Ajanta Pharma

The FDA had inspected the Paithan formulation facilities at Aurangabad in March-April 2015. Almost 2 years ago. Next inspection was due anytime. Was in on-your-toes territory considering recent lengthy 483 observations from FDA to other pharma cos. With this backdrop, the following announcement by Ajanta today is a relief -

"Ajanta Pharma Ltd has informed BSE that the Company’s Paithan facility was recently inspected by US FDA and the Company has issued one procedural related 483. The Company is in process of responding to the same within the stipulated time prescribed by US FDA."

Source: http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/F7D7E5A1_4A19_4B30_846E_E3C3D99A2BD1_102713.pdf

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  1. US business to be a great growth driver for the company in the future. they have 16 ANDA approvals , company plans to file 10-12 ANDAs each year. However most of these filings are Para III and to capture market share its strategy will be to be cost competitive. For this it will have to start manufacturing APIs in house , which would lead to decline in return ratios.
  2. Africa Business - growth rate seems to be on the decline due to return of IPCA in FY 19, slowing in donor funding , changing disease profiles for which the company will have to alter its product portfolio.
  3. Asia Business- Has seen declining growth rates from the last few quarters.
    central asia - due to steep devaluation in currencies against the US dollar
    west asia - due to decline in oil prices
  4. Slower growth expected in India Business
  5. Hence there can be pe de re rating of the company if its ROCE ratio declines or the growth rate declines. The company is already at a high pe rating of 31 TTM which might decrease due to the above factors.

Disc - Invested
Views Invited

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Has the Dahej plant started to contribute to the revenue? What is the expected growth in revenue from the Guwahati plant? Will these two plants ensure the growth for some more time?

Thank you for sharing. This is very useful to understand and form our thought process.

Disc-Invested significant amount

Dear all,

Given the increasing noise levels about Ajanta’s growth prospects in the medium term, can any of the seniors share their views. What should be done when there are probable headwinds. Financial numbers and the market prices are already reflecting this scenario. After holding for a long period and being one of the key money spinner in the portfolio, it seems there are problems coming up due to lack of acceptable growth numbers. Please share your personal views.

disc invested

Good question. My view. Yes the slowdown is visible. Financial numbers arent that bad. At least there is some top line growth. I dont agree that that market reaction is bad. Despite all thats discussed, its commanding a valuation of 30 PE.
The question is what will one replace this with?. ( If one were to exit). Hard to find answer in this market. I think if the expectation is moderate, then it would be good to continue holding. ( Assuming no big PE derating)
i am not an expert. Experts can share their views

Have spent some time re-evaluating my investment hypothesis. Summarizing some of the pointers:

India: Overall ~13% growth from INR 420 Crs to INR 474 Cr between 9M FY16 to 9M FY’17.

  1. Cardiology: Almost stagnant for past 3 Quarters at ~65 Cr INR.
  2. Optho: 7%ish de-growth QonQ for past 3 quarters.
  3. Derma: Again stagnant for past 3 quarters at INR 37ish Cr.
  4. Institutional: Is not significant and management is moving away with intent.

Asia Export: De-growth of 18% from INR 342 Cr. to INR 281 Cr between 9M FY16 to 9M FY’17.

US Export: Unfolding well. pretty much in line with management commentary. 12 products already in commercialized out of 16 approved. Other 16 ANDA are in pipeline with additional projection of 8-10 per year for next 2 years. clocked approx. 140 Cr for 9 months.

Africa Exports: Fortunately, flag bearer of the family is doing good. 12% growth registered between 9M FY16 to 17 despite approx 30% squeezing of Artisiminin prices in tenders and currency issues.


Overall Positive Considerations:

  1. Recent FDA inspection and 1 observation at Paithan plat can still be treated as a positive in this environment.
  2. Dahej facility expected to come on steam any time soon.
  3. Guwahait facility phase 1 expected to be operational by March 17. Key consideration is that this facility is to cater to domestic and emerging markets. So, by extension, management is still positive about growth prospect here.
  4. US is going to be extremely competitive but at least FDA ghost is behind and ANDA pipeline is there. They can do anything between good to great here.

Overall Negative Considerations:

  1. Appears to be saturated in its own niche i.e domestic cardio/optho and darma in Indian market. (not sure if this is an outcome of they running at 100% capacity utilization and next leg of supply will come from Assam)
  2. Asia de-growth.
  3. Changing landscape of Africa Tender business. Africa’s fight with Malaria is way far from getting over any time soon. They expect a 90% reduction by 2030.

However, the challenge is that as per WHO site, in some regions of the globe, Malaria parasite have developed resistance to current set of ACT (Artimisnin combination therapy). Thus the effective/preferred approach for them is to go traditional way of vector control (mosquito net, fumigation etc.) OR expediting new drug discovery in this.

Not sure how sever this is perceived at this moment or what kind of impact these new findings will have on new tender/budget etc. Invariably, Ajanta need to be on top of the game, once again, with respect to change in finding/marketing new set of effective medicines to save the turf.


In conclusion, for now I have a very neutral kind of POV. In short term, don’t find any immediate positive triggers rather a status-quo can take it down. In mid term, I will observe for some time to see how each segments move.

