Ajanta Pharma shares jump 12% to hit one-year high; Nuvama sees more upside

Shares of Ajanta Pharma Ltd rose sharply in Friday's trade after the company reported a strong set of June quarter numbers. The stock today jumped 12.22 per cent to hit a 52-week high of Rs 1,735.10 against a previous close of Rs 1,546.20. It was last seen trading 8.38 per cent higher at Rs 1,675.75.

The pharma company reported an 18.85 per cent jump in its first-quarter (Q1 FY24), at Rs 208 crore, compared to Rs 175 crore in the year-ago period. Revenue from operations came at Rs 1,021 crore in Q1 FY24 over Rs 951 crore in the corresponding period last year. Ajanta Pharma has also announced an interim dividend of Rs 25 per share. Record date for the same has been fixed on August 4, 2023.

Domestic brokerage Nuvama Institutional Equities said, Ajanta Pharma's Q1 FY24 revenue/EBITDA/PAT was 1 per cent/18 per cent/22 per cent ahead of Street. India strong (+14 per cent) and US (+19 per cent) drove growth while lower input costs and sharp fall in freight drove EBITDA margin to 27 per cent. The company's top line is likely to grow at 12 per cent CAGR given top-tier domestic branded growth (all therapies outperforming market), salesforce expansion-led EM franchise and easing US pressure. Further upside likely in case of early gChantix launch."

The brokerage has maintained its 'Buy' call on the counter with a target price of Rs 1,850. "Backed by a mix of softening input prices and freight cost, we believe 24.3 per cent EBITDA margin for FY24 could grow to 26.4 per cent by FY26. We keep FY24E/25E largely unchanged, but increase the multiple to 25x (from 20x) due to margin expansion visibility. Maintain 'Buy' with a TP of Rs 1,850, based on Q1 FY26E," it stated.

"A combination of volume-led growth, niche launches (~50% of India portfolio is first-to-market) and 50 per cent field force expansion should ensure that revenues continue to grow at the same pace. Softening input prices, US price stability and lower freight cost (at pre-Covid levels thus ensuring ~250 bps savings) should ensure that management can deliver on its promised 25 per cent margin guidance in FY24. We model 24.3 per cent margin in FY24 and see potential for further expansion to 26.4 per cent by FY26," Nuvama further stated.

Choice Broking has recommended an 'Add' rating to the stock for a target price of Rs 1,730. "The company's recovery story is based on the factors including the improvement in the margin profile (75 per cent gross margin and 25 per cent EBITDA margin), improvement in the ROE due to completion of capex cycle and margin improvement, double-digit growth in the branded generic segment, and normalisation of price erosion," it said.

On technical setup, the stock was last seen trading higher than the 5-day, 20-, 50-, 100- and 200-day moving averages. The counter's 14-day relative strength index (RSI) came at 79.16. A level below 30 is defined as oversold while a value above 70 is considered overbought. The company's stock has a price-to-earnings (P/E) ratio of 31.38 against a price-to-book (P/B) value of 6.

The scrip has an average target price of Rs 1,510, Trendlyne data showed, suggesting a potential downside of 9.22 per cent. It has a one-year beta of 0.07, indicating low volatility on the counter.

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