I loved your template. They are absolutely best in everything. Their ROE and ROIC’s are matched by only Torrent and Alembic which also includes the effects of blockbuster drugs. Next year picture should make AP the best in even those. As Donald pointed out we have to find if the OM will sustain or not in future. You guys are Godly in raising the questions related to business also. Deep respect 
Kanv
Ajanta Pharma Guwahati Facility To Be Ready By March
Drug maker Ajanta Pharma said its new formulations facility at Guwahati will be commercialised before March 2017 and the Dahej manufacturing facility, mainly dedicated for developed markets, will be operational in next financial year.
“Our new formulations facility being set up at Guwahati with a capex of over Rs. 300 crore to cater to India and emerging markets will be commercialised before March 2017, which will enable us to build our strength in
manufacturing and get more tax efficient,” the Mumbai-based company said in its annual report.
The facility will produce tablets, capsules, creams/ointments and sterile ophthalmic liquids.
“The company is also adding manufacturing capacities for different markets. The Dahej manufacturing facility mainly dedicated for developed markets, will be operational by FY 18,” Ajanta Pharma managing director Yogesh
Agrawal said in the annual report.
With substantial investments of Rs. 106 crore in R&D in 2015-16, use of latest platform technologies and developing niche and complex formulations, the company is confident of reinforcing its exclusive positioning in the markets it operates in.
The company has a strong presence in the branded generics space in more than 30 emerging countries across India, Africa, CIS, Middle East and South East Asia, generics in developed markets of the US, and institutional sales.
The company has stepped up its presence in the US market with a select product portfolio.
It has 26 abbreviated new drug applications (ANDAs), out of which we received 8 final approvals and two tentative approvals. “We are awaiting for approvals of 16 ANDAs and plans to file 8-12 ANDAs every year for every year with the US FDA going forward,” Mr Agrawal said.
The company plans to remain focused on few high growth specialty therapeutic segments in India and building leadership in cardiology, dermatology, ophthalmology and pain management.
In the emerging markets, its vision is to provide differentiated products, customized to suit individual marketplace with a bouquet of 1400 plus product registration in hand and another equal number under approval, the company said.
Sorry for the delay in replying - busy travelling before and last week festivities.
Absolutely- Top Line is where we should focus attention on.
And I will come to that, shortly.
The reason for underlining/drawing attention to industry-best efficiencies is two-fold
Not many adopt the PAT Dorsey 2nd doctrine seriously - Understanding Sources of Profitability/Quality of Profitability - when we take that seriously (and observe/monitor/question over 2-3 years), I have seen that I learn a great deal about inherent Mgmt focus/strength areas - that again helps in separating the wheat from the Chaff
If someone is beating the best-of-the-best hollow in certain parameter(s) - we better question hard again - too good to be true? how is it even possible? how can Ajanta Pharma a midcap pharma business have (almost) double the Inventory Turns of some one like Sun, Lupin, or for that matter anyone else in the industry - some industry analysts might tell you, NOT POSSIBLE!
I have seen I understand more every year about a business like Ajanta - by asking more…thinking more …connecting the dots, more 
. Anyone who has followed Ajanta over last few years might confess - it’s not easy to understand the Sources of its Profitability… ha ha.
Some folks may consider above unnecessary for successful investment, but for me these are crucial to my investment style. So those interested in such Insights, might like to ponder over those questions …and try and connect.
Now, you have rightly pointed out, the first PAT Dorsey doctrine is to Understand the Sources of Growth/Quality of growth. And its not hidden, there should be genuine concern here!
But perhaps if we take this seriously enough, we would try and get under the skin of the flattish kind of growth being exhibited by Ajanta of late. Profitability levels being where they are, its unlikely - as correctly pointed out again by you - of squeezing out more. Instead one could make out a case that profitability is bound to also decline if the growth rates remain flattish.
I like data points - the devil (often times) is in the details. Ajanta Investor Presentation provides segment-wise data, every quarter. Why not try and present a segment-wise break up - to SPOT where the lacunae is, ask questions IF …some of these are in their control, or probably not, and if not …how much time would these things take to revive…other things remaining equal
Please see if you want to take the trouble to fill up this simple segment-wise template.
Ajanta_Segments_Template.xlsx (61.7 KB)
Think, all the questions/(and most of the answers too) are in the data!!
