Ajanta pharma is a specialized generic (an oxymoron indeed!) drug maker from India. In business for more than 20 years, Ajanta has made a dramatic turnaround since the dawn of this century. Led by dynamic and visionary duo of Yogesh and Rajesh Agarwal the company has moved from being an API and bulk drug manufacturer into a niche product developer. Current market focus is on developing and emerging markets. The company has set its sight on developed countries and the company seems to be poised for some exciting ride in the future.

Before you continue further I strongly recommend you to have a look at my article on Pharma sector. It shall act as a worthy predecessor to the current article. You will find my article on Pharma companies at the following link.

Business Model Diagram

The figure below shows the business model for Ajanta pharma. This diagram shows my view of the company and need not necessarily reflect the management’s view of the company.

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Let us look at each of these aspects of the business model of Ajanta pharma in detail:

  1. Customer Segments:
    • Specialized Doctors: The predominant customer segment for Ajanta pharma are the specialized doctors. The company engages with specialized doctors in different areas like ophthalmology, dermatology, cardiology etc to understand the unmet needs. They act as the source of information on unmet needs as well as revenue channels for existing and new products.
    • Retail: Recurring end users form the other major customer segments. These are the customers who have been taking the medicines for a long time and need not visit the doctors for their regular dosages. Customers across 35 countries constitute the retail segment.
    • Institutions: In countries like India and Africa, Ajanta gets a part of its revenue from Institution sales (for example government sales). In Africa, the company sells some of its drugs (ex: anti-malarial drug) via large funds (like Global fund). In fact Ajanta pharma is one of the six suppliers of anti-malarial drug in Africa. Its competitors for the anti-malarial drug from India include Cipla, IPCA and Strides.
  1. Value Proposition: Though Ajanta pharma is in the generics business, it does not manufactures “Generic” generics. The following is the value proposition of the company.
  • Niche Formulations for unmet needs: Most of the pharmaceutical companies manufacture the current “best seller” products which is a crowded space. Such companies can show volume growth due to large sales but this does not result in value growth. Ajanta believes in launching first time products in relatively under-penetrated areas. When they do this they instantly create popular brands as there are no competitors. This helps Ajanta to differentiate themselves from peers as well as stand out from the crowded areas. In line with this philosophy the company has launched 120 First-time-in-Market products in India. The company gets 80% of its revenue from these branded generics.
  • Variety and Uniqueness: When the company was in its transformation phase during the early 2000’s the company realized that each region has its own medical requirements. Hence Ajanta decided to offer different products for different regions. For example, in India Ajanta pharma concentrates on dermatology, Cardiology, Ophthalmology and Pain management where as in Africa the company sells mainly anti-malarial and anti-biotic products. Hence, based on unmet needs of each country, medicines are manufactures and sold specifically for that country. Hence the variety and uniqueness factor.
  1. Channels:
  • The company sells predominantly in a direct They employ a large sales force of medical representatives to reach the specialized doctors and these interactions result in the doctors prescribing the medicines to patients.
  • The company also has in-direct sales channel in the form of institutional sales (ex: It sells anti-malarial drugs in Africa via Institutional sales to organizations similar to “Global Fund”).
  1. Customer Relationships:
  • Medical representatives (MR) form the backbone of the company and customer relationships appears to be via these MRs. Since these MRs market their products to specialized doctors the relationship between the MRs and the doctors needs to be a long term one.
  1. Revenue Streams:
    • Asset Sale: Ajanta pharma mainly sells its products in the form of Formulations. Hence Formulations form a major part of the sales for the company. Additionally the company also manufactures APIs for the US market.
    • Pricing Mechanism: The Company seems to work on a fixed pricing mechanism where price of each product is fixed. The company may charge a premium on new launches for the unmet needs as it would be the first to launch such product and there are no pricing benchmarks that the company needs to adhere to.
  1. Key Resources:
    • Physical: Ajanta being a generic drug manufacturer needs manufacturing plants. Hence the factories are its key resource.
    • Intellectual: Ajanta plans to make a sizeable impact in the US market. For the sales to contribute to the bottom line in a meaningful way, the company needs to file ANDAs and these need to be approved by USFDA. On time approval is a key factor for the company’s success. Moreover, the USFDA may inspect the manufacturing facilities of Ajanta that manufacture the products being catered by it for US markets. On time approval of USFDA for the manufacturing facilities is another requirement for the company.
    • Human Capital: Another key resource of the company are their R&D employees. Since the company thrives on unmet needs of patients, it needs dedicated and competent employees who can churn out new products based on these unmet needs. Another key set of resources are the duo Yogesh & Rajesh Agarwal the Joint MDs of the company. They were the people who turned around the company in the early 2000s. Their continuation at the helm of the company is needed for the future growth of the company.
  1. Key Activities:
    • Manufacturing: As a generic drug manufacturer, it goes without saying that the key activity for Ajanta is production of medicines.
    • R&D of new molecules: To keep the PAT margins intact the company needs to churn our novel medicines. Hence R&D of new molecules is another key activity for the company. The company employs close to 400 people for its R&D efforts and spends about 5-6% of its revenue every year as R&D expense. With growing revenues every year the absolute amount spent on R&D keeps increasing, which is a good sign.
  1. Key Partners:
    • The company manufactures its products on its own and sells it via specialized doctors or institutions. I do not see any key partners for the company. If pressed, I might say that the medical representatives can be thought as they key partners as they are largely responsible for the sales. The company may be sourcing its raw materials from 3rd party suppliers, but the details of such 3rd party suppliers is not known.
  1. Cost Structure: Ajanta pharma incurs both operational expense and capital expenses. Hence its cost structure has both the OPEX and CAPEX components.
  • Operational expenses (OPEX): Close to 25% of the Ajanta’s revenue is spent on raw materials. 13% of the revenue is spent on the employee expenses which include their salaries, gratuity, leave encashment etc. Other operational expenses include the manufacturing costs, and R&D costs (excluding salaries of R&D employees).
  • Capital expenses (CAPEX): Capital expenditure predominantly involves construction of manufacturing plants for its generic drugs and APIs.

