This four-decade old company started out doing institutional business, selling anti-malarial drugs to the government. Only a decade ago, Ajanta changed its focus and started concentrating on branded formulations. In a heavily crowded market, Ajanta took the approach of launching new drugs in the country. Today, of the 175 drugs that it markets in the country, about 125 are first-time launches and new drug delivery systems (NDDS). That decision has paid off well. Branded formulations have grown at 34 per cent annually in the last ten years. Another way Ajanta moved away from high competition was by not focusing on the US and by aiming at Africa and Asia. Today, it sells in over 35 emerging countries.
Profitability. The change in strategy catapulted Ajanta's margins from 14 per cent in FY05 to 36.5 per cent today (TTM). Going ahead, gross profit margins are likely to sustain at 70-72 per cent levels, according to ICICI Securities, though EBITDA margins are expected to come down from 31 per cent levels in FY14 to 28 per cent levels in FY17 on account of the commencement of new facilities.
Outlook. Ajanta has consistently improved its ROCE from 8.5 per cent in FY05 to 54.5 per cent in FY14. Its focus on niche therapies and exports to African and Asian countries are expected to help it maintain its momentum. Revenues are likely to grow by 22 per cent CAGR through FY17, according to ICICI Securities; while PAT, by 25 per cent.
Valuations. Ajanta's momentum has created an expectation in the market. Revenues have compounded at 23.5 per cent in the last decade while earnings by 57 per cent in the same period. The stock trades at 36 times earnings. Hold.