Canara Bank Securities Ltd

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1 A WHOLLY OWNED SUBSIDIARY OF CANARA BANK Ajanta Pharma (IC) LTP : 1481 Date :26 th Dec 2017 Stock Info Sector Market Target 1728 Holding Period Pharmaceuticals & Drugs Domestic & International 9-11 months Y/E March FY17A FY18E FY19E Net Sales EBITDA PAT BV/Share Adj EPS P/E EV/EBITDA Div Yield (%) ROE (%) ROCE (%) Stock data (FV `2) 52 Week High/Low 1870/1106 Major Shareholders as on Promoter Holding (%) % FII (%) 12.32% Public and others (%) 16.98% Peer Comparison Company Name Year End Net sales Operating Profit PAT Adj. EPS(Rs) PBIDTM% PATM% Ajanta Pharma Alembic Pharma Laurus Labs ROCE% ROE% Top Holdings Name Category Holding (%) Rajesh M Agrawal Promoters Yogesh M Agrawal Promoters Aayush M Agrawal Promoters Ravi P Agrawal Promoters Gabs Investments Pvt Ltd Promoters 9.54 Latest EPS(Rs) Latest CEPS(Rs) Price/TTM CEPS(x) TTM PE (x) Price/BV(x) EV/TTM EBIDTA(x) EV/TTM Sales(x) Dividend Yield% MCap/TTM Sales(x) Latest Book Value (Rs)

2 Industry review: Good growth rate at industry level: The country s pharmaceutical industry is expected to expand at a CAGR of percent over to reach US $55billion. Indian pharma export: The country s pharmaceutical exports are expected to touch $40 billion by the year Leading pharma producer: Indian pharmaceutical sector accounts for about 2.4 percent of the global pharmaceutical industry in value terms and10 percent in volume terms. High efficiency: The low cost of production and high R&D efficiency make India a destination for generics research and manufacturing. Global generic hub: India has cemented its place as the global hub for generic medicines. Over 60,000 different brands across 60 therapeutic areas are manufactured in India; India also produces 500 different API (Active Pharmaceutical Ingredients). Large API market: India has become the third largest global generic API merchant market by 2016, with a 7.2 per cent market share. Large number of ANDA and DMF filing: The Indian pharmaceutical industry accounts for the 2nd largest number of Abbreviated New Drug Applications (ANDAs), is the world s leader in Drug Master Files (DMFs) applications with the US. Contract Research and Manufacturing Services (CRAMS): CRAMS industry is estimated to reach US$ 18 billion in 2018 and expected to witness a strong growth at a CAGR of per cent between Government schemes: Government unveiled Pharma Vision 2020 aimed at making India a global leader in end-to- end drug manufacture. FDI opportunity: In this sector, 100 per cent FDI is allowed under automatic route. Indian opportunity: Medical infrastructure in India: About US$ 200 billion is to be spent on medical infrastructure in the next decade in India. Around, 160,000 hospital beds are expected to be added each year in the next decade. Government schemes: The government plans to provide free generic medicines to half the population at an estimated cost of US$ 5.4 billion.

3 l Company profile: Ajanta Pharma is a specialty pharmaceutical company engaged in development, manufacture and marketing of quality finished dosages in domestic and international markets. Established in 1973 and headquartered in Mumbai-India, it is committed to 'Serve Health Care Needs Worldwide'. Ajanta has been consistently providing high quality affordable medicines to patients in different parts of the world. The Company employs over 6,500 people worldwide and its products are sold in over 30 countries. The branded generics business is spread in India and more than 30 emerging countries across Africa, CIS, the Middle East and South East Asia. Company s Institutional business comprises of supplies to various government bodies in India and supply of Anti-Malarial products under WHO approved programs in Africa. The Company operates 7 state-of-the-art manufacturing facilities in India and Mauritius. 2 of the facilities in India have been successfully approved by US FDA.They are further expanding their manufacturing capabilities to meet growth requirement in future. The company s focus on commercializing unique generic products and pioneering synergistic combination products in the therapeutic areas of anti-malarial, Cardiovascular, dermatology, male erectile dysfunction, musculoskeletal, and ophthalmology. In India, it has significant presence in the fast growing specialty therapeutic segments of Cardiovascular, dermatology, ophthalmology and musculoskeletal. With primary focus on new product innovation and introduction, it has been consistently identifying unmet medical needs and introducing many first-to-market products to cater to those needs. Its products provide patient compliance and convenience over existing therapeutic options. Gaining first mover advantage, many of its brands hold leadership positions in their respective sub- therapeutic segments. Ajanta has extensive presence in many countries in Asia, Africa and Latin America with customized product portfolio to suit the needs of each country. The company is having an advanced Research & Development Centre for finished formulations and Active Pharmaceutical Ingredient (API) synthesis of different dosage forms. 'Advent', its R&D centre has a team of over 850 scientists working on innovative products for various markets across the globe. It has acquired strong capabilities for developing generic formulations and process chemistry over the years. Awards and Recognition: Mr. Yogesh Agrawal, Ajanta Pharma listed in Top 100 CEOs of India by Business Today. Mr. Yogesh Agrawal ranked as India's Most Valuable CEO by Business World. Listed in Fortune 500 list of Indian companies Ranked 6th in wealth creation, 21st in Pharma companies and 487th in sales. Listed in India s most Valuable Companies by Business Today, ranked 127th in Avg. Mkt. Capitalisation & 116th in Net Profit.