An interesting point to note is that Ajanta had more short term borrowings compared to long term borrowing. This means that the company has more OPEX compared to CAPEX. This effectively means that the company needs to have a tighter control on its day-to-day operations to avoid explosion of OPEX. When we look at the quantitative analysis below we will notice that, over the years, the company has successfully managed to contain its OPEX.

More about Ajanta Pharma

Ajanta pharma predominantly manufactures formulations (finished dosages) for India markets as well as international markets. It employs about 5000 people (including 500 MRs outside India) and its products are sold in 35 countries (across India, Africa, CIS, middle east, Latin America and South East Asia). It has five facilities in India out of which four facilities manufacture formulations and the fifth pant manufactures APIs for US markets. In FY15 Ajanta was ranked 35th in Indian market (not sure with respect to sales or profits or market cap or geographical reach?). As of FY15, its portfolio has 400 products for which it has 1400+ product registrations in emerging markets. Another 1600+ approvals are pending in various countries. Generic sale contribute 0.3% to its total sales (Ajanta is more into branded generics rather than just generics). Company has a very small presence in LATAM from where it gets 0.7% of its sales. Because of currency issues Ajanta pharma is not expanding in LATAM region. In the past decade the company has grown at a CAGR of 23%.

Business Process

The company segregates its business process into 4 parts.

  • Identification of Needs: By having constant interaction with doctors and patients, the company tries to identify the unmet medical needs of patients.
  • Develop: Post identification of unmet needs the company develops the right products that are effective in treating/solving these unmet needs.
  • Document: The Company gives priority to tabulation of results and maintaining accurate records. This is required during inspections especially when USFDA comes calling.
  • Marketing: Using the huge sales force in India as well as international markets the company tries to market its products in efficient manner.

Research and Development

The company has an R&D center in Mumbai and employs 400+ scientists. The company manufactures medicines in different forms, namely, tablets, capsules, powder, ophthalmic sterile eye drops, ointments and injectable. For US market the focus is on solid dosages (tablets, capsules and powders). The company takes an existing product and tries to work on modifying its delivery/release pattern. So if it can successfully release the medicine at delayed intervals into the body then the patient can take a single dose of a medicine once a day (instead of say 3 capsules/tablets a day) and this single dose will be released into bloodstream in a delayed fashion throughout the day. Ajanta spent 5% of its total sales of FY 2014-15 on R&D and is planning to spend Rs. 400 crores to enhance its R&D infrastructure.

