Result Update

January 28, 2014

Ajanta Pharma Ltd.

(Standalone)

Robust performance continues, maintain BUY with the target price of Rs 1,032
Current CMP : Rs.904 Rating : BUY Target : Rs.1,032
STOCK INFO Bse Nse Bloomberg Reuters Sector Face Value (Rs) Equity Capital (Rs mn) Mkt Cap (Rs mn) 52w H/L (Rs) Avg Daily Vol (BSE+NSE) SHAREHOLDING PATTERN
(as on 31st Dec. 2013)

Previous Rating : BUY Target : Rs.1,032

Robust revenue growth driven by exports as well as domestic business:

Ajanta Pharma reported another quarter of robust performance on account of healthy growth across the markets. Companys total revenue grew ~29.6% y-o-y (~8% sequentially) to Rs 2,926 mn in Q3 FY14 above our estimates. (INSPL est= Rs 2,776 mn) on account of ~36% revenue growth from domestic business (contributed 33% of total revenue) & ~26% revenue growth from exports. Domestic business growth of ~36% y-o-y to Rs 970 mn was on account of 40% growth in Ophthalmology, 33% in Dermatology, 48% in Cardiology segments.

532331 AJANTPHARM AJP IN AJPH. BO Pharmaceutical 5 177 32,002 1,020/327 64,567 % 73.60 2.74 0.04 23.62

On exports front companys African business grew ~35% y-o-y to Rs 1150 mn & Asian region grew 25% y-o-y to Rs 780 mn, while LAta declined 75% y-o-y to Rs 20 mn.

Favorable product mix led to expansion in margins:

Companys gross margins increased 650 bps y-o-y (~300 bps q-o-q) to 68.7% level mainly on account of favorable product mix from exports as well as from domestic market. Inline with gross margins expansion, companys EBITDA margins grew ~580 bps y-o-y (~330 bps q-o-q) to 31% level (V/s INSPL est=27.1%). Companys EBITDA grew ~59.6% y-o y (~21% q-o-q) to Rs 910 mn ( V/s INSPL est= Rs 751 mn).

Net profit grew ~93% y-o-y to Rs 644 mn in Q3FY14:

On account of improved operating leverage & higher other income (mainly linked with higher exports incentives) Companys net profit grew 93% y-o-y to Rs 644 mn in Q3FY14 (V/s INSPL est= Rs 501 mn) in Q3FY14. Company reported adj EPS of Rs 18.2 in Q3FY14 compared to Rs 9.44 in Q3FY13.

Promoters FIIs DIIs Public & Others

Source: BSE

STOCK PERFORMANCE (%) 1m AJANTA PHARMA -4.6 SENSEX 0.2

Source: Capitaline, IndiaNivesh Research

3m 12m 9.9 173.1 1.0 6.1

Outlook
On the back of strong growth momentum in domestic market as well as in the exports in the last 5 years, (During FY08-13), companys revenue has grown at 24.3% CAGR & PAT at 38% CAGR. During the same period, benefiting from strategy of focusing on branded formulations in domestic market, healthy ramp up in exports business & due to healthy operating leverage, companys EBITDA margins has improved by ~650 bps from 16.6% in FY08 to 23.2% in FY13. We expect companys EBITDA margins to expand further from 23% level in FY13 to ~29% in FY15E on account of better product mix & favorable operating leverage. We expect revenue/ net profit CAGR of 28%/60% CAGR during FY13-15E.

AJANTA PHARMA v/s SENSEX

350.00 300.00 250.00 200.00 150.00 100.00 50.00

Valuations
AjantaPharma Sensex

Source: Capitaline, IndiaNivesh Research

Daljeet S. Kohli Head of Research Mobile: +91 77383 93371, 99205 94087 Tel: +91 22 66188826 daljeet.kohli@indianivesh.in Bhagwan Singh Chaudhary Research Analyst Mobile: +91 77383 93427 Tel: +91 22 66188835 bhagwan.chaudhary@indianivesh.in

Since June 2011, we had recommended buy rating on the stock at prevailing adj market price of Rs 97 level (adjusting 1:1 split & 2:1 bonus issue) . Our recommendation was based on the continuity in robust performance and expansion in P/E multiple to Industry level. In line with our expectations, company has maintained robust performance & its valuations have expanded accordingly from forward P/E multiple of 4-5x to 15x level. At CMP of Rs 904, the stock is trading at P/E multiple of 13.3x of FY14E & 11.1x of FY15E earnings estimates. Given continuous out-performance, capacity expansion, entry into regulated markets & penetration in emerging markets, companys outlook seems robust. We believe that valuation gap is likely to narrow down further between its closest peer of Ipca labs. We continue to maintain BUY rating on the stock with the target price of Rs 1,032, (which translates to ~13x of FY15E).

