Hi
I am a doctor. My take would be I would never recommend a generic. The government doesn’t have some institute like usfda. I would write generic and recommend the name of drug. This is because I do not trust that all the generic are equal. In government hospital there have been many instances of name being meropenem but when tested was shown to ceftriaxone second point to think doctors don’t remember the generic name might be true for only certain drugs. Say fortwin is praztozocin. But it’s not regularly used. So we might forget the generic name. But for common drugs it’s not true.
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I do believe generic and brand drugs are equal but generic drugs have to be thoroughly tested and that too regularly. And I don’t see that happening in recent future
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I completely agree with your view on generics. In my practice I would use only the drugs that have worked for me; be it generic or branded. Bottom line is patient should get better! The present move by Govt and Pharma sector is nothing but shadow boxing. If they were sincere they would have set up something like USFDA to control the quality of drugs and in Indian scenario the price as well. Govt is least bothered about health of Indians as you can see the budgetary allotment on health is abysmal. Yet they want quality care for common man. On one side the Pharma cos are overcharging, Govt shirking it’s responsibility and encouraging the Insurance cos to rule the roost in tandem with the pvt hospitals catering to middle and upper class citizens. Poor has to depend on the govt hospitals where the medical supply is mostly generic the potency of which is unverified.
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Today noon Ajanta announced Q4 and FY’17 results. Key summary:
Full year top line at 2002 Cr. Growth of 14% as compared to 17% Y-o-Y growth last year.
Segment wise break-up:
- Domestic business clocking 593 Cr. Growth of 12%. Last year also had a growth of 12%.
- Total export sales 1310 Cr. Growth of 12% as compared to 19% Y-o-Y growth last year.
- Africa market clocked 712 Cr for full year. Growth of 3% as compared to 29% Y-o-Y growth last year.
- Asia market had business of 417 Cr for full year. De-growth of 12%as compared to 3% Y-o-Y growth last year.
- Us full year revenue of 185 Cr. Y-o-Y comparison may be meaningless due to base effect. Q4 de-growth from 59 Cr. to 45 Cr.
EBIDTA of ~700 Cr for FY17. This is Y-o-Y growth of 19%.
Able to improve on EBIDTA Margin. As compared to 33.6% this year its 35%.
Hits and misses:
Guwahti facility phase 1 completed.
ANDA pipeline: So far 17 final approval, 2 tentative approval and 15 under review.
Improving the EBIDTA margin despite stress in certain geographies.
There were two dividends (Rs7 and 6) early this year. No dividends further.
I think a more granular and shorter interval -say quarterly- view will be more prudent to understand the directional drift. Here is a quick quarterly summary across segments as well:
- Domestic Business: seem that India business is struggling on a quarter on quarter basis for FY’17.
- Africa business: Little slowing down after good show for past 3 quarters.
- Asia business: Just reversed to Africa business, this one has picked up after 3 dull quarters.
- US business: Unfolding well however, currenlty is very small in entire scheme of things
Overall, seems that this will not infuse great enthusiasm for now.
Note: Have tried wrapping up this in quick 15 mins spare time within a busy working day. Possibility of error/omission etc. may be there.
Regards,
Tarun
19 Likes
Further granular view with therapeutically segment level quarterly break-down for India business - both in absolute rupee terms and in growth %. This surely will help understand whats working on the ground and whats not.
Attaching the entire spreadsheet where you can see the similar broken down data for past 5 Years in other tab.
Ajanta_Segments_Projections.xlsx (879.9 KB)
As you may notice, I am missing the information about Africa business quarterly break-up between tender vs non-tender business for past 2 quarters. Will be great if folks tracking AP closely can help me map this missing link. And by the way, this is one of the most crucial bit of info at this juncture, in my sense.
Disc: Holding since long. Significant part of core PF.
Thanks,
Tarun
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Tarun,
Thanks for consistent excellent compilation of data.
Q2FY17: The Africa business included 90 crore from anti-malarial tenders
Source: http://content.icicidirect.com/mailimages/IDirect_AjantaPharma_Q2FY17.pdf
Q3FY17: The Africa business included 140 crore from anti-malarial tenders
Source: http://content.icicidirect.com/mailimages/IDirect_AjantaPharma_Q3FY17.pdf
Q4FY17: The Africa business included 80 crore from anti-malarial tenders
Source: http://content.icicidirect.com/mailimages/IDirect_AjantaPharma_Q4FY17.pdf
Overall African Anti-Malaria tender size has reduced. Hence, the company expects the African tender business to decline by 10-12% in FY18.