4 Fundamental Reasons: Domestic sales to bounce back in Q3 and Q4: The pharmaceutical industry had seen a slump in domestic sales due to the implementation of GST. The inventory days had gone up for the industry as whole as there was destocking at distributor level. This is a temporary aberration in sales which is expected to return to normal in Q3 and Q4. Fast growing company: The revenue has grown at 21% CAGR from `942 crores in FY13 to `2026 crores in FY17. During the corresponding period PAT has seen a growth of 46% CAGR from 112 crore in FY13 to `507 crore in FY17. Debt to equity ratio reduction: The debt to equity ratio has reduced from 0.32 in FY13 to 0.0 in FY17, this shows that the company is generating a good amount of cash. Therapy wise revenue break up: The therapy wise revenue break up for the company can be seen below: Therapy Name % of Revenue Cardiology 40% Opthalamogy 29% Dermatology 25% Pain 6% Marked improvement in ranking: The company has shown a marked improvement in ranking in some of the therapies and that would augur well for the company going forward.

5 USA market: The company has 21 final approvals as on Q2FY18 and they have 2 tentative approvals. The company has filed for another 16 products as on Q2FY18. The company expects to file ANDAs in the next year which would create a stable pipeline going forward. Growth in African business: The company has presence in19 African countries. The African business sales came in at 218 crore for Q2FY18 vs 175 crore for Q2FY17 which is 25% growth YOY growth. The company is slowly increasing its market share in the Anglo-African nations. Locations of key facilities: Facility name Capablity Key Regulatory approvals Aurangabad facility (3 facilities) Formulation 1 USFDA and WHO PreQ approved Dahej Formulation USFDA approved Mauratius Formulation NA Waluj ( Aurangabad) API ( Captive consumption) NA Latest Result update PARTICULARS Q2FY18 (` cr) Q1FY8 (` cr) Q2FY17(` cr) CHANGE QoQ (%) CHANGE YoY (%) TOPLINE % 4.76% BOTTOMLIN E % 0.94% Adj EPS (`)* % 0.94% Despite challenging conditions for the second quarter, which is generally tepid for Pharmaceuticals industry, the company reported a topline of ` cores for Q2FY18, which was higher by 14.22% QoQ vs. ` crores for Q1FY18 and higher by 4.76%YoY vs. ` crores for Q1FY18. The net profit was at ` crores which is higher by 39.14% QoQ vs. Rs crore for Q1FY18; it was up 0.94% YoY vs. ` crore for Q2FY17. The EPS works out to `14.99 for Q2FY18, which is higher by 39.18% QoQ vs. `10.77 in Q1FY 18, it has become higher by 0.94% YoY vs. `14.85 in Q2 FY17.

6 VALUE (IN ` CRORES) VALUE (IN ` ) VALUE (IN ` CRORES) VALUE (IN ` CRORES) Statistical Snapshot TOPLINE GROWTH TREND OPERATING PORFIT GROWTH TREND Mar' 13 Mar' 14 Mar' 15 Mar' 16 Mar' Mar' 13 Mar' 14 Mar' 15 Mar' 16 Mar' 17 FINANCIAL YEARS FINANCIAL YEARS NET PORFIT GROWTH TREND EPS GROWTH TREND Mar' 13 Mar' 14 Mar' 15 Mar' 16 Mar' Mar' 13 Mar' 14 Mar' 15 Mar' 16 Mar' 17 FINANCIAL YEARS FINANCIAL YEARS

7 Potential Risks in our views Drug pricing: The drug pricing under the National Pharmaceutical Pricing Authority (NPPA) which keeps changing remains a cause of concern for the company going forward. Jan Aushadi stores: The government of India is introducing Jan Aushadi stores so that medicines are available at low cost and this may lead to low margin for the company as the government may negotiate for low prices for bulk procurement. Pricing pressure in African market: The company has faced some pricing pressures in the African market and that would remain for the next couple of quarters. More competition in USA markets: The US government is embarking on a generalization drive and that would create more competition for the company in the US market. This may lead to reduction of margins going forward. Fair Valuation of stock Considering the past performance and present situations, management are confident of achieving their targets. Based on the information and data available to us, we expect the company to post a stable growth rate of ~11% CAGR, on top line in the next 2 years. Company has provided a ROCE 45.80%. The Company currently trades at ~26.29 P/E it may see some further increase in EPS in current year and it trades at ~P/E FY19E; We maintain our positive outlook on the stock, for a price target of `1728 in the next 9-11 months. Paticulars ` EPS ( FY 19E) Target 1728 Sources: (Company Annual Report, Concall)

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