Management Meet Update

April 9, 2012

Ajanta Pharma Ltd.

CMP Reco

: Rs.511 : BUY

Strong performance continues, aggressive capex plan, early launch in US market. Maintain BUY with upward revised target
In the last week, on 02nd April 2012, we met the management of Ajanta Pharma, key takeaways from meeting are:
532331 AJANTPHARM AJP IN AJPH. BO Pharmaceutical 10 118 5,886 518/207 119,325 % 68.92 0.00 0.02 31.06

Target : Rs.588
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. 2011)

Domestic market: likely to maintain robust performance:

Promoters FIIs DIIs Public & Others

Source: BSE

Despite slowdown in domestic Pharma industry in the last 3 quarters, Ajanta Pharma has reported robust performance of more than 20% y-o-y growth mainly on the back of key new launches. As we anticipated that companys strategy of launching first time ~10-12 products annually would bode well for robust performance in domestic market. During 9MFY12, company launched approximately 8 new products of first time in India, particularly in new therapeutic divisions Ortho, Respiratory, ENT & Gynae. Hence the revenue contribution of these divisions increased from 7% in FY11 to 15% in 9MFY12. Further, companys Derma division improved its rank in domestic market from 18th in FY11 to 14th in 9MFY12. We believe that company is likely to maintain the growth momentum in FY13 & FY14 also. However, its supply to Govt institutions is likely to remain at previous level of ~Rs 270 million in FY12E, under which it supplies one nutritional sachet mainly to Maharashtra State Government & two cough syrups. Management is not much focused on this business hence contribution to overall domestic revenue from this business is likely to reduce going forward. Further, according to management field force strength is likely to be maintained at current level of ~2000 in FY13& FY14. Hence, company is banking on improving productivity which would bode well for margins.

Capex plan revised upwards:

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

Management has revised capex plan upwards to Rs 3.9 billion for setting up of two new manufacturing facilities, from earlier estimates of Rs 1.25 billion for setting up one manufacturing facility. Out of these two, one facility for regulated market in SEZ Dahej already finalized while the other facility is yet to be finalized (mostly in Gujarat state). The probability financing is likely to be 70:30 from debt & internal accruals respectively. For this company is likely to opt for ECB of $55 million; a low cost financing option. Of Rs 3.90 billion of capex, 50% would be in FY13E & remaining in FY14E. These facilities are likely to be operational from FY15E onwards and at full capacity utilization may generate topline of ~Rs 10 billion. According to our estimate after raising the loan, companys debt to equity ratio would stand at 1.07x in FY13E & 1.3x in FY14E. Considering the growth prospects of the company this looks reasonable. Although from FY07 to FY11, company had total capex of Rs 2.5 billion only. Hence, the capex of Rs 3.9 billion in FY13E & FY14E is very significant and it provides us comfort of managements visibility & confidence in business.

IndiaNivesh Research

IndiaNivesh Securities Private Limited

601 & 602, Sukh Sagar, N. S. Patkar Marg, Girgaum Chowpatty, Mumbai 400 007. Tel: (022) 66188800 IndiaNivesh Research is also available on Bloomberg INNS, Thomson First Call, Reuters and Factiva INDNIV.

Management Meet Update

Entry in Regulated market earlier than anticipated:

Ajanta has received 2 ANDAs approval for Risperidone & Levetiracetam from USFDA in FY12 and it filled for another 5 ANDAs during the same year. Company is likely to launch Resperidone, (use to treat psychotic disorders) in first quarter FY13E in US market while launch of Levetiracetam may be in Q2 FY13E. Management is expecting $2 -$2.5 million of annual revenue from both of these products. Company has guided to file 5-6 ANDAs every year with USFDA and to build up a portfolio of 20-25 products in next 3-4 years in US market for significant contribution to its top line. We expect US market to contribute significantly from FY16 onwards on the back of new ANDA approvals & launch of the products. Additionally, Ajanta has filled for one molecule with European markets also. We are of the view that 3-4 years down the line, these markets will start contributing significantly.

Valuations

We recommended stock at Rs 290 level with BUY rating & target price of Rs 454, which has been achieved. Our recommendation was based on the continuity in robust performance and expansion in PE multiple to Industry level. In line with our expectations, companys performance has been consistently robust in domestic as well as in exports markets in the last three quarters (also in last 5 years). Its valuations have expended from forward PE 4.9x in the starting of FY12 to forward PE 6.8x at current level. At CMP of Rs 511, the stock trades at PE 6.8x of FY13E earnings estimates. We expect valuation to expand further to forward PE 8x (in line with industry average) and revise our target price upwards to Rs 588 with BUY recommendation on the stock. (Valuing at 8x of FY13E earnings estimates).

