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Buy Ajanta Pharma: Better US sales from already approved products in Q1FY18

Motilal Oswal | 10 Aug, 2017  | Follow Author | Add to my Favourites 
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Ajanta Pharma (AJP) delivered sales of INR4.7b in 1QFY18, better than our estimate of INR4.2b. EBITDA margin, adjusted for forex loss on account for mark-to-market, stood at 27.6%, significantly lower than our estimate of 33.7%, due to GST-led impact on domestic business and incremental overhead expenses associated with commissioning of facilities. As a result, adjusted PAT declined 18.5% YoY to INR948m (est. of INR985m).

- Domestic formulation and Africa disappoint…: Sales were flat YoY at INR4.7b in 1QFY18, affected by a decline in domestic formulation (DF) and Africa sales. The decline in revenue was offset by strong growth in the US and moderate growth in Asia.

- …led by geography-specific issues: DF sales declined 14% YoY to INR1.4b, led by loss of one month of business due to GST rollout. Africa sales continued to decline, albeit at a lower rate, to INR1.7b due to a reduction in institutional business.

- Better US sales from already approved products:
US sales (at INR540m in 1QFY18) continued to exhibit strong growth from the 13 commercialized products. US sales share is now 11.6% v/s 2.2% in 1QFY17. AJP maintained its guidance of 12-15 ANDA filings for FY18.

- Change in estimates: We have lowered our FY18/19/20 sales and PAT estimates by 7%/10%/11% and 20.2%/19.2%/19.5%, respectively, to factor in reduced DF and Africa institutional sales. We have also incorporated incremental expense associated with the commissioning of Guwahati and Dahej facilities, resulting in higher reduction in PAT estimate compared to sales estimate.

- Valuation view:
We continue valuing AJP on 25x FY19E earnings, as it remains on track in terms of ANDA filing and outperformance in DF. With the change in estimates, we revise our TP to INR1,606 (from INR2,028). Maintain Buy.

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About Motilal Oswal

Motilal Oswal was founded in 1987 as a small sub-broking unit, with just two people running the show. Today it has a 2000 member team with a networth of Rs7 bn and market capitalization as of March 31, 2008 at Rs19 bn.


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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.

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