Analysis of Ajanta Pharma Share Price – Must Watch

Ajanta Pharma share price is currently trading at range close to its intrinsic value. Hence it looks exciting.

But before looking at its financials in more detail, lets know more about this company.

Introduction: Ajanta Pharma got itself listed in BSE and NSE in year 2000.

As its name suggests, it is a Pharmaceutical company. They are in the business of development, manufacturing and sale of “Branded Generic” and “Generic” Pharma products.

Their branded generic products are sold in India and outside India. Outside India, they have presence in Africa (Nigeria), Middle East, and South East Asia (Philippines).


The outside India market of Ajanta Pharma is the major contributor to its sales revenue.

Outside India, they do business in “Anti-Biotic, Anti-Malarial, Anti-Diabetic, Cardiology, Gynecology, Orthopedics, Pediatric, Respiratory & General Health products”.

Ajanta Pharma is also venturing into US market with their Generic Drugs. It began sales in US market only in 2013. In coming years, they expect US market to be their key “growth driver”.

Ajanta Pharma Share Price_Outside India Sale

The company has its R&D Facility in Mumbai having 800+ scientists.

The company has Seven (7) manufacturing facility. Four (4) are in Aurangabad (Maharashtra), other three (3) in Dahej- Gujarat, Guwahati-Assam, and Mauritius.

Their Guwahati manufacturing facility was inaugurated in 2017.  In terms of Area, this is their biggest facility having 51,000+ sqm built-up area.

The company also does major business with Indian Government. It supplies to Armed Forces, Government Canteens, hospitals and stores managed by the Government.

Currently, Ajanta Pharma is led by Yogesh Agarwal (MD) and Rajesh Agarwal  (Jt. MD).  Yogesh Agarwal is a MBA from Johnson & Whales University, USA. Rajesh Agarwal is also a MBA from Bentley College, USA.

Ajanta Pharma was founded in 1973 by Mannalal Agarwal, Puroshottam Agarwal and Madhusudan Agarwal. Yogesh and Rajesh are son’s of Mannalal Agarwal.

Ajanta Pharma is a company in which its promoters has about 73% holding. This is a very good sign.

Companies in which the promoters has large share, are generally better managed.

Ajanta Pharma Share Price_Share Holding

Ajanta Pharma Share Price

Ajanta Pharma is not a very big player in the Indian Pharma Industry. But still it attracts attention.

In year 2004, it reported-annual-income was Rs.116.98 Crore.

In Mar’2017 (after 14 years), its reported annual income is Rs.1,889.66 Crore. This means a CAGR of 18% per annum.

In a sector which is so competitive and regulated, surviving and churning a 18% CAGR growth is worth noting.

Lets see how its stock price has behaved in last 5 years:

Ajanta Pharma Share Price_Chart

In Oct’2013, stock price of Ajanta Pharma was was at Rs.350 levels.

By the Sep’16, stock price of Ajanta Pharma jumped to Rs.1,960 levels (CAGR : 41.1%, in 14 years).

Today in Oct’2017, the stock price of Ajanta Pharma is trading at Rs.1,225 levels.

In a span of just 13 months (Sep’16 to Oct’17) there is a large price dip  (-34.1%).

Such big fall in last 1 year prompted me to check the business fundamentals of Ajanta Pharma.

The result of my analysis is presented here for my readers knowledge…

Ajanta Pharma stock price vs business fundamentals (5Y Data)

Till Sep’16, the price of Ajanta Pharma was only bullish. It was consistently moving upwards.

The downward trend started from Sep’16. Since then the Ajata Pharma share price has dipped by almost 34%.

But the point worth noting here is the relationship between EPS and market price of Ajanta Pharma.

Between Mar’14 & Mar’15

Share in Issue: Between Mar’14 and Mar’15, “number of shares outstanding in market” rose from 351.51 lakhs to 879.43 lakhs.

