of US shipments. Similarly, the domestic formulations segment is likely to register a CAGR of 21.6% to crore in the same period, to be driven by branded formulations. Exhibit 1: Revenue growth trend ( crore) Revenues Domestic formulations - APL operates in branded (Prescription: Rx, 93.4% of domestic sales) and tender business (6.6% of domestic sales). In the branded space, it has a presence in fast growing specialty therapies viz. ophthalmology, dermatology, chronic therapies like cardiovascular (CVS) while in the acute space it has a marginal presence in pain management and gastrointestinal. APL currently markets ~19 brands through 3 medical representatives (MRs) covering 3 lakh doctors. Over the years, the company has developed a knack of launching maximum number of first launches with focus on new drug delivery system (NDDS). It was one of the very few companies to launch products such as Metoprolol (CVS), Rosuvastatin + Clopidogrel (CVS), Hydroquinone + Mometasone + Tretinoin (Derma), etc, in the Indian market. The company s first differentiated (NDDS) product Nimesulide (pain) daily once was launched under brand name Nimlodi in FY2. Out of ~189 actively marketed brands, ~135 were first launches in India. The focus on specialty therapies and niche product led APL to post a strong CAGR of 28.5% in FY11-16P, which is far higher than the industry growth of ~12% (AIOCD data). As per the latest AIOCD data, APL is 42nd in the Indian pharmaceutical market with a market share of.48%. Currently, only 12% of total domestic sales are under NLEM and are mainly from CVS category. The company markets CVS, ophthalmology and dermatology products under the divisions of Anvaxx, Illuma and Ansca. The company launches ~2 new products every year including line extensions. We expect Ajanta to continue with 15-2 product launches every year. Overall, we expect domestic sales to grow at a CAGR of 21.6% to crore in FY16P-18E. ICICI Securities Ltd Retail Equity Research Page 4

5 Exhibit 2: Domestic formulation growth likely to be at a CAGR of 21.6% in FY16P-18E Total Domestic Formulation exports Exports account for 65% of the revenues. APL currently derives almost its entire export revenues from emerging regions like Africa (Franco Africa), Asia and the LatAm having a presence in more than 35 countries. Exports have grown at 32.1% CAGR in FY11-16P. The company markets its products through a team of 45+ MRs. At present, the company is marketing 2+ products in these regions. In all, the company owns 1481 registered brands while another 1887 brands are under registration. APL s success story in emerging markets was carved out of the so called differentiated approach. According to this, products were developed on the basis of unmet medical needs in a particular geography. As a result, the product basket varied from nation to nation. Similarly, the company resorted to a different strategy of product marketing. As opposed to the common practice of forging alliances with local/regional pharmaceutical players, APL s front-end marketing team interacts directly with doctors. The company has consistently introduced new products in these markets. Overall, we expect export sales to grow at a CAGR of 9.9% to 144 crore in FY16P-18E. Exhibit 3: Exports to grow at a CAGR of 9.9% in FY16P-18E Total Exports ICICI Securities Ltd Retail Equity Research Page 5

6 Exhibit 4: Derma sales(dom) to grow at CAGR of 19.3% in FY16P-18E Exhibit 5: Cardio sales(dom) to grow at CAGR of 25% in FY16P-18E Dermatology. Ophthalmology Source: Company, ICICIdirect.com, Research Exhibit 6: Ophthalmic sales (domestic) at CAGR of 23.7% in FY16P-18E 4. Exhibit 7: Institutional domestic business Ophthalmology Institutions- domestic Source: Company, ICICIdirect.com, Research Source: Company, ICICIdirect.com, Research Exhibit 8: Africa sales exports growth at CAGR 6.2% in FY16P-18E ( crore) Net Profit Net Profit Margins (%) Source: Company, ICICIdirect.com, Research (%) Exhibit 9: Asia exports growth at CAGR 15% in FY16P-18E Asia Source: Company, ICICIdirect.com, Research ICICI Securities Ltd Retail Equity Research Page 6

7 Exhibit 1: EBITDA to grow at CAGR of 16.6% in FY16P-18E ( crore) EBITDA EBITDA Margins (%) (%) Exhibit 11: Net profit to grow at CAGR of 17.7% in FY16P-18E ( crore) (%) Net P ro fit Net Profit Margins (%) Exhibit 12: Trends in return ratios 58 (%) RoCE (%) RoNW (%) ICICI Securities Ltd Retail Equity Research Page 7

8 Exhibit 13: Trends in quarterly financials ( crore) Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 YoY (%) QoQ (%) Net Sales Other Operating Income Total Operating Income Raw Material Expenses % of Revenue bps -2 bps Gross Profit Gross Profit Margin (%) bps 2 bps Employee Expenses % of Revenue bps 249 bps Other Expenditure % of Revenue bps 18 bps Total Expenditure % of Revenue bps 157 bps EBITDA EBITDA Margin (%) bps -157 bps Other Income Interest Depreciation PBT (bef Excep's) Less: Exceptional Items PBT Total Tax Tax rate (%) bps -794 bps PAT PAT Margin (%) bps 143 bps SWOT Analysis Strengths - Industry beating growth on a consistent basis, Focused approach in the exports space, high return ratios, knack of launching new products on a consistent basis. Weakness - High Product concentration. Opportunities - The US Generics space. Threats - extension of NLEM scope to include some of its flagship products, government driven price controls in some of the export markets. ICICI Securities Ltd Retail Equity Research Page 8