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Investor presentation by Ajanta, post Q4
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Ajanta Pharma consolidated income and profit growth is steadily dropping and now down to mid teens for revenue growth. Where is the future growth going to come from? For pharma all roads lead to US but that road is increasingly being paved with thorns.
Growing margins have partially offset slowing sales growth so profit growth is still respectable 22% but margins cannot grow forever.
Source: Company Annual Reports
Same information from company’s investor presentation.
Both charts are correct, just a difference of perspective.
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humnn… so you have almost touched the Achilles heel for many of the long term AP investors, at least I am going through some thoughts specifically around this. So, here is my take:
Growth Rate:
- Very true. the growth “rate” has slowed down. To help see the directional drift, here is a quick summary:
It surely will help to understand each of the moving variables separately - and importantly in respective context - to understand predominant concerns. My reading of this is:
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Domestic business slowing down from comparative high growth era of 2012 -15. However, is still maintaining health growth rate wiz a wiz IPM (indian pharma market growth) as reported by IMS. Within domestic, Cardio as a segment is still maintaining >35% growth for past 5 years (except for this year where its 25%).
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Africa Malaria tender: comparative slowdown however still managed a 28% YoY growth FY17. Can be under pressure going forward though on account of lower expenditure projection.
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Asia - Truly a concern.
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US Export: Unfolding well. High growth rate, partially due to low base effect. Not much of foreseeable roadblock at this moment. In totality, they have decent ANDA pipelines of 15 under review and recently FDA approved Dahej plant. As said somewhere in earlier post, they can do anything between average/ good/great here.
–
Profitability:
Another critical and equally important aspect is about profitability. What is re-affirming my faith in AP is that this is STILL able to increase the margin % despite all those top line stagnation.
In summary, I share the apprehension that in few pockets the growth is slowing down (comparative for past years, not necessarily from industry peers), and causing some uncertainty. However, some of the other fundamental tenets - visibility, management foresight, ability to execute, compliance etc. - has not changed yet for AP.
Therefore, personally I may want to give this story some more time/quarters (of course, under little extra monitoring). Looking back this may appear to be a transitory journey.
On a lighter note: even otherwise, at this stage I dont have any stock name to replace AP with. Please help, if you have something. 
Disc: Invested since long. I am in a watchful state, as indicated above.
Thanks,
Tarun
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Future growth is likely yo come from US and only complex generics are left to copy there. US bound companies are spending 12-15% of sales on R&D with no set timeline on when that will pay off. If Ajanta has to follow same route, its R&D spend will increase ( = low margins) and sales growth will not pick up for some time.In short, we are looking at at least a couple of years of subdued growth both topline and bottomline. Can investors be patient enough?
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Absolutely Yogesh.Looking at the trajectory very sadly I exited my position completely 2 months back.No regrets
Understandably, investment decisions (or deferment of the same) should not be driven by hope/wish/pray sentiments on either sides. Thanks @Yogesh_s for posing the question in this thread, this has forced me to get back to drawing board and look at things more objectively.
Spent some time to delve deep and understand one of the important piece of this jigsaw puzzle - called Africa Tender business. Whats better source of truth than the WHO artifacts to understand where we are and where all this is headed towards.
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WHO Global Technical Strategy (2016 -2030) - Policy framework in fight against Malaria till 2030.
Global Technical Strategy for Malaria 2016 -2030.pdf (1.0 MB) -
And, a follow-though detailed report-out with very comprehensive 14 lead indicators scorecard and subsequent granular data cut/info-graphics etc (cant load here, 150+ page full of info-graphics and data).
http://www.who.int/malaria/publications/world-malaria-report-2016/report/en/
Key pointers:
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Unfortunately, Africa has a real long way to go when it comes to conquering Malaria. Approx 6 Lac mortality in 2013, mostly under age 5 in Africa. WHO target of 40% reduction by 2020, 75% by 2025.
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Strategy is around three pillars:
1.Prevention, Diagnosis &Treatment
2.Country by country Malaria eradication - Attain and sustain.
