Shares of Ajanta Pharma gained 3% on May 21 as Motilal Oswal has retained its bullish view on the stock after strong earnings by the company in Q4 FY20.

 The stock closed at Rs 1490.80, up Rs 48.60, or 3.37% amid high volumes on the BSE.

 Ajanta Pharma ended FY20 on a healthy note with 15% earning growth(against 12 % compounded earnings decline over FY17-19, led by sales revival in Asia, Africa, and new introductions in the US market. Revenue during the year grew by 26% and operating profit 22% over the previous year.

 Motilal Oswal remained positive on Ajanta Pharma due to a strong ANDA pipeline for the US market, new launches in the branded generics segment of Asia/Africa/India, and better operating leverages.

 The brokerage expects 17% earnings CAGR over FY20-22.

 The COVID led disruption could be a dampener for earnings growth in FY21, and accordingly, we have cut our EPS estimate for FY21 by 6%; our EPS estimate for FY22E remains unchanged. Rolling our price target to 22x 12M forward earnings, we arrive at a price target of Rs 1700 (from Rs1635 earlier), said Motilal Oswal while reiterating buy on the stock.

 Ajanta Pharma has reported a 45% year on year growth in March quarter profit at Rs 129.2 crore on revenue of Rs 682 crore that increased sharply by 32.4 % YoY driven by exports. During the quarter, Ajanta Pharma had a forex gain of Rs 40 crore in other income. 

 Within exports, US generics sales were up 88% and emerging markets sales grew 38% YoY. Domestic formulation sales increased by 11%.

 Ajanta Pharma incurred CAPEX of Rs 250 crore for FY20 and has guided for CAPEX of Rs 200 crore for FY21.

 The company's major CAPEX program would conclude in FY21 and only maintenance CAPEX would be required FY22 onwards, indicating better free cash flow situation for Ajanta Pharma, said Motilal Oswal.