India:

Indian pharma industry currently has a market size of Rs 80,000 crores in terms of sales. In case of Ajanta pharma, 33% of its sales revenue comes from Indian market. It has a field force of 3000 Medical representatives (MRs) who bring in the sales. In India it is present in 4 therapeutic areas, namely, Ophthalmology, Cardiology, Dermatology and Pain Management. Its claim to fame in India is that it introduced 127 first-time-in-India products out of 181 products in the last 10 years. Its revenues from India over the years has grown as below:

Year Revenue (in Crores)
2009-10 148
2010-11 170
2011-12 227
2012-13 292
2013-14 385

Africa:

Africa has 25% of world diseases but spends 1% of the world medical expenditure.  In 2016 it is expected that Africa will spend $30 billion on pharmaceutical products. In case of Ajanta pharma, 36% of its total sales come from Africa. As described in the above paragraphs, the company predominantly sells anti-malarial and anti-biotic products in Africa.

Philippines:

The overall Philippines pharmaceutical market is expected to grow from current sales of $4.3 billion to $8 billion by 2020. Ajanta pharma entered Philippines market in 2009. It currently has 21 brands in the market and waiting for 30 more registrations. It focuses on Orthopedics, Antidiabetic, respiratory and cardiovascular segments in Philippines.

Asia:

30% of its sales come from Asia (excluding India). I believe Philippines sales are also part of this Asia bucket.

USA:

As of March 2016, USFDA has granted Ajanta eight ANDA approvals. Ajanta also has two more tentative approvals bringing the count to ten. There are sixteen more ANDA filings under review with the USFDA. The Company plans to file 6-8 ANDAs every year. Dahej plant is ready to take care of the manufacturing process for all the new ANDAs that are being filed by the company. In US markets it is focusing on niche difficult to make generics (I think slow release or delayed release into bloodstream are the kind of products that might find traction). In March 2016, Ajanta launched Levetiracetam tablets in different dosages in the US market. This is an immediate release tablet that caters to epileptic neurological disorder like numbness, fits, paralysis. The company is in the process of setting up its marketing team for USA. It would be interesting to see if Ajanta goes with Army of MRs as its marketing strategy or follow a different approach for North American Markets.

Products

Let us now look at some specific products manufactured by Ajanta pharma. We will also look at the four therapeutic areas in which Ajanta pharma specializes. We will also look at the share of the different product formats in the overall sales of the company.