3.Proactive - Information system, health management enabling optimal resource/effort allocation) -
Challenges -
1.Gross lack of Funding. Total funding of US$2.9 billion in 2015 against required US 6.4 billion till 2020. Acute 55% shortage. With current state of funding not possible to clear the 2020 milestone.
2.Funding patters - Page 44 of WHO Malaria Report_2016 is enough to explaining all.
3.P. falciparum resistance to CAT observed in certain regions. Fear of spread to Africa.
4.Eruption of other severe disease like Ebola putting extra strain on already stressed infrastructure/resources. -
Other notable developments:
First of its kind Malaria vaccine RTS,S/AS01 in phase 3 of development. ~40% success observed. Can be effective in early stage mortality and gradually an immune generation (in the long run)
Extrapolating these finding to Ajanta investment context:
- Pledges to the Global Fund for financing for 2017–2019 have increased by 8% compared to 2014–2016 pledges.
- Unfortunately, Malaria is far far away from being over. WHO own target of 90% reduction by 2030 (another 13 years from now??)
- Curious to know, how does the AP/pharma veterans read the first 2 paragraphs on page 20 of the GTS document?**. Essentially, policy directive on prohibiting unapproved Malaria medicines (in retail context) to mitigate the further risk of parasite resistance to Antimalarial. Can this lead to an altogether new tender independent retail B2B/B2C avenue for AP? Or rather, what is the current size and scale of non-tender retail malaria market in the first place?
Initially I had a very long write-up on this however realized that I may be stepping on copyright issues. Therefore, strike down all. Encourage all to go through the reports first hand. Though long reports but are worth the time to understand landscape well (have also highlighted relevant parts.
Disc: Invested since long, no transaction in last 90 days.
Thanks,
Tarun
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Hi @T11, thanks for your analysis. However, your post has raised more questions than answers (at least for me).
- How big is this Africa opportunities?
- How much of it Ajanta can capture and over what period of time?
- How much will it affect bottom line?
- And finally, how much of this is already priced in?
I know that answers to these questions will be “it depends” but I try to put a value on all opportunities (however approximate it will be) so I will know if there is margin of safety.
I am not invested in this company anymore but I am genuinely interested in knowing the perspective of long terms investors as to where do they see the value.
Hi Mukesh,
It will be good to break down the business into the smaller segments and ask questions patiently around each of them. Few questions from my end:
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There has been huge competition in the US business and price erosion has been severe for the generic players - How has the same been for Ajanta? They could get very good nos and market share for couple of drugs - what is the current status on those drugs? To be an effective player in US, cos need to have a big basket - comments of the company on the same? What kind of nos are they aiming for from US over next 3 years? Given the heightened competition in US - will it be possible to maintain the high margins co has been having?
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Co has undergone a major capex - how will the new plants be utilized? Will it be for decreasing the out-sourcing or the same will be used to increasing revenues? What is the current outsourcing %?
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Clarity on the Africa tendering business. There have been concerns that the competition will increase and the dream growth from this segment may stop for sometime?
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Company had been facing currency headwinds in the emerging market - whats the update on the same?
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As the co is relatively big now - it would be a different and difficult ballgame to grow from here and more importantly maintain the kind of margins the company has had. It would be great if the top management can share their thoughts, vision and actions around the same.
Look forward to updates after the AGM.
Thanks,
Ayush
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Hello Ayush,
Unfortunately, I had to cancel my trip to Mumbai, due to an emergency.
I was looking forward to hearing from the management on the company’s future prospects., specially in the African tender business & their new play in the US.
The company has been a late entrant in the US generics play & would have been interesting to understand how they position themselves.
I would appreciate if anyone who has attended the AGM to share their observations / notes for the same.
Regards,
Mukesh
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Promoters have sold 3.01% of the paid up capital http://www.bseindia.com/xml-data/corpfiling/AttachLive/d4c59931-55c5-4619-8fa0-90bb44819087.pdf time to exit fully?
discl: reduced stake earlier seeing the worsening return ratios
Ayush & others
Any other contrasting views or should one get out.I just get an eerie feeling as a similar incident happened with Kaveri and similar reasons (personal needs) were given,
I dont know much about this. But if you look at the recent past, even eicher and pi ind promoters sold big. ( in fact it was more than this). page industries promoters have been selling for a long time and it has come down to < 50%