9 Conference call highlights Africa business included 113 crore from anti-malarial tenders for Q4FY16 and 414 crore for FY16 (~ 275 crore tender sales registered in FY15). The company gave a guidance of 4-41 of African institutional business for FY17. The US revenues for FY16 were ~US$ 2 million and the company expects ~US$ 1 million of sales for FY17 and ~US$ 2 million of sales for FY18. Total 26 ANDAs have been filed cumulatively in the US market including 16 pending approvals. It has launched 5 products till date. In FY16, the company launched 19 brands in domestic market of which eight were first time launches. The company has guided for 18-2% of domestic growth and mid teen growth in export markets in FY17. EBITDA margins are expected to be 33-35% in FY17-18E It has guided for 7% R&D in FY17E. R&D in FY16 was ~6% The tax rate during FY16 was ~27% which the company expects to come down to 25-26% in FY17 and 24-25% in FY18 mainly due to increase in R&D capex The company plans to file around 8-12 ANDAs every year Validation batches from Dahej plant have been started and the company expects to start US filing from 1HFY17. It expects to commercialise Dahej facility and Phase 1 of Guwahati facility from Q1FY18. Guwahati phase 2 is expected to start from Q1FY19 MR strength in the domestic market is more than 3. The company does not plan to add MRs in FY17 The company has guided for ~ 475 crore of capex for FY17E. This will be towards the development of Guwahati plant ( 3 crore), new corporate office, capitalization of R&D ( 1 crore for next two years) and maintenance capex ( 5-6 crore annually) Exhibit 14: Brand introduction in export markets Region Brands Registered Under Registration Major Segments Africa Antibiotic, Anti-malaria, Cardiac, Gynocology Asia Antibiotic, Derma, Pain, OTC, Ophthal, Cardiac, GI Exhibit 15: Facilities Location Segment Regulatory Approvals Type Paithan, India (3 Aurangabad facilities) Formulations Mauritius Formulations Dahej (upcoming) Formulations Guwahati (upcoming) Formulations Aurangabad API WHO US FDA, UK MHRA, health authorities of Brazil and Colombia, WHO prequalification tablets, capsules, ointments, injections and dry powder ICICI Securities Ltd Retail Equity Research Page 9

10 [ Valuation The company is entering the stretched phase of capex across two to three years to bolster the domestic business as well as exports franchise especially the US. This, we believe, is a calculated move as the company prepares to scale up in the backdrop of 1) challenges in the domestic Derma space 2) currency translation issues in the emerging markets and 3) slower than expected off-take in the US. With strong balance sheet and high return ratios, we believe the time is ripe for the company to enter the capex cycle the benefit of which are likely to pan out beyond FY18. We maintain our target of 178 based on 28x FY18E EPS of Exhibit 16: One year forward PE ( ) 1 5 Mar-6 Mar-7 Mar-8 Mar-9 Mar-1 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Price 43.5x 34.3x 25.2x 16.x Exhibit 17: One year forward PE of company vs. CNX Pharma Index Mar-6 Mar-7 Mar-8 Mar-9 Mar-1 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Ajanta CNX Pharma Exhibit 18: Valuation Revenues Growth EPS Growth P/E EV/EBITDA RoNW RoCE ( crore) (%) ( ) (%) (x) (X) (%) (%) FY FY16P FY17E FY18E ICICI Securities Ltd Retail Equity Research Page 1

11 Company snapshot 2, 1,8 1,6 1,4 1,2 1, Target Price: 178 Jan-1 Apr-1 Jul-1 Oct-1 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Source: Bloomberg, Company, ICICIdirect.com Research Key events Date Event Jun-8 Commissions dedicated R&D facility in Kandivali, Mumbai Mar-9 Enters the Philippines market via incorporation of a subsidiary Mar-9 USFDA approves Paithan faciliy Mar-1 Acquires formulation facility near Aurangabad to cater to ROW markets Dec-12 Enters regulated markets with first product approval in the US and one for Europe. Mar-13 Launches first product in the US Jan-15 Board approves subdivision of sharesfrom 5 to 2 Top 1 Shareholders Rank Investor Name Latest Filing Date % O/S Position Position Change 1 Agrawal (Mannalal B) 31-Dec m 3.1m 2 Agrawal (Madhusudan B) 31-Dec m 3.1m 3 Agrawal (Purushottam B) 31-Dec m 3.m 4 Gabs Investments Pvt. Ltd. 31-Dec m.m 5 Agrawal (Manisha Yogesh) 31-Dec m 5.1m 6 Agrawal (Rajesh) 31-Dec m.m 7 Agrawal (Yogesh Mannalal) 31-Dec m.m 8 Matthews International Capital Management, L. 31-Dec m 1.1m 9 Agrawal (Ravi P) 31-Dec m.m 1 Agrawal (Ayush Madhusudan) 31-Dec m.m Source: Reuters, ICICIdirect.com Research Shareholding Pattern (in %) Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Promoter FII DII Others Recent Activity Buys Sells Investor name Value ($) Shares Investor name Value ($) Shares Agrawal (Manisha Yogesh) 13.4m 5.1m William Blair & Company, L.L.C. -8.1m -.4m Agrawal (Madhusudan B) 61.9m 3.1m William Blair Investment Management, LLC -7.2m -.4m Agrawal (Mannalal B) 61.6m 3.1m Motilal Oswal Asset Management Company Ltd. -6.5m -.3m Agrawal (Purushottam B) 61.1m 3.m Reliance Capital Asset Management Ltd. -2.5m -.1m Matthews International Capital Management, L.L.C. 22.5m 1.1m Grandeur Peak Global Advisors, LLC -1.4m -.1m Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 11