Dics: Invested since long. Had some purchase within last 60 days (market was reacting knee jerk on one FDA news).

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Excellent inputs.
Like your Indepth analysis

As per the investor presentation, Dahej (Gujarat) plant shall begin commercial operation from April 2007. The technical analysis of this stock is currently bad ( downtrend). But, it is worth holding the stock now.

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J. Jayaseelan, who owns Nuray Chemicals, a maker of drug ingredients, said many Indian firms are reconsidering, or putting on hold, U.S. expansion plans.

Ajanta Pharma is one such firm. The mid-sized generics drug maker said it had no plans to scale up its U.S. business and would invest more in Asia and Africa instead.

“It’s not a major market for us right now … you’ve got to look at the risk-reward ratio,” said Rajeev Agarwal, general manager of finance at Ajanta.

The risks comes as U.S. revenue growth for these firms is falling. U.S. revenues for Indian drugmakers rose 15 percent in 2016, half the average annual growth rate of 33 percent between 2011 and 2015, ratings agency ICRA said. It expects the growth rate to fall further this year.

Consolidation among U.S. drugs distributors and a federal investigation into drug pricing have also reduced the pricing power of drugsmakers.

The U.S. drugs regulator, the Food and Drug Administration, has also banned dozens of Indian drug factories from supplying the U.S. market following inspections that found inadequate quality-control practices. Companies have invested significant sums to raise their quality standards.

Firms that want to focus on the United States will have to increase investment in higher-margin niche therapies, or products requiring specialised manufacturing, said Mitanshu Shah, senior vice president of finance at Alembic Pharmaceuticals.

“Smaller companies with a few regular products and no long-term vision for the United States won’t last,” Shah said.

Even with a vision, the U.S. market is just getting tougher for companies to operate in, said Vijay Ramanavarapu, the head of the U.S. business of drugmaker Granules India.

“You have to fight twice as hard today,” Ramanavarapu said. “It will be harder for new entrants to enter the U.S. market unless they are able to find niche areas.”

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Fda issue is long term positive for sure. A corollary could be how manufacturer in Taiwan scaled up when confronted with quality issues. Trump is a bit of enigma to me - could it be long term positive as well. Buy American and hire American does not mean American corporations. If Indian pharma can establish presence in US, it could be neutral. Buy then, it would impact overall cost competitiveness.

The other way to look at it is - Healthcare clearly has tailwind and India has a critical mass that can’t be ignored. Question is who will transform fast enough… Biocon kind of bets versus traditional generics bet?

Motilal Oswal has initiated coverage on Ajanta Pharma with a target price of 2027. Here is the link for the detailed report - http://institution.motilaloswal.com/emailer/Research/AJP-20170316-MOSL-IC-PG028.pdf

US ramp up expectations seem impressive. How much can be possibly done, especially under this regime, remains to be seen.

Disclaimer: Invested

Ajanta pharma promoters pledged part of their shares

http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/308CE033_DD42_4F92_9E20_2D77130E00A4_153709.pdf

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Dahej plant inspected by US FDA … At the end of the inspection, no Form 483 was issued to the Company. http://www.bseindia.com/corporates/ann.aspx?scrip=532331&dur=A&expandable=0

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  1. PM Modi’s mandate for doctors to write only generic names in the prescription, which as a standalone measure will only shift the discretion to pharmacists.
  2. Doctors urging Govt. to phase out branded generics drugs.

Are not these headwinds worrisome for branded players like Ajanta and its investors ? Seniors, valuepickr pharma-specialists - please provide your feedback / thoughts.

My take on this is, and I reserve the right to be wrong, that branded generics will remain. The power will slowly move from the doctors prescribing the medicines to the pharmacists dispensing them. If the doctor prescribes a generic, and your local pharmacist tells you a certain brand is better, most people would take that. So, the focus of promotion will move from the doctors to the pharmacists, in my opinion. However, brands will remain. Even in US, people still buy OTC meds from better known brands.

Another trend may also pick up - rise of chain pharmacies like MedPlus, Frank Ross, Apollo Pharmacy etc. After a while they will start pushing their own version of generics. That is when the real pain is likely for the current branded generics players.

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I was checking with a pharmacist friend and he was saying few doctors remember only the brand name and don’t remember the molecule/salt name.Now they have to brush up some text books etc again :slight_smile: .
Not sure how true this is.

The other trend which is possible is govt itself getting into launching cheaper medicines with the jan aushadi stores.
http://janaushadhi.gov.in/list_of_medicines.html
MRP of medicines looks damn low.

some state govt news launching janaushadi stores



Now, how this all pans out remains to be seen.

Last quarter concall alembic management was asked question on this and they did not view on this yet.

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@dinrn123

H/T Alpha Ideas

ARE PHARMA BRANDS EQUIVALENT?

The answer is yes and no! Brands of the same category are chemically equivalent (contain the same quantity of the active ingredient). However, there can be important differences. This is with the excipients and the manufacturing process parameters of the brand. For example, if you compare the dissolution profile of albendazole tablets, you may be surprised; Zentel from GSK is said to have the best profile. Similarly, Advanced Crocin has certain excipients to improve dissolution and consequent absorption of paracetamol into the bloodstream, when ingested.