  • Specific Products: Listed below are some of the products manufactured by Ajanta pharma.
    • Wrinclar: An anti-wrinkle cream that works at molecular level to prevent wrinkles.
    • Melacare: Skin whitening cream that is supposed to lighten the skin tone though its main aim seems to be to reduce itchiness, redness and swelling.
    • Cinod: It contains the ingredient (Cilnidipine) which is a hypertension drug (possibly used to regulate Blood Pressure).
    • Feburic: It is used to reduce the amount of hyperuricemia (excessive Uric Acid in the blood) as well as treat patients suffering from gout. The name of the drug within this medicine is called Febuxostat.
    • Softdrops: This is an eye drop that is used to cure burning eyes, discomfort and dry eye.
    • Zaha: These are eye drops that contain azithromycin which is an antibiotic.
    • Apdyl-H: It is a herbal cough syrup that is sold outside India (for example in Myanmar).
    • Carofit Max: It converts dark patchy skin into fair skin. It is the first demelanising cream that is free of steroids.
    • Ivrea cream: It is used in treatment of scabies. Previously available only as an oral dosage. Ajanta introduced a cream version for the first time. Scabies is a contagious skin disease that causes itching and raised red spots.
    • Maxmoist: An eye drop that is supposed to aid cornea healing and reduce eye fatigue.
    • Iflomax Gel: It cures dry eyes disease by forming a thin moist film on ocular surface.
    • Metaspan Plus: For effective management of diabetes and cardiovascular diseases. It is also helpful for Endothelial dysfunction and deficiency of Vitamin D.
  • Therapeutic Areas: Listed below are the details of the four therapeutic areas of Ajanta pharma. These are the main therapeutic areas that Ajanta focuses in India.
    • Dermatology: Ajanta pharma has fifty eight brands under dermatology (as of 2015). Out of these fifty eight brands, ten brands are leaders in their category. More than forty brands were first-of-their-kind when they were introduced. The market size for dermatology is Rs. 4800 crores in India (as of 2014) and is growing at 19% per annum. Ajanta has grown its dermatology section at 30% CAGR over the past five years (till 2015). In FY15 Ajanta pharma saw a 11% Year-on-year increase in sales for dermatology products compared to dermatology industry growth of 18%. So in FY15, Ajanta grew slower than market for dermatology. Ajanta Pharma’s ranking in India for Dermatology products is shown below:
Year 2015 2014 2013 2012 2011 2010
Ranking 13 13 15 14 18 21
  • Cardiology: Ajanta has thirty two brands under cardiology. Out of these thirty two brands, nine brands are leaders in their category. About eleven brands were first-of-their-kind when they were introduced. The market size for Cardiology is about Rs. 9,400 crores in India (as of 2014) and is growing at 11% per annum. Ajanta has grown its Cardiology section at 34% CAGR over the past five years (till 2015). In FY15 Ajanta saw a 37% year-on-year increase in sales for cardiology products compared to cardiology industry growth of 10%. So in FY15, Ajanta grew faster than the industry. Ajanta Pharma’s ranking in India for cardiology products over the years is shown below:
Year 2015 2014 2013 2012 2011 2010
Ranking 22 24 28 29 31 33
  • Ophthalmology: Ajanta has sixty one brands under ophthalmology. Out of these sixty one brands, eighteen brands are leaders in their category. More than fifty one brands were first-of-their-kind when they were introduced. In FY15 Ajanta saw a 31% year-on-year increase in sales in ophthalmology products compared to ophthalmology industry growth of 19%. So in FY15, Ajanta grew faster than the industry. Ajanta Pharma’s ranking in India for ophthalmology products is shown below:
Year 2015 2014 2013 2012 2011 2010
Ranking 5 5 5 6 7 7
  • Pain Management: Ajanta has thirty brands under pain management. Out of these thirty brands, two brands are leaders in their category. More than twenty five of them were first-of-their-kind when they were introduced. In FY15 Ajanta saw a 27% year-on-year increase in sales for pain management products compared to pain management industry growth of 11%. So in FY15, Ajanta grew faster than the industry. Ajanta Pharma’s ranking in India for ophthalmology products is shown below:
Year 2015 2014
Ranking 53 58
  • Product forms: Ajanta makes products in different forms like Tablets, Ointments, Capsules etc. Given below is the share of each of these components to the total sales. It gives an idea of what form of the product sells the most. As we can see from the table, a lion’s share is taken by the Tablets which was about 60% for 2014-15 and more than 60% for the year 2013-14. Liquids form about 17% of the share for 2014-15 and 14% of the share for 2013-14 (I assume liquids include tonics, eye drops etc).
Product Types 2014-15 (Crores) 2013-14 (Crores) 2012-13 (Crores)
Tablets 716.52 633.66 448.5
Capsules 98.66 65.30 67.23
Liquids 201.69 138.91 114.41
Injectable 20.50 17.81 17.13
Powder 36.85 35.64 27.24
Ointment 130.73 108.62 96.10

Manufacturing Plants:

  • Ajanta pharma currently has five manufacturing plants in India. Dahej facility is spread over 400,000 square feet and has a capacity of manufacturing 1,740 million tablets, 216 million capsules and 150 million powder (sachets I assume) It will cater to US market. A new formulation plant is planned for FY18 for India and emerging market requirements.

 

Quantitative Analysis:

Now let us look at some numbers for Ajanta pharma.

Revenues:

The below table shows the consolidated revenue growth for Ajanta Pharma. Over the past five years the company has been able to maintain a revenue growth of at least 25%.

