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Ajanta Pharma Ltd>
  • CMP : 2,378.6 Chg : -41.75 (-1.72%)
  • Target : 1,520.0 (17.83%)
  • Target Period : 12-18 Month

06 May 2023

Muted numbers due to transitory issues, branded generics outlook upbeat..

About The Stock

Ajanta Pharma is a focused player in branded generics, which constitutes ~72% of overall sales, spread across geographies including India.
• As of Q4FY23, overall exports: domestic formulations ratio was at 67:33
• Among exports, Asia accounts for ~41% of export formulations, Africa 26% and the US ~34%. The company also participates in anti-malarial tenders in
Africa (included in Africa)


Muted Numbers on Revenue & Margins front
• Revenues grew 1.3% YoY to ~₹ 882 crore mainly driven by Domestic business as well as US generics both of which grew ~17% YoY
• EBITDA came in at ~ ₹ 150 crore, down ~28% YoY with margins at ~17%. Adjusted for forex loss margins were at ~20%
• Adjusted PAT was at ~₹ 122 crore

What should Investors do?

Ajanta’s share price has grown at 10.3% CAGR in the past three years.
• We maintain BUY as it remains a compelling play on branded generics (~72% exposure) with strong execution track record and financials

Target Price and Valuation

Valued at ₹ 1520 i.e. 22x P/E on FY25E EPS of ₹ 69.2

Key Triggers for future price performance

• Focus on maximum number of first time launches with focus on new drug delivery system (NDDS) in the domestic branded formulations space
• In emerging markets, front-end marketing for direct interaction with doctors

• Calculated focus, healthy margins, return profile and judicious capital allocation

• Margins are likely to improve amid operational leverage, expected softening of raw material cost and incremental focus on branded business

Alternate Stock Idea

Apart from Ajanta, we like Indoco Remedies.
• Indoco manufactures and markets branded formulations and APIs for the domestic and export markets
• BUY with a target price of ₹ 440

Key Financial Summary

Particulars FY20 FY21 FY22 5 year CAGR_(FY17-22) FY23 FY24E FY25E 2 year CAGR_(FY23-25E)
Revenues 2,587.9 2,889.7 3,341.0 10.8 3,742.6 4,146.3 4,597.3 10.8
EBITDA 683.3 998.6 929.3 6.2 783.3 1,000.2 1,149.3 21.1
EBITDA margins (%) 26.4 34.6 27.8 - 20.9 24.1 25.0 -
Net Profit 467.7 653.9 712.7 7.1 588.0 756.9 874.5 22.0
EPS (|) 36.8 51.1 55.7 - 46.5 59.9 69.2 -
PE (x) 35.3 25.3 23.2 - 27.7 21.5 18.6 -
EV to EBITDA (x) 23.8 16.2 17.4 - 20.0 15.4 12.9 -
RoCE (%) 24.7 29.0 27.0 - 21.3 23.5 23.3 -
Source: Company, ICICI Direct Research

Key takeaways of recent quarter & conference call highlights

Q4FY23 Results: Muted Numbers on Revenue & Margins front
• Ajanta Pharma’s Q4FY23 revenues grew 1.3% YoY to ~| 882 crore. The growth was supported by the domestic business as well as US generics.
The domestic business was up ~17% YoY at | 287 crore due to sharp improvement from its therapies namely dermatology, pain management,
ophthalmology and cardiac. US generics was up ~17% YoY, which came in at | 197 crore, due to new launches and stabilising of price erosion. On the
operational front, EBITDA came in at ~ | 150 crore, down ~28% YoY with margins at ~17%. This was mainly on account of adjusting forex derivative
loss, which was included in other expenses. Adjusted PAT during the quarter was at ~| 122 crore.
• Sales miss was on account of lower Africa branded sales while margins were on account of forex losses and higher than expected employee costs.
New product launches, market share gain as well as price hikes supported the performance in India. Africa branded business remained subdued, down
26% YoY at ~| 100 crore. Going ahead, focus on penetration in newer markets of Uganda and Kenya as well as expansion of field force in
international regions, should aid growth 

Q4FY23 Earnings Conference Call highlights:


India business:
▪ It contributed 32% to overall revenue contribution. It includes business from
trade generics of ₹ 42 crore
▪ New product launches, market share gain and price hikes led to the strong
performance during Q4FY23
▪ Launched 23 new products in the region with six first to launch products
▪ The MR productivity has gone up by 20% vis-a-vis FY22
▪ The management is confident about mid teen growth in the coming years
• It comprises sales from west and eastern countries, which includes its
presence in 20 countries
• The performance was largely impacted by a strike in France for pension
reforms, which led to supply chain issue and continuing rupee depreciation
during the period
▪ It successfully launched eight new products in FY23 and expects mid to high
teen growth in the near future
Asia business:
▪ Therapy presence remains across cardiac, diabetes, ophthal, pain, antibiotics,
gastro, anti‐histamines, respiratory
▪ Philippines and Middle East remain the key and fastest growing markets
▪ Q4FY22 had a higher base as it remained elevated with increasing demand
from major countries due to pandemic. The business has normalised in
▪ Launched 38 new products in FY23

US generics:

• Contributed 22% to total revenue
• The company received four ANDA final approval and one tentative approval
with commercialisation of 40 products during FY23
• Launched a product in Q4FY23 and proposes to launch around five to six
products in FY24

Africa institution:

• The portfolio mainly comprises antimalarial products while the business contributed 5% to overall revenues
• The management has guided that business remains unpredictable as it depends on funds available with procurement agencies

Other highlights:

▪ Price erosion has stabilised in the US market in its existing portfolio and has come down to high single digit
▪ US price erosion, inventory write off and currency fluctuations impacted in full year
▪ Gross margins to rebound to 74-75% with revival in COGS and freight costs
▪ Logistics cost impacted the operational performance in FY23 but has come back to normal levels
▪ Focus remains on expansion of field force in the international region
▪ R&D expenses continue to be at 6% of revenues
▪ The management expects improvement in working capital cycle
▪ Capex including maintenance capex for FY24E remains at | 200 crore



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Siddhant Khandekar -Inter CA, Kushal Shah -CFA L1, CFP, Utkarsh Jain -MBA

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