Hi @Donald,
Incidentally, i have been diving into available data and facts to build a level deep understanding of all the moving pieces around AP. Have started towards consolidation of all in given format.
Along the way, am trying to look at all this from a ‘why’ and ‘how’ perspective. Allow me some time to come back and share the understanding.
Ajanta Pharma gets ANDA approval from USFDA for Lansoprazole Delayed Release Capsules for 15mg and 30 mg.
Source: Lansoprazole - Uses, DMF, Dossier, Manufacturer, Supplier, Licensing, Distributer, Prices, News, GMP (Global Sales Information)
If it can get approval for Kamagra in the UK, it would really be great. Unlike the US, UK has legislation for online consultations and ever since the patent expiry of Viagra, generics have flooded the UK market. Kamagra is still being sold by unregulated websites in the UK but is not dispensed by the NHS or by the UK regulated online doctor services because of this. Historically lot of people liked to procure this in the UK via the unregulated route (check Google search numbers) whilst the Viagra patent existed.
Very true, someone is beating the best-of-league hallow on ‘certain’ parameters. Time and again - since real long time. This has troubled me a lot for quite some time. Therefore, as a first step, have tried to understand the ‘HOW’.
To begin with, let’s paint a mental picture of how much AP is different from peers and on which all parameters. Hope this attached spreadsheet will help create an industry level vivid view.
MS Consolidation Sheet_Pharma(2).xlsx (36.2 KB)
With this comparative view, I tend to think Ajanta performance is in top of league in some of the metrics but not really astronomically high/low. What really stands out is the ability to tick most of the boxes of efficiency.
Now the mental questions:
Initially zoomed-in greatly from a process door (geographical spread, segments, fist to file contribution, block busters like Melacare, Kamagra etc.), only to end up getting even more perplexed. Later on, tried to zoom-out entirely and just think bit arithmetically.
At the cost of sounding overly simplified approach, lets do a simple mathematical/financial calc.
Cost of manufactured good is Rs 40.
Company C: Sell the same for Rs.100 (mark-up/gross profit is 60 Rs.)
Company B: Sell the same for Rs.120 (mark-up/gross profit is 80 Rs.)
Company A: Sell the same for Rs.140 (mark-up/gross profit is 100 Rs.)
Now, try calculating the key metrics for these three companies.
Do I hear company A?
So, what I tend to think is that this company A is reflecting superior efficiency metric by virtue of significant marked-up sales.
No No, it cant be this simple.
Fine, I apply some counter thinking. This company A should look comparatively inferior for a ‘lower- the- better-metric’ where total sales goes on numerator. Check the DSO on the above attached sheet for Ajanta. For sure, nowhere close to the best.
Hummn…fine that’s partial explanation, AP is great in so many other aspects as well.
Ok, lets look at the SG&A expenses (delta between Gross to operating margin%), on the attached spreadsheet, 13 out of 22 other companies has narrow delta (representing more efficient SG&A expenditure) than what AP has.
Talk about tax efficiency, (delta between operating to net margin %), 17 out of 22 other companies has narrow delta (representing better tax efficiency than what AP has).
Connecting the dots, what I see here is the evidence of handsomely marked-up gross sales playing a key role in making some of the ratios look envious. For validation, look at the gross margin % column (col W of attached sheet). Gross margins only behind Sun and way above rest all -year after year after year.
Well, this revelation is nothing new. We always ‘knew’ that AP got a high margin play. What is significant is that at least I have started recognizing how fat profit margins can make you look great at so many other places.
Ajanta Q2 FY17… PAT up 26%, Income from Operations up 17%…
Q2 FY17 growth driven by US & India. Africa and Asia reported flat/de-growth numbers.
Thank You Sandeep for results Update.
To add that, APL announced Payment of interim dividend of Rs. 6/- (300%) per equity share on the face-value of Rs. 2/- per share for the Financial Year 2016-17.
Investor Presentation
http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/E51CFE56_A74A_49B2_B4BA_95BD8B08D646_151801.pdf
Ajanta’'s profit growth is so consistent 
Most remarkable point from Q2:
Investor presentation: http://www.ajantapharma.com/analyst-presentation.aspx
Akin to pulling a rabbit out of the hat (just when the doctor ordered)
How can one complain about staying put in a business like this 
@ankitgupta @ananth @lustkills
Time to re-validate US Portfolio strength/sustainability
The revenue, profit, EPS graphs are so perfect in the investor presentation. As much as it looks suspicious, I feel if one was to do creative accounting wouldn’t they make it look just a little off… I want to continue to believe in Ajanta. I really want to.
