Ajanta Pharma Ltd. share price target

We hosted investor meetings with the management of Ajanta Pharma (AJP).

EBITDA margin expanded at higher rate of 590bp YoY with superior product mix and controlled opex. We remain positive on AJP on its new launches, rising share in key markets of the US/India/Asia/Africa and improved operating leverage. Re-iterate In the branded formulation segment, AJP witnessed 15% YoY decline in India, while it delivered 27.8%/17.4% YoY growth in Asia/Africa in 1QFY21. AJP has strong pipeline of registration in both Asia/Africa branded segment. We expect Africa branded segment to deliver better 12% CAGR over FY20-22E to INR4.3b owing to increased offerings and better reach. AJPs US sales grew 46% YoY due to increased traction in existing With 19 ANDAs pending approval, the company has an intention to file 10-12 ANDAs annually. Considering 6-7 launches in FY21, we expect AJP to garner 20% CAGR in US sales over FY20-22E to INR7.3b in this segment.

Domestic formulations - Focus on new launches, few therapies Domestic formulations comprise 30% of FY20 revenues. The main distinguishing factor is the uncanny knack of launching maximum number of first time launches with focus on new drug delivery system (NDDS). Out of 270+ actively marketed brands, ~60% were first time launches. However, a slowdown in dermatology segment due to increased competition in existing products and slow offtake in new launches are some near term challenges. We expect domestic formulations to grow at ~11% CAGR in...

Ajanta Pharma (AJP) posted Q1 revenue/EBITDA growth of 9%/33% YoY to Rs 6.7bn/Rs 2.2bn.

Domestic formulations: Focus on new launches, few therapies Domestic formulations comprise 30% of FY20 revenues. Main distinguishing factor is the uncanny knack of launching maximum number of first time launches with focus on new drug delivery system (NDDS). Out of 270+ actively marketed brands, ~60% were first time launches. However, a slowdown in dermatology segment due to higher competition in existing products and slow offtake in new launches are some near term challenges. We expect domestic formulations to grow at ~12% CAGR in...

Ajanta Pharma (AJP) posted strong Q4 revenue/EBITDA growth of 32%/31% YoY to Rs 6.8bn/Rs 1.7bn.

20 May 2020 Ajanta Pharma (AJP) ended FY20 on a healthy note with 15% earnings growth (v/s 12% compounded earnings decline over FY17-19), led by sales revival in Asia, Africa and new introductions in the US market. The companys major capex program would conclude in FY21 and only maintenance capex would be required FY22E onwards, indicating better free cash flow situation for AJP. We reduce our EPS estimate for FY21 by 6% to factor in the COVID-19 led slowdown in the branded generics segment. INR6.3b) grew 32% YoY, led by exports (+43%YoY; 74% of sales). Within exports, US generic sales were up 88% YoY (INR1.4b) and emerging markets sales grew 38% YoY (INR3b). Domestic formulation sales grew 11% YoY to INR1.8b (~26% of sales). Gross Margin (GM) came in at 74% and contracted 550bp YoY due to change in the product mix. AJP had forex loss of INR150m in other expenses. Adjusting for the same, EBITDA margin at 24.

On the business front, despite the nationwide lockdown, domestic growth is expected to remain more or less stable. Exports growth, barring for one or two months due to congestion in all major ports globally, is also expected to remain strong due to 1) currency benefit, 2) slowdown in competition due to delay in new approvals that will be beneficial for existing players and 3) expected demand continuum across the world despite Covid-19. Some windfall is also expected in some critical productsa case in point is Hydroxychloroquine, a malaria drug that is likely to be repurposed as a prophylaxis for Covid-19 treatment in some cases....

With stability in industry cash cycle, AJP has enhanced its business scope in the branded markets of Asia and Africa. For branded generics business (67% of sales), AJP has guided for 9- 11% YoY growth for the next three years. Covered market growth in Dermatology for the past five years was 16%, while AJP grew at 8% due to a high base of Melacare range of products and higher attrition in MRs. Going forward, covered market growth is expected to be 9- 10%. Compared to its subdued growth in the past, AJP expects to do better (11- 12%) as (a) MR team being stabilized for this segment, (b) renewed interest in Melacare range of products and (c) new launches lined up in this segment. Considering covered market growth expectation at 7-8%, AJP intends to do better than industry at 10-11% in Cardiology.

Domestic formulations comprise 33% of FY19 revenues. The main distinguishing factor is the uncanny knack of launching maximum number of first time launches with focus on new drug delivery system (NDDS). Out of 270+ actively marketed brands, ~60% were first time launches. However, a slowdown in dermatology segment due to increased competition in existing products and slow offtake in new launches are some near term challenges. We expect domestic formulations to grow at ~12% CAGR in...