Year Revenue (in Crores) Revenue Growth (Y-o-Y)
2002-03 122
2003-04 145 19%
2004-05 199 37%
2005-06 230 16%
2006-07 260 13%
2007-08 309 19%
2008-09 349 13%
2009-10 405 16%
2010-11 505 25%
2011-12 665 32%
2012-13 920 38%
2013-14 1178 28%
2014-15 1453 23%

Profits:

Ajanta pharma has had a consistent record of showing improved profits year-after-year for more than 10 years. The profit growth in the initial years has been astounding, but then, one needs to keep in mind that the base was below. Over the past 5 years the company has had an amazing run as far as profit growth is concerned. Profit growth has a one-to-one relation with the profit margins. If the profit margins improve then it automatically results in profit growth (provided there is reasonable revenue growth as well). The below table shows the mapping between the rising profit margins and the profit growth. In all the years where the company was able to improve the profit margins there has been an excellent profit growth. In the year 2008-09 the margins remained constant resulting a much smaller profit growth of 14% (led by a revenue growth of 13%. So revenue increased by 13% and because there was a constant profit margin, the profit increased by 14%). The correlation is best seen in the year 2013-14 where the margins improved from 12.1% to 19% (in that year even though the revenue growth was 28% compared to previous year’s revenue growth of 38%) the company was able to show a profit growth of 108% !! But my gut feeling is that the company has kind of hit the wall as far as profit margins are concerned. My personal myopic view is that a generics manufacturer might not be able to substantially grow its margins beyond this point. Probably it might go up to 24-25%. Subsequently the company will have to depend on revenue growth to create profit growth. This is when the company will transform from a growing midcap to a stable midcap.

Year Profits (in Crores) Profit Growth (Y-o-Y) Profit margins (% of revenue)
2002-03 1 0.8%
2003-04 2 100% 1.3%
2004-05 10 400% 5%
2005-06 12 20% 5.21%
2006-07 15 25% 6.3%
2007-08 22 47% 7.1%
2008-09 25 14% 7.1%
2009-10 34 36% 8.3%
2010-11 51 50% 10%
2011-12 77 51% 11.5%
2012-13 112 45% 12.1%
2013-14 234 108% 19.8%
2014-15 310 32% 21.3%

The profit margins get impacted in a major way by the expenses that the company incurs. More the expenses, lesser would be the EBIDTA and hence the company might end up with lesser PAT. In case of Ajanta the two major recurring expenses are the “raw material costs” and “employee cost”. If these escalate in future it might pose a risk to the profit margins in future. We can look at the history to see how these have impacted the company. The below table was an AHA moment for me as far as Ajanta is concerned. The company seemed to be chugging along till 2008 with raw materials taking up a major share of the revenue and employee expenses were in single digits. In the year 2008-09 there is a sudden drop in raw material cost and an increase in employee cost. However there is no noticeable change in revenue growth rate. This was an interesting thing for me. My personal belief is that if a company’s raw material cost decreases and its employee cost increases then it means the company is moving from being a mass market player to a niche player. From 2008-09 year onwards the company has consistently had lower raw material costs (compared to the early days) and a marginally increased employee cost which, to me, clearly indicates that the company has moved to production of niche products (as the company claims it is in the development of drugs that cater to unmet needs).

Year Raw Material Cost (in Crores) Raw material Cost (% of revenue) Employee Cost (in Crores) Employee Cost (% of revenue)
2004-05 108.32 54.27% 15.94 8.01%
2005-06 122.33 53.04% 17.63 7.66%
2006-07 146.86 55.10% 21.95 7.88%
2007-08 154.18 49.89% 30.71 9.70%
2008-09 96.74 27.71% 42.67 12.2%
2009-10 119.63 29.53% 54.18 13.37%
2010-11 147.90 29.28% 63.74 12.62%
2011-12 232.51 34.96% 93.84 14.11%
2012-13 286.32 31.12% 123.18 13.38%
2013-14 299.03 25.38% 156.97 13.32%
2014-15 324.97 22.36% 200.58 13.8%

Note that Raw Material cost and employee cost are under control. The company also has substantial expenditure under “Other expenditure”. This is a sizeable amount (in fact it is more that raw material cost) and this needs further analysis.

EBIDTA:

The company has been able to grow its EBIDTA over the years from 28 crores to 505 crores. The EBIDTA growth rate has been equally impressive over the years. The important point to note about the EBIDTA margins is that Ajanta has shown EBIDTA margin growth from 14.5% to 34.7%. For a generics (specialized or otherwise) this is a remarkable feat. But then I personally feel the company might have hit a wall as far as EBIDTA margins are concerned. And I desperately want to be proven wrong! One advantage of looking at EBIDTA numbers is that it shows the efficiency of its sales (since EBIDTA does not capture things like Capitalization, Amortization/Depreciation, it clearly shows the value a company could extract out of its sales). It is also a helpful tool to compare two companies. However note that EBIDTA hides more than what it reveals!

