Ajanta Pharma hits all-time high on strong Q1; surges 55% in 9 months

Shares of Ajanta Pharma rallied over 12% to hit a fresh all-time high of ₹1,735.10 on Friday after the pharma company reported robust earnings in the April-June quarter of the current financial year. The midcap stock breached its previous record high of ₹1,538 touched on January 14, 2022. The counter has risen 55% from its 52-week low of ₹1,115.15 hit on October 28, 2022.

Extending gains for the second straight session, Ajanta Pharma shares opened 5% higher at ₹1,625.10 against the previous closing price of ₹1,546.20 on the BSE. During the session so far, the share price of the pharma major jumped 12.2% to touch a new record high, while the market capitalisation rose to ₹21,094 crore. On the volume front, 51,000 shares transferred hands compared to a two-week average of 7,106 stocks.

In the last one year, Ajanta Pharma shares have risen 32% in the last one year and 39% each in the six month period as well as year-to-date (YTD) basis. In the past one month, the pharma stock gained 13.5%, while it added 23% this week.

Ajanta Pharma, in its earnings report released on July 27, posted a 19.2% growth in net profit at ₹208.1 crore in the first quarter of FY24 as compared to ₹174.6 crore in the same quarter last fiscal.

The revenue rose by 7.4% to ₹1,021 crore as against ₹950.9 crore reported in the corresponding period last year. Region-wise, India's business generated 14% YoY growth in sales to ₹319 crore, followed by US generics segments, which rose 19% YoY to ₹213 crore. The sales from the Asian market were up 6% at ₹254 crore, while Africa business de-grew by 5% to ₹159 crore.

On the operational front, Earnings before Interest, Taxes, Depreciation, and Amortisation (EBITDA) climbed 22% YoY to ₹271 crore in Q1 FY24, while margin improved by 321 basis points to 26%.

The board of directors of the company also approved the first interim dividend of ₹315 crore for the year FY24, which translates into ₹25 per share, or 1,250%, for each ₹2 face value share. This total dividend of ₹25 per share includes a regular dividend of ₹10 per share, and an additional ₹15 per share, distributed as a special dividend on the commemoration of 50 years of the company.

Should you buy, sell, or hold Ajanta Pharma shares post Q1?

After a muted growth in FY23, Ajanta Pharma has started FY24 on strong footing, with a better-than-expected operational performance in the first quarter of the current fiscal.

Analyst at ICICI Direct has recommended ‘Buy’ on the stock with a price target of ₹1,950. “Margins are likely to improve amid operational leverage, expected softening of raw material cost and incremental focus on branded business. Calculated focus, healthy margins, return profile and lighter balance sheet are some key differentiators for Ajanta. Return ratios are expected to reach 25% levels (ROIC even higher). We value Ajanta Pharma at Rs 1950 based on 27x FY25E P/E multiple,” it says in a report.

Nirmal Bang Securities has maintained ‘Buy’ on Ajanta Pharma with a revised target price of ₹1,800. "We remain positive on Ajanta Pharma given its branded play and a strong focus on the domestic market. We maintain BUY on Ajanta Pharma with a revised target price (TP) of Rs 1,800, valuing it at 24x on June 25E earnings," the brokerage says in a report.

Another brokerage Motilal Oswal Financial Services has also maintained a 'Buy' call on the stock with a target price of ₹1,800 and raised the earnings estimates for FY24/FY25 by 7.5% each. “We expect 23% earnings CAGR over FY23-25, led by 15% sales CAGR in Domestic Formulation (DF)/Asia and 13% sales CAGR in the US segment, supported by 370bp margin expansion. Considering the earnings outlook and attractive valuation,” MOFSL says in a note.

Nuvama has also reaffirmed ‘Buy’ with a target price of ₹1,850 based on Q1FY26E. “We believe a 24.3% EBITDA margin for FY24 could grow to 26.4% by FY26. We keep FY24E/25E largely unchanged but increase the multiple to 25x (from 20x) due to margin expansion visibility,” it says.

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