IndiaNivesh Research

IndiaNivesh Securities Private Limited

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Result Update (contd...)

Particulars (Rs Mn except EPS) Standalone Net Sales (increase)/Decrease in closing stock Consumption of raw material Purchage of finishied goods Empoyee Cost Other Expenditure Total Expenditure EBITDA Depreciation & Ammortization EBIT Other Income Interest Pre-tax Profit Tax Adj Net Profit Forex(loss) gain Net Profit Adj EPS Equity Capital (face value of Rs 5 each) Q3FY14 2,926 (47) 860 101 384 718 2,016 910 95 815 123 22 916 272 644 (20) 624 18.2 177 Q3FY13 2,257 (27) 800 80 278 557 1,687 570 81 490 41 34 497 163 334 (8) 326 9.44 177 y-o-y 29.6% 73.1% 7.6% 26.8% 38.2% 29.0% 19.5% 59.6% 17.7% 66.4% 197.6% -35.3% 84.2% 66.5% 92.9% 91.6% 92.9% 0.0% Q2FY14 2,708 273 572 85 374 654 1,957 751 90 661 149 22 788 235 554 5 558 15.64 177 Q-o-Q 8.1% -117.2% 50.5% 19.2% 2.8% 9.8% 3.0% 21.2% 5.6% 23.3% -17.6% -1.4% 16.2% 15.8% 16.4% 11.8% 16.4% 0.0% FY13 8,285 (114) 2,841 274 1,154 2,136 6,290 1,995 327 1,668 181 185 1,664 624 1,040 (29) 1,011 29.38 177

Ratios Gross margins EBITDA margin Net Margin Material cost/Net Sales Employee Cost/ Net Sales Other Expenditure/ Net Slaes Tax Rate
Source: Company Filings; IndiaNivesh Research

Q3FY14 68.7% 31.1% 22.0% 31.3% 13.1% 24.5% 29.7%

Q3FY13 62.2% 25.3% 14.8% 37.8% 12.3% 24.7% 32.8%

bps 651 583 722 (651) 81 (13) (315)

Q2FY14 65.7% 27.7% 20.4% 34.3% 13.8% 24.2% 29.8%

bps 306 336 157 (306) (68) 38 (10)

FY13 63.8% 24.1% 12.6% 36.2% 13.9% 25.8% 37.5%

IndiaNivesh Research

Ajanta Pharma Ltd|Result Update

January 28, 2014 | 2

Result Update (contd...)

Consolidated Finacial Statements

Income statement
Y E March (Rs m) Net sales Growth % Expenditure Material Cost Employee cost Other expenses EBITDA Growth % EBITDA Margin % Deprecaition EBIT EBIT Margin % Other Income Interest PBT Tax Effective tax rate % Extraordinary items Minority Interest Adjusted PAT Growth% PAT margin % Reported PAT Growth% FY12 6,651 33.3% 2,299 938 2,117 1,298 44.6% 19.5% 319 979 14.4% 135 154 960 137 14.3% FY13 9,201 38.3% 3,026 1,232 2,806 2,138 64.8% 23.2% 342 1,796 18.8% 129 191 1,734 647 37.3% FY14E 12,218 32.8% 3,947 1,711 3,055 3,507 64.0% 28.7% 350 3,157 29.3% 500 76 3,581 1,182 33.0% FY15E 15,123 23.8% 4,839 2,117 3,781 4,386 25.1% 29.0% 450 3,936 28.3% 590 242 4,284 1,414 33.0% FY16E 17,861 18.1% 5,716 2,501 4,465 5,180 18.1% 29.0% 600 4,580 28.5% 696 185 5,091 1,680 33.0%

Balance sheet
Y E March (Rs m) Share Capital Reserves & Surplus Non Current Liabilities Long term borrowings Deferred Tax liabilities Other long term Liabilities Long term Provisions Current Liabilities Short term borrowings Trade payables Other current liabilities Short term Provisions Total Non Current Assets Net Block CWIP Non current investment Long term loans and advances Other non curent assets Current Assets Inventories Sundry Debtors Cash & bank Balances Loans & Advances Other curretn Assets Total FY12 118 2,862 2,980 761 171 25 49 1,006 953 1,013 431 105 2,502 6,488 2,461 25 13 85 507 3,091 1,678 1,410 115 187 7 3,397 6,488 FY13 118 3,816 3,934 733 237 25 30 1,025 513 1,317 194 199 2,223 7,182 2,851 71 85 486 3,492 1,476 1,505 462 240 7 3,690 7,182 FY14E 177 6,000 6,177 1,933 237 25 30 2,225 513 1,730 478 199 2,920 11,321 5,736 71 85 507 6,399 2,009 2,009 531 367 7 4,921 11,321 FY15E 177 8,642 8,819 2,033 237 25 30 2,325 513 2,121 552 244 3,430 14,573 7,101 71 85 507 7,764 2,486 2,486 1,377 454 7 6,809 14,573 FY16E 177 11,644 11,821 1,433 237 25 30 1,725 513 2,505 485 302 3,805 17,350 7,573 71 85 507 8,236 2,936 2,936 2,699 536 7 9,114 17,350

