This stock is on Anand Rathi’s buy list. The firm remains bullish on the stock after its quarterly numbers. The company’s gross margin fell 531 bps to 72.5% y/y due to higher commodity prices and a one-time impact (1.5% of sales due to canceled flu-related products and 1.5% more due to price erosion in the US).
The company also saw healthy sales growth in India of 12% which is mainly attributed to better traction in its chronic and sub-chronic therapies. Launches were 16 in FY22 (including four FtFs). Anand Rathi believes that the April 22 releases, efficient MR productivity and price increases would generate a 15% CAGR of revenue in its India business during FY22-24.
However, the firm acknowledges that the American business remained silent. Due to further price erosion (18%) and fewer launches than expected (due to lower filings), its US sales decreased by 3% to Rs 1.7bn. Plan to introduce 10-12 products in FY23. We anticipate a 14% CAGR in FY22-24 on the back of launches.
Ajanta Pharma: Buy the shares with a target price of Rs 2,378
Anand Rathi has set a price target of Rs 2,378 on Ajanta Pharma shares, which were last traded at Rs 1,650 on the NSE.
According to the firm, with further price erosion in the US, higher commodity prices and other expenses normalizing to pre-Covid levels, FY22 EBITDA margin decreased 674 bps to 27.8%. . FY23 margins are expected to remain at 28% and expand gradually with the improvement of the branded generics business.
Anand Rathi believes that at the current market price of Rs 1,688, the shares are trading at 20x/16x FY23e/FY24e EPS. The company maintains a buy with a lower target of Rs 2,378 (previously Rs 2,730).
Suven Pharmaceutical CDMO Sales
Another pharmaceutical stock that Anand Rathi is bullish on is the Suven Pharma stock. According to the
Strong traction continues at CDMO. The fourth quarter order for covid-19 drugs was not as good as expected. For pharma CDMO, the company has five projects in phase 3 and five commercialized molecules. Management expects a product to be commercialized by the end of FY23. Until then, core molecules are expected to grow 10-15%. In CDMO’s specialty chemicals, good traction has been seen since a molecule was added (in Q4 FY21). On the high base, growth would be flat until a molecule is in the development stage and likely to be clinical by FY24.
Suven has launched eight products so far in the US and has eight pending approvals. Plans to submit 7-8 ANDAs in FY23 from the formulations plant. The capabilities required to support this business will be assisted by Casper Pharma’s recently acquired SEZ unit (two on file). Management will submit 15 ANDAs in FY23 from the Casper site on approvals subject to expected US FDA inspection. With the expansion of the formulations business, management expects EBITDA margins of ~40% ahead.
According to Anand Rathi, the long-term guidance of 10-15% revenue growth, 40% EBITDA margins and a 25% tax rate was maintained. The company believes that at the current market price of Rs 534, the shares are trading at 29x/25x FY23e/FY24e EPS of Rs18/Rs21. “We maintain our Buy rating with a revised price target of Rs 627,” the brokerage said. According to the firm, the main risks would continue to be currency fluctuations and delayed orders.
Mahanagar Gas: Economic Valuations Buy Shares For Rs 930 Target
The stock has fallen sharply in recent months on concerns about rising gasoline prices. The stock is now in Sharekhan’s buy recommendations.
According to Sharekhan, for the fourth quarter of fiscal year 2022, Mahanagar Gas reported operating net profit of Rs. 215 crores/Rs. 132 crore, up 109%/132% QoQ, which was 42%/44% higher than our estimate of Rs. 151 crores/Rs. 91 crore, mainly led by a strong increase in EBITDA margin at Rs. 7.6/scm (an increase of 122.6% quarter-on-quarter), compensating for the lack of volume of 3.2 mmscmd (a decrease of 4% quarter-on-quarter). The heavy hit to EBITDA margin was due to the strong recovery in gross margin by 53.9% qoq to Rs. 13.3/scm (30% above our estimate), led by a sharp increase in the price of CNG/D-PNG, better forward LNG supply for I&C and a slight premium to alternative fuels for the price of I&C in Rs. 47/Rs. 56 per m2. Volumes disappointed with a 4.8%/4.6% quarter-on-quarter decline in industrial-commercial CNG/PNG volume to 2.3 MMscmd/0.4 MMscmd due to the impact of rising COVID-19 cases among January and February 2022, while the D-PNG volume remained stable quarter-on-quarter at 0.5 mmscmd.
The company maintains its buy rating on Mahanagar Gas with a revised price target of Rs. 930, highlighting its economic valuation of 9.8x its FY2024E EPS (at a 34% discount to the three-year average PE of 15x), given the sharp correction in stock prices from the 52-week high.