@Donald
Sir, are you still invested in Ajanta?
Next is the time to understand the ‘Why’. Why such high margin leading to high marked-up sales leading to best-in-class ratios? What is the MOJO?
More precisely, what has helped Ajanta Pharma EBIDTA to propel from ~19% in FY11 to 34% by FY’16?
First answers to cross the mind are…. AP is a niche player with uncanny knack for identifying the gaps, ability to fill that by first-to-market products, some top of the segment drugs (Melacare, 30+ etc.), growing far more than the overall industry/segment etc. etc.
Lets evaluate usual suspects:
Key thing to note is that top 5 out of those were already introduced even before 2010.
Great that these continue to top the domestic formulation chart for AP but very unlikely that they would have started improving the EBIDTA this greatly few years after the launch and continue doing so for further next few years.
Can this have the potential to launch the EBIDTA from 19% to 34%?
Think so, was the first generic company to secure WHO prequalification for Artemether + Lumefantrine. and Artemether + Lumefantrine tablets. It was also among the first companies to have Introduced the same composition in higher strengths. Except most recent literature its right to conclude that AP had near monopoly in malaria tenders
(P.S – out of academic curiosity, did a regression between Africa tender revenue and total EBIDTA to see the correlation. Surprisingly the R square comes out to be 94.8% indicating a reasonable correlation. Regression equation = EBIDTA (in Rs. Cr.) = 31.5 + 1.44 Africa Tendered Business
P.P. S – Regression is tricky topic with certain underlying assumption and context. Please don’t draw conclusions and projection by this reference to regression, it was more of an academical exercise to get additional perspective)
With that I tend to think that the MOJO was/is the Africa tender business.
@Donald – Sorry for the delay in getting back with promised info. Was a balancing act between busy festival time.
Attached is the segment wise revenue break-up/growth rate/contribution weightage etc. data for past couple of years for Ajanta Pharma. This also has Q1 to Q4 data in same format for FY’16. Initially I clubbed entire Africa sales together, thanks for suggesting a tender vs. non tender break-up of Africa business. This has helped immensely in having granular view.
Ajanta_Segments_Projections(3).xlsx (59.5 KB)
As takeaway, I think we need to:
Delve a level deep into the Africa tender business to understand firmness of the existing business (top line and margin projection)
clear visibility on US road map (sustainability and road ahead) for gauging next trajectory for AP.
Disc:
Hi Tarun,
Nice work! I agree with your insights. I also think that usually such successes are rare and a combination of several factors coming together. In this case the management has done fantastic exectution on some of the following points:
Yes, the scale-up in Africa business would have been a key point. The product they are selling in unique. They were the first to introduce the same and get approval. The no of players are still just 5 or 6 even after few years and now the volumes are big.
Pharma is one area where if one has a niche product and gets volumes on the same, then the profit margins are pretty high. In this case, as all of the business is under their brand they get to capture the cream.
Regards,
Ayush
Ajanta gets approval for gAzor (Almodipine; Olmesartan Medoxomil) from US FDA and the same has been launched in the US market.
Ajanta launches antifungal Voriconazole tablets http://www.walb.com/story/33645529/ajanta-pharma-announces-the-launch-of-voriconazole-tablets
I landed at this WHO inspection report (not sure if it has been seen earlier) - apps.who.int/prequal/WHOPIR/WHOPIR_Ajanta25-28April2016.pdf . It is for a regular site inspect that’s done every 3 year or so. The result of this particular inspection were satisfactory.
Another ANDA approval
http://www.bseindia.com/corporates/anndet_new.aspx?newsid=bb54f19d-def7-47e1-8e7c-090e3f03a0ab
Good development this.,
But, Aurobindo Pharma Ltd., Dr. Reddy’s Laboratories Ltd., Lupin Ltd., Sun Pharma Global FZE, Teva Pharmaceuticals USA, and Torrent Pharmaceuticals Ltd. had received exclusive 180 day FDA approval to market duloxetine in various strengths in the year 2013.
Cymbalta (duloxetine) generated sales of $5.08 billion in 2013, of which $3.96 billion came from the USA
The opportunity size, as of now, might not be too high., as the revenue sharing & margins might already be on the lower side.