823 62.3% 12.4% 823 62.3%

1,087 32.1% 11.8% 1,087 32.1%

2,399 120.7% 19.6% 2,399 120.7%

2,870 19.6% 19.0% 2,870 19.6%

3,411 18.8% 19.1% 3,411 18.8%

Cash Flow
Y E March (Rs m) PBT Depreciation Interest Other non cash charges Changes in working capital Tax Cash flow from operations Capital expenditure Free Cash Flow Other income CWIP Cash flow from investments Equity capital raised Loans availed or (repaid) Interest paid Dividend paid (incl tax) Inc from other investments Cash flow from Financing Net change in cash Cash at the beginning of the year Adjusted cash Cash at the end of the year FY12 960 319 154 41 (636) (174) 663 (493) 170 2 (491) 165 (238) (68) (140) 32 115 (69) 78 FY13 1,734 342 191 0 385 (331) 2,321 (912) 1,409 2 (910) (748) (195) (102) (1,045) 366 80 446 FY14E 3,581 350 76 22 (487) (1,182) 2,360 (3,055) (695) (3,055) 1,200 (76) (240) 884 189 342 531 FY15E 4,284 450 242 59 (532) (1,414) 3,089 (1,815) 1,274 (1,815) 100 (242) (287) (429) 846 531 1,377 FY16E 5,091 600 185 (607) (1,680) 3,589 (1,072) 2,517 (1,072) (600) (185) (409) (1,194) 1,323 1,377 2,699

Key ratios
Y E March Adj EPS (Rs) Cash EPS (Rs) DPS (Rs) BVPS ROCE ROE Inventories Days Sundry Debtors Days Trades Payable days PER (x) P/BV (x) P/CEPS (x) EV/EBITDA (x) Dividend Yield % m cap/sales (x) net debt/equity (x) net debt/ebitda (x) FY12 23.2 32.2 1.9 84 12.9% 27.6% 92 77 161 38.9 10.7 28.0 26.0 0.2% 4.8 0.6 1.3 FY13 30.7 40.4 2.9 111 15.7% 27.6% 59 60 159 29.4 8.1 22.4 15.3 0.3% 3.5 0.3 0.4 FY14e 67.8 77.7 6.8 174 18.7% 38.8% 60 60 160 13.3 5.2 11.6 9.7 0.7% 2.6 0.4 0.5 FY15E 81.1 93.8 8.1 249 18.1% 32.5% 60 60 160 11.1 3.6 9.6 7.6 0.9% 2.1 0.3 0.3 FY16E 96.4 113.3 11.6 334 17.7% 28.9% 60 60 160 9.4 2.7 8.0 6.0 1.3% 1.8 0.2 -0.1

Source: Company Filings; IndiaNivesh Research

IndiaNivesh Research

Ajanta Pharma Ltd|Result Update

January 28, 2014 | 3

Result Update (contd...)

IndiaNivesh Securities Private Limited

601 & 602, Sukh Sagar, N. S. Patkar Marg, Girgaum Chowpatty, Mumbai 400 007. Tel: (022) 66188800 / Fax: (022) 66188899 e-mail: research@indianivesh.in | Website: www.indianivesh.in Disclaimer: This document has been prepared by IndiaNivesh Securities Private Limited (IndiaNivesh), for use by the recipient as information only and is not for circulation or public distribution. This document is not to be reproduced, copied, redistributed or published or made available to others, in whole or in part without prior permission from us. This document is not to be construed as an offer to sell or the solicitation of an offer to buy any security. Recipients of this document should be aware that past performance is not necessarily a guide for future performance and price and value of investments can go up or down. The suitability or otherwise of any investments will depend upon the recipients particular circumstances. The information contained in this document has been obtained from sources that are considered as reliable though its accuracy or completeness has not been verified by IndiaNivesh independently and cannot be guaranteed. Neither IndiaNivesh nor any of its affiliates, its directors or its employees accepts any responsibility or whatever nature for the information, statements and opinion given, made available or expressed herein or for any omission or for any liability arising from the use of this document. Opinions expressed are our current opinions as of the date appearing on this material only. IndiaNivesh directors and its clients may have holdings in the stocks mentioned in the report. To unsubscribe please send a mail to mail@indianivesh.in
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