Here, possibly the company issued fresh shares for the purpose of fund generation (remember, Ajanta Pharma’s Gujarat and Guwahati manufacturing facility was capitalised around this time).

As a result, the EPS of Ajanta Pharma dipped from Rs.62.83 to Rs.34.84 during this period.

But even in this time, the share price of Ajanta Pharma was moving up (Rs.757 to Rs.1,547).

Between Mar’16 & Mar’17

Between Mar’16 and Mar’17, number of shares outstanding remained constant.

EPS between Mar’16 and Mar’17 rose from Rs.47.1 to Rs.56.8.

But still its market price fell from Rs.2,000 levels. The downward fall is still continuing; today in Oct’17, it price level is at Rs.1,250 levels.

The overall business of Ajanta Pharma in last 5 years is not bad at all.

See this comparison between Ajanta Pharma share price and its business fundamentals:

Ajanta Pharma Share Price_Fundamentals Vs Price

Share Price: falling post Sep’16.

Reserves & Surplus: Continuously increasing since past 5 years (Mar’13). Growth rate has been very good at 33.96% per annum.

Income (Turnover):  Continuously increasing since past 5 years (Mar’13). Growth rate has been good at 17.42% per annum.

Net Profit (PAT): Continuously increasing since past 5 years (Mar’13). Growth rate has been excellent at 37.66% per annum.

Equity Dividend payout: Continuously increasing since past 5 years (Mar’13). Growth rate has been a whopping at 52.36% per annum.

EPS: Due to shares liquidation in FY14-15, EPS nearly halved in FY14-15. But since then, the EPS also has shown an upward trend. Even after encountering the major fall in FY14-15, EPS of Ajanta Pharma has shown a growth (CAGR) of 5.64% in last 5 years.

Looking at this chart, it looks almost surprising that why Ajanta Pharma price suddenly started falling since Sep’16. Even though the reported number for next financial years has been encouraging.

To further drill deeper into the facts of Ajanta Pharma, lets evaluate its last 5 quarterly results.

Ajanta Pharma Share price vs business fundamentals (after Mar’17)

The results of Ajanta Pharma for the first quarter (June’17) is available in bseindia.com website.

If we will see Ajanta Pharma’s quarterly results for the last 5 quarters, the recent fall in price looks justified.

In last 5 quarters, Sensex jumped from 27,000 levels to 33,000 levels (CAGR: 22.2%). So it means that the mood of the market was buoyant.

But Ajanta Pharma has faired bad. Why?

The answer lies in the quarterly numbers and in the performance of Pharma sector as a whole.

Ajanta Pharma Share Price_Quarterly Fundamentals Vs Price

Income (Turnover): Decreasing since past 5 quarters (June’16). Growth rate has been negative at -0.74% per annum.

Net Profit (PAT): Decreasing since past 5 quarters (June’16). Growth rate has been negative at -5.14% per annum.

EPS: Decreasing since past 5 quarters (June’16). Growth rate has been negative at -5.14% per annum.

Stock Analysis of Ajanta Pharma

My readers are aware that on getmoneyrich, a stock analysis worksheet is also offered for the readers helping them to learn the process of fundamental analysis of Indian stocks.

I have used this worksheet to do some number crunching for Ajanta Pharma.

I will share some of my observations about Ajanta Pharma.

#1. Price Earning (P/E) & Price Book value (P/B) Ratio:

P/E & P/B ratio is one excellent stock metric which gives us a quick idea of stocks current price valuation.

As a thumb rule, a stock whose P/E ratio is above 15 is considered expensive. A stock whose P/B is above 1.5 is also considered expensive.

But this thumb rule has now become obsolete.

Hence it is essential to use other, more relevant, comparator.

The stock analysis worksheet compared Ajanta Pharma’s P/E with its industries (Pharma) P/E ratio to get an idea about its price valuation.

The stock analysis worksheet also compared Ajanta Pharma’s P/E and P/B with its Sensex’s overall P/E & P/B ratio to get an idea about its price valuation.

