Contents Confluence: Pharma; Pre-conference note Ajanta Pharma 3 Biocon 9 <strong>Dr</strong>. Reddy’s <strong>Lab</strong> 13 Elder Pharma 19 Glenmark Pharma 23 Ipca <strong>Lab</strong>s 29 Jubilant Life Sciences 35 Sun Pharma 41 Vivimed <strong>Lab</strong>s 49 Emkay Research 16 November 2011 2
November 16, 2011 Reco Not Rated CMP Rs322 Target Price NA EPS change FY11E/12E (%) NA Target Price change (%) NA Nifty 5,030 Sensex 16,756 Price Performance (%) 1M 3M 6M 12M Absolute 1 1 12 32 Rel. to Nifty 3 1 22 57 Source: Bloomberg Relative Price Chart 375 330 285 240 195 Rs 150 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Source: Bloomberg Ajanta Pharma (LHS) Rel to Nifty (RHS) Stock Details Sector Pharmaceuticals Bloomberg AJP@IN Equity Capital (Rs mn) 117 Face Value(Rs) 10 No of shares o/s (mn) 12 52 Week H/L 369/171 Market Cap (Rs bn/USD mn) 4/79 Daily Avg Volume (No of sh) 29620 Daily Avg Turnover (US$mn) 0.2 Shareholding Pattern (%) % 80 60 40 20 0 -20 Sep-11 Jun-10 Mar-10 Promoters 66.8 66.8 66.8 FII/NRI 0.3 0.5 1.0 Institutions 0.0 0.0 0.0 Private Corp 6.1 6.3 5.7 Public 26.8 26.4 26.4 Source: Capitaline Deepak Malik Deepak.malik@emkayglobal.<strong>com</strong> +91 22 6612 1257 Ashish Thavkar ashish.thavkar@emkayglobal.<strong>com</strong> +91 22 6612 1254 Bhavita Nagrani bhavita.nagrani@emkayglobal.<strong>com</strong> +91 22 6624 2486 Ajanta Pharma Pure Branded Play – Ideal candidate for re-rating � Focus on branded generics in the domestic and the exports emerging market. Gearing for entry into the regulated market of US � Higher thrust on domestic business by launching 10-12 new products & 10-15 line extensions per year to fuel 16-18% growth in domestic business over the next 2-3 years � RoE of 24.5x, RoIC of 19.4x, asset turnover of 1.2x and working capital position of 171 days provide <strong>com</strong>fort to investors � With pure branded profile, 15-18% sales CAGR going forward and entry into regulated market through capacity expansion makes it an ideal candidate for re-rating Domestic business – On a steady growth track In the Indian market Ajanta ranks 63 rd with sales growing at 27% CAGR over FY06-11 on back of strong foothold in Opthalmology (FY06-11 sales CAGR - 35%), Dermatology (FY06-11 sales CAGR - 57%) and Cardiology (FY06-11 sales CAGR - 34%). � In the Opthal segment, the <strong>com</strong>pany has 30 brands with 9 of them in the top 5 rankings. In the Derma segment, the <strong>com</strong>pany has 24 brands & 5 brands stand in top 4 rankings. In the Cardio segment, the <strong>com</strong>pany 8 brands with 3 in top 10. � 70-75% of the domestic sales are through prescriptions and the rest are tender based sales. The <strong>com</strong>pany has reduced its exposure to tender based sales (5% in FY11 vis-à-vis 23% in FY07) as a result of which EBITDA margins have expanded by 386bps to 19.1% over the same period. � With a total field force of over 2400 MRs, the management has guided for 16-18% CAGR growth from this geography over FY11-13E, driven by 10-12 new product launches, line extensions and therapy expansions. Exports – Focus on Asia/ Africa and capacity expansion to drive growth � During FY11, exports business contributed 63% of the total sales with Asia/ Africa collectively contributing 95% to the export revenues and remaining from the LatAM. � In African markets, the <strong>com</strong>pany derives 50:50 revenues from Anglo and French African markets. Going ahead, we expect margins in exports segment to expand as the <strong>com</strong>pany has deliberately reduced its focus on tender business in Afirca (16% contri to exports in FY11) and has not bidden for any of the WHO tenders. � The <strong>com</strong>pany has planned a capex of Rs1-1.25bn over FY13-14E in order to target the regulated market of US. Majority of the capex will be towards setting-up of manufacturing unit. The <strong>com</strong>pany anticipates 10-12 ANDA filings going ahead, which is evident from increased R&D spend of 4.5%. The <strong>com</strong>pany has 2 ANDAs approved and has filed for 3 more approvals. Valuations At CMP, Ajanta trades at 7.2x FY11E EPS and 5.7x FY11 EV/EBITDA. During FY07-11, sales have grown at a CAGR of 18%, EBITDA at 25% and PAT at 36% with EBITDA and PAT margin expanding by 368bps and 436bps to 19% and 10%, respectively. Although we do not have a formal rating on the stock, we are positively biased. Financials Rs mn YE- Net EBITDA EPS EPS RoE EV/ Mar Sales (Core) (%) APAT (Rs) % chg (%) P/E EBITDA P/BV FY08 3,092 514 16.6 225 18.9 53.6 18.0 16.9 10.7 2.8 FY09 3,492 651 18.6 254 21.4 13.1 17.4 15.0 9.6 2.4 FY10 4,091 786 19.2 340 28.8 34.4 19.9 11.1 7.6 2.1 FY11 5,049 963 19.1 507 43.0 49.2 24.5 7.5 5.8 1.7 Emkay Global Financial Services Ltd 3 <strong>Company</strong> <strong>Update</strong>