Year EBIDTA (in Crores) EBIDTA Growth (Y-o-Y) EBIDTA margins (% of revenue)
2003-04 28 19.3%
2004-05 29 3.5% 14.5%
2005-06 35 20.6% 15.2%
2006-07 40 14.2% 16.8%
2007-08 53 32.5% 17.1%
2008-09 68 28.3% 19.4%
2009-10 80 17.6% 19.7%
2010-11 90 12.5% 17.8%
2011-12 124 37.7% 18.6%
2012-13 224 80% 24.3%
2013-14 369 64.7% 31.3%
2014-15 505 36.8% 34.7%

ROCE:

Unlike a software company (or even a pharma company engaged in contracts research), generics manufacturing is moderate to heavily capital intensive. You need to invest money to produce the medicines and generate the profits. Setting up new manufacturing facilities is expected from these companies when they have higher growth targets. The raw material costs, manufacturing costs also add up to a substantial number for manufacturing companies. Hence return on capital employed (ROCE) is a good measure to judge the efficiency of a company. The table below shows the ROCE for Ajanta over the years. Over the years the company has shown improving ROCE which means that the company has efficient manufacturing capabilities and is improving its manufacturing efficiency which is one more reason why it gets higher return on the invested capital. Also the higher ROCE numbers could be because the company has managed to reduce its long term debt over the years.

Year ROCE(%)
2003-04 7%
2004-05 8%
2005-06 13%
2006-07 14%
2007-08 17%
2008-09 15%
2009-10 14%
2010-11 18%
2011-12 22%
2012-13 37%
2013-14 47%
2014-15 52%

Promoter shareholding pattern:

Promoter shareholding shows the confidence the promoters have in the company. Below table shows the promoter shareholding as a percent of total shares over the years. Over the years promoters have constantly increased their stake in the company. When a promoter sells his shares there could be various reasons for selling. However when a promoter buys shares out of his/her own company it shows the confidence the promoters have on the company. I do not have information on whether the rise in stake is due to promoter buying or it is due to ESOP/allotment by company. In any case maintaining and improving the promoter’s holding is a good sign.

Year Promoter shareholding (as a percent of total shares)
2010-11 66.82
2011-12 70.13
2012-13 73.00
2013-14 73.60
2014-15 73.83
2015-16 73.78 (as on Q2 FY16)

Reserves and Surplus:

When a company reports its results there is an emphasis on the revenues, EBIDTA, PAT and EPS. We generally end our analysis at this point. However we still have some more steps to cover and we need to track it till the end. Reserves and surplus numbers reflect the current status of what happened to all the profits generated over the years. It helps in judging the net worth of the company. Let us look at these numbers for Ajanta. From the below numbers it is clear that Ajanta has been increasing its reserves and surplus over the years which is a good sign. The net worth of the company has been growing consistently.

Year General Reserves (Crores) Total Reserves and Surplus (Crores)
2010-11 111 217.03
2011-12 185.59 286.23
2012-13 279.42 381.63
2013-14 468.60 575.64
2014-15 650.73 823.41

Dividends:

Ajanta has been a constant dividend payer. The table below lists the dividend payment by the company to its shareholders over the years. Note that every year, over the past 5 years, the company has paid higher dividends.

Year Dividends (per share) Cumulative Dividend Amount (Crores)
2010-11 5.85
2011-12 Rs 7.5 per share on face value of Rs 10 8.78
2012-13 Rs 6.25 per share on face value of Rs 5 14.65
2013-14 Rs 10 per share on face value of Rs 5 35.18
2014-15 Rs. 6 per share on face value of Rs 2 52.82

Loans (long term):

The table below shows the Long term borrowings of the company. The loans for a company should be tracked diligently. Of all the companies that have gone bankrupt, most of the companies have had their debt that spiraled out of control. Hence, lesser the long term loans the better for a company. Moreover, if the loans are less, the interest outgo would be less and hence the net profit would be higher. The table below does not capture the short term borrowings. We need to note that Ajanta has always had higher short term borrowings as its working capital needs are higher. It is a tad uncomforting issue for me.