The result was like this:

Ajanta Pharma Share Price_PE PB

Compared to Industry and Sensex P/E ratio, Ajanta Pharma looks better priced.

Compared to Sensex P/B ratio, Ajanta Pharma is expensive.

#2. Simple Moving Average (SMA):

When we look at SMA (200, 150, 50 & 30 day) and compare it with current price, the trend is very clear. The price has been gradually falling.

But since last 30-50 days, the trend is beginning to reverse. It is still very early days.

Ajanta Pharma Share Price_SMA

In last 200 days, price of a quality stock like Ajanta Pharma has only been falling.

Such consistent price falls may make stock price fall below its intrinsic value.

#3. Intrinsic Value:

This is the heart of my stock analysis worksheet.

Though I am no expert of estimating intrinsic value of companies, but still this worksheet works for me.

It gives me a rough idea of what should be the possible intrinsic value of a particular stock.

If I feel that the calculated intrinsic value of stock is not good, still this worksheet gives me enough feedback about the stock.

Using this worksheet, I could understand that the current Ajanta Pharma share price is not undervalued.

The intrinsic value verses current share price looks like this:

Ajanta Pharma Share Price_IV

Current market price is Rs.1,250.

Calculated intrinsic value by this worksheet is Rs.1,415. But as per value investing rules, the calculated intrinsic value must be applied with “margin of safety“.

Generally, the agreed price after application of margin of safety is two-third (2/3rd) of the estimated intrinsic value.

Hence: 2/3 x 1,415 = Rs.943.00

After application of Margin of Safety, Ajanta Pharma looks expensive.

But we cannot ignore this fact that in last 52weeks, this stock price has already fallen by more than 34%.

Considering that the price trend is falling, it business fundamentals are also intact, even current price of Rs.1,250 looks reasonable.

In ideal case, people must wait for further price dips (till 940 levels) then take the next step.

#4. Overall Rating of Ajanta Pharma:

This is the best part of my stock analysis worksheet. It consolidates the results and gives a one line, clear answer.

The worksheet has analyzed Ajanta Pharma based on the following parameters.

* Price Valuation
* Business Fundamentals
* Profitability &
* Price history

Though this worksheet gives more weightage on Price valuation and Business fundamentals, but it also considers companies profitability and price history.

For Ajanta Pharma, the overall grading falls just short of good. The main reason being, its current market price is above its intrinsic value.

Only those stocks which is both fundamentally strong, and also displays undervalued market price, this worksheet will give it high grades.

The overall results looks like this:

Ajanta Pharma Share Price_Overall Grade

According to the rule of my stock analysis worksheet, any stock which obtains an overall grades of 85% or more, is a good stock.

But here, Ajanta Pharma has scored 82.2%.

Considering the overall numbers of Ajanta Pharma, I still consider this stock as reasonably valued.

Conclusion

In last 1 year, CNX NIFTY PHARMA INDEX in India has seen a dip of 17.1%.

Needless to say that this sector have been facing few major problems since 2016.

The major concerns are originating from US FDA’s.

But at the moment, Ajanta Pharma is not as exposed to US market as its competitors. Though it has presence in US, but it is still safe for the moment.

The recent Ajanta Pharma share price fall can be attributable to the problems related to the pharma sector as a whole.

I personally feel that Ajanta Pharma is not to be directly blamed for this downward trend.

In times to come (2-3 years), Ajanta Pharma may show more than reasonable performance.





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About the Author

Mani

I am a Blogger with a passion for Investment Education. I started blogging in 2007-08. Those where the early years when I went on the family way.

Blogging didn’t happened to me as a coincidence. It was a very conscious decision. I started blogging as a process to build a new hobby and also learn a new skill of personal finance management.

Eventually this hobby transformed into a passion. I love blogging on the topic of money management…know more…

1 Comment on "Analysis of Ajanta Pharma Share Price – Must Watch"

  1. Great Work!

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