12 Financial summary Profit and loss statement Crore (Year-end March)/ ( crore) FY15 FY16P FY17E FY18E Total Operating Income 1,48.6 1, ,11. 2,368.9 Growth (%) Raw Material Expenses Gross Profit 1, , ,53.8 1,785.9 Gross Profit Margins (%) Employee Expenses Other Expenditure Total Operating Expenditure , , ,577.1 EBITDA Growth (%) Interest Depreciation Other Income PBT before Exceptional Items Less: Exceptional Items PBT after Exceptional Items Total Tax PAT before MI PAT Growth (%) EPS (Adjusted) Cash flow statement Crore (Year-end March)/ ( crore) FY15 FY16E FY17E FY18E Profit/(Loss) after taxation Add: Depreciation & Amortization Net Increase in Current Assets Net Increase in Current Liabilities Add: Interest Paid CF from Operating activities Long term Loans & Advances Investments (Purchase)/Sale of Fixed Assets Deferred Tax Liabilities & LT Provisions CF from Investing activities (inc)/dec in Loan Dividend & Dividend tax Other CF from Financing activities Net Cash Flow Cash and Cash Equivalent at the beginning Cash Free Cash Flow Balance sheet Crore (Year-end March)/ ( crore) FY15 FY16E FY17E FY18E Equity Capital Reserve and Surplus , , ,974. Total Shareholders funds , , ,991.7 Total Debt Deferred Tax Liability Long-Term Provisions Other Non Current Liabilities Source of Funds , ,638. 2,87.4 Gross Block ,19.9 Accumulated Depreciation Net Block Capital WIP Fixed Assets ,95.2 1,199.2 Investments Long Term Loans and Advances Other non-current Assets Inventory Debtors Loans and Advances Other Current Assets Cash Total Current Assets ,46. Creditors Provisions Other Current Liabilities Total Current Liabilities Net Current Assets Application of Funds , , ,85.4. Key ratios (Year-end March) FY15 FY16E FY17E FY18E Per share data ( ) Reported EPS Cash EPS BV per share Cash per Share Dividend per share Operating Ratios (%) Gross Profit Margins EBITDA margins PAT Margins Inventory days Debtor days Creditor days Asset Turnover EBITDA conversion Rate Return Ratios (%) RoE RoCE RoIC Valuation Ratios (x) P/E EV / EBITDA EV / Net Sales Market Cap / Sales Price to Book Value Solvency Ratios Debt / EBITDA Debt / Equity Current Ratio Quick Ratio ICICI Securities Ltd Retail Equity Research Page 12

13 ICICIdirect.com coverage universe (Healthcare) Company I-Direct CMP TP Rating M Cap EPS ( ) PE(x) EV/EBITDA (x) RoCE (%) RoE (%) Code ( ) ( ) ( Cr) FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E Ajanta Pharma AJAPHA ,78 Buy Apollo Hospitals APOHOS ,42 Hold Aurobindo Pharma AURPHA Buy Alembic Pharma ALEMPHA Hold Biocon BIOCON Hold Cadila Healthcare CADHEA Buy Cipla CIPLA Buy Divi's Laboratories DIVLAB 149 1,32 Buy Dr Reddy's Labs DRREDD 386 3,88 Buy Glenmark Pharma GLEPHA Buy Indoco Remedies INDREM Buy Ipca Laboratories IPCLAB Hold Jubilant Life Sciences VAMORG Hold NA NA Lupin LUPIN ,2 Buy Natco Pharma NATPHA Buy Sun Pharma SUNPHA Hold Syngene International SYNINT Buy Torrent Pharma TORPHA ,65 Buy Unichem Laboratories UNILAB Buy ICICI Securities Ltd Retail Equity Research Page 13

14 RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/2% for large caps/midcaps, respectively, with high conviction; Buy: >1%/15% for large caps/midcaps, respectively; Hold: Up to +/-1%; Sell: -1% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai 4 93 research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 14

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