Year Long Term Borrowings (in crores)
2010-11 59.55
2011-12 76.09
2012-13 73.33
2013-14 52.30
2014-15 33.25

Receivable Days:

Receivable days indicates the number of days Ajanta has to wait before it can receive money for the items it has sold. Over the years the receivable days has gradually decreased which is a good thing.

Year Receivable Days
2010-11 76
2011-12 77
2012-13 60
2013-14 63
2014-15 65

Payable Days:

Payable days indicates the number of days Ajanta can wait before it makes payment to its vendors. More the days, more the control Ajanta has over its vendors. From the table it is clear that the payable days have come down. But the good thing is that it is still more than receivable days. If it was the other way round, Ajanta would have had serious issues running the company.

Year Payable Days
2010-11 145
2011-12 131
2012-13 134
2013-14 99
2014-15 85

Inventory Days:

Inventory days indicates the number of days the product is lying in the company’s warehouse before it is shipped to the customer. If the Inventory days are more then it impacts the revenue generation capability of a company. From the table below it is clear that Inventory days for the company has come down over the years which is a good sign.

Year Inventory Days
2010-11 83
2011-12 92
2012-13 59
2013-14 48
2014-15 40

Future of Ajanta Pharma:

All the numbers we looked at are a thing of the past. They merely act as a guiding factor for an investor. When one wishes to invest, one cannot merely look at the past, one needs to make a careful judgment about the future. We do not have a crystal ball to gaze at, however there are some pointers which may help us to make a guesstimate of the future.

  • Product Registrations: The first pointer is the number of products the company has launched. Till Q4 of FY16 the company has 344 product registrations in Asia and 1,137 in Africa. Ajanta is waiting for approval for 536 more product registrations in Asia and 1351 more registrations in Africa. Hence, as far as Asia and African markets are concerned, the company has a potential to grow higher from where it stands today.
  • USFDA ANDAs pending: Over the past couple of years the company has started registering its products with USFDA. Right products in right therapeutic areas will propel the company in forward direction.

Summary:

  • A company is valued by the amount of profits it makes and the profit margins that the company generates. Ajanta has consistently shown over more than 10 years that it can generate higher profits year on year. Moreover it has shown that even though it is a generics company the profit margin can improve every year. In my opinion this is a great achievement for a generics company. Ajanta has been able to do this because it is not a “Generic” generics but one that caters to specialized unmet needs of patients.
  • The company has recently ventured into US market. The company plans to introduce specialized products like slow release and late release to capture market share. The company also plans to have its own front end marketing team so that it can generate higher sales. The pace of ANDA approval are increasing. The company plans to apply for about 6-8 ANDAs per year (This number keeps varying. In some places the company says it wishes to file 10-12 ANDAs). Once launched, these should add to the revenues of the company. This is an area than needs to be carefully monitored and it may act as the future revenue multiplier for the company.
  • My only worry is that profit margins may not improve beyond this point, so to maintain a higher net profit growth, of say 25% and beyond, it will have to sell more of the same stuff in Africa and Asia, launch more of new products in Africa and Asia and get its sales and product strategy right in US market. This point is making me a tad uneasy. I keep my fingers crossed.

Other Relevant Articles:

References:

[1] Annual Report for Ajanta Pharma for FY 13

[2] Annual Report for Ajanta Pharma for FY14

[3] Annual Report for Ajanta Pharma for FY15

Disclaimer:

I am not a SEBI registered research analyst. The information provided above is my subjective view based on what I have read on different websites, annual reports, and quarterly reports of various companies which I assume to be accurate. The above information should not be treated as an offer/advise to purchase a specific stock/investment instrument. Since these are my subjective opinions, I could be wrong in my understanding or presentation of information. I do not claim that the above information is complete or can be relied upon as such. I cannot be held responsible for any loss or damage caused due to any inadvertent error in the above information. I will not liable for investment decisions made by readers of this article based on the above information. I am not an investment advisor. I may or may not have position in the above company. Please consult your investment advisor for all your investment needs.

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