IndiaNivesh Research

Ajanta Pharma Ltd|Management Meet Update

April 9, 2012 | 2

Management Meet Update Consolidated Financial 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% FY09 3,493 12.9% 1,271 427 1,145 651 26.7% 18.6% 142 509 8.5% 25 236 298 44 14.7% FY10 4,077 16.7% 1,455 542 1,309 771 18.6% 18.9% 207 564 9.5% 25 202 388 48 12.3% FY11 5,049 23.8% 1,729 637 1,470 963 24.8% 19.1% 247 716 11.2% 28 178 566 59 10.3% FY12e 6,075 20.3% 2,035 759 2,078 1,203 24.9% 19.8% 267 936 12.9% 28 181 783 94 12.0% FY13e 7,364 21.2% 2,430 913 2,511 1,510 25.5% 20.5% 300 1,210 13.3% 28 259 978 117 12.0%

Balance sheet
Y E March (Rs m) Share Capital Reserves & Surplus Net Worth Minority Interest Secured Loans Unsecured Loans Total debt Net defered tax liability Total Liabilities Gross Block Less Depreciation Net Block Capital Work in Progress Investments Deffered tax assets Current Assets Inventories Sundry Debtors Cash & Bank Balance Loans & advances Current Liabilities & provisions Current Liabilities Provisions Net Current Assets Total assets FY09 118 1,453 1,571 2,108 394 2,502 6 4,079 1,925 542 1,383 552 85 1,039 1,001 81 452 FY10 118 1,731 1,849 2,062 218 2,280 53 4,182 2,426 741 1,685 470 85 1,196 967 148 400 FY11 118 2,170 2,288 1,593 313 1,906 109 4,304 3,131 991 2,140 172 85 1,131 1,040 148 506 FY12e 118 2,765 2,883 1,906 109 4,899 3,617 1,258 2,360 172 85 1,415 1,227 138 654 FY13e 118 3,514 3,632 3,706 109 7,448 4,796 1,636 3,159 1,350 85 1,715 1,465 180 857

254 16.2% 7.3% 254 16.2%

340 33.7% 8.3% 340 33.7%

507 49.1% 10.0% 507 49.1%

689 35.9% 11.3% 689 35.9%

861 24.9% 11.7% 861 24.9%

455 57 2,060 4,079

693 76 1,942 4,182

809 109 1,907 4,304

1,000 152 2,282 4,899

1,252 189 2,775 7,369

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 Cash at the end of the year FY09 298 142 236 (1) (280) (49) 346 (824) (478) 4 (819) 767 (236) (34) 496 23 58 81 FY10 388 207 202 (8) 216 (54) 951 (429) 523 2 (427) (223) (200) (34) (457) 68 81 148 FY11 566 247 178 (0) 114 (99) 1,006 (407) 599 1 (405) (373) (180) (48) (601) (1) 148 148 FY12e 783 267 181 (12) (385) (94) 740 (486) 254 (486) (181) (83) (264) (10) 148 138 FY13e 978 300 259 (450) (117) 970 (2,356) (1,386) (2,356) 1,800 (259) (112) 1,429 42 138 180

Key ratios
Y E March Adj EPS (Rs) Cash EPS (Rs) DPS (Rs) BVPS ROCE ROE EBITDA Margin % Net Margin % 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) FY09 21.7 33.8 2.9 134 10.6% 19.0% 18.6% 7.3% 23.2 3.8 14.9 12.8 0.6% 1.7 1.6 3.7 FY10 29.0 46.8 4.1 158 11.8% 21.0% 18.9% 8.3% 17.4 3.2 10.8 10.4 0.8% 1.5 1.2 2.8 FY11 43.3 64.5 5.8 195 14.9% 24.7% 19.1% 10.0% 11.7 2.6 7.8 8.0 1.2% 1.2 0.8 1.8 FY12e 58.9 81.6 7.1 246 16.8% 27.2% 19.8% 11.3% 8.6 2.1 6.2 6.4 1.4% 1.0 0.7 1.5 FY13e 73.5 99.2 9.6 310 14.4% 26.9% 20.5% 11.7% 6.9 1.6 5.1 6.3 1.9% 0.8 1.0 2.3

Source: Company Filings; IndiaNivesh Research

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Ajanta Pharma Ltd|Management Meet Update

April 9, 2012 | 3

Management Meet Update

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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