Friday, September 18, 2015

Ajanta Pharma - A story of the missed bus..

It was I think year 2011 and I was looking at some potential stocks to buy. Two stocks popped up on horizon in pharma - Piramal and Ajanta Pharma.

After reading the wonderful post from Prof Bakshi (here) - I had no further analysis to do except verify the facts and I decided what a wonderful side-car investment it would be!

Piramal indeed turned out to be a good investment. From sub Rs 500 it has gone up to Rs 837 and I am sure its a money multiplier in the long term at 18 - 20%; a wonderful appetite to invest and the good sense to not dilute equity will keep Mr. Ajay Piramal a man to watch in years to come.

Now - coming back to the lesser known name - Ajanta Pharma. I had about brushed this company aside thinking that the growth was unsustainable and the motives of promoters were unknown or suspect at best (having taken over the business in early 2000's as second generation owners - I suspected Yogesh and Rajesh Agarwal were not known entities).














The difference and thumb sucking left lots of money on table. Here's how the financials for Ajanta looks currently -


Mkt Cap has grown by an astonishing 25,518 Cr in 10 years and Retained Earnings in the same period has been 707 Cr. Every 1 Rs retained has created a value of 36 Rs in 10 years! What a wonderful business.

As it looks one of the dangers for Pharma companies is not entering big markets like US or Europe and be localized generics players in India. A branded-generics player needs to have three things going in the right direction - right product strategy (areas to play which on hindsight has been successful - I will not delve on this point here though you can read more in the annual reports), right regional strategy (where to play) and the right people with vision handling the company.

With Ajanta - all three seem to be coming right. The key point going forward seems to be the second strategy which I thought was doomed for failure (restricting to India and developing world). This has been a blessing in disguise helping Ajanta pile loads of cash and grow at a tremendous pace - 23% sales growth and 45% profit growth in past 10 yrs... what a wonderful business this must be - establishing presence in developing markets before actually venturing into developed markets!

With US and maybe Europe later beckoning - is this a missed bus or still something that can be caught?

Is it overpaying for growth? Is the growth sustainable?

For an instance - considering that FCF keeps growing at rate of 35% (which is what it has grown in the past and considering that they are also gaining market share in their current markets - this may not be far fetched) over next 10 years and terminal growth 5% with discount rate of 12% - I still arrive at a value of Rs 1591.

Potential Growth –

Emerging countries hold unique potential in years to come as population growth and movement of people from rural to urban areas give unique possibilities to create long lasting businesses.
Here’s a very interesting perspective of world population growth and economic growth possibilities in Asia and Africa (the two most populous continents growing rapidly for the next 3 decades) – 


“Can you see, as the years pass by, child survival is increasing? They get soap, medicine, hygiene, education, vaccination, penicillin and then family planning” – Hans Rosling.

Ajanta Pharma holds the unique position of playing in the right markets and the right segments.

Not one to over-pay I am still thinking..... 

Ciao till next time...Harsha