Ajanta Pharma

Very average set of results from Ajanta with sales growing by 6% and EPS declining by 20%. Company is facing margin pressure from high raw material prices and elevated shipping costs. This margin pressure has now been ongoing for last 3 quartes, we are probably left with 1 more quarter of PAT decline which will reset the base.

In terms of actual business, Ajanta is doing exceptionally well in Indian and Asian market. They have been outperforming IPM by a large margin since 2020. Most of their IPM outperformance have come from pain and derma therapies. Additionally, an EIR for Dahej facility should lead to resumption of growth in USA. My concall notes are below.

FY23Q2 concall

  • Sales grew at 6%, Gross margin 72%, EBITDA margins 21%, PAT margins 17%. Other expenses have increased to 31% of sales (vs 26% last year) due to higher freight costs (9% of export sales vs 7% pre-covid).
  • Guidance: COGS ~27% and EBITDA margins ~ 26 ± 1% in H2FY23
  • Most of the other income is forex gain
  • Air freight component of shipments is very low and most shipments are through sea
  • Freight costs for refrigerated containers have not reduced significantly
  • US:
    o (-5)% YOY decline (no new launches)
    o Filed 2 ANDA (H1: 3 ANDA), received 1 final approval (H1: 1 final + 1 tentative), plans to file 10-12 ANDAs during FY23 (0 new launch)
    o Have 21 ANDAs under approval and 4 tentative approvals
    o Mid-double digit price erosion in this quarter
    o gVimovo: Will be launched in Q4FY23 (product size has reduced significantly)
    o Lot of ANDA filings were done from Dahej which was inspected and they are expecting EIR to come in a few months as the 2 observations were procedural. Expect a flurry of approvals after that
  • Domestic:
    o 27% YOY growth, launched 15 new products in H1 (3 was first launch in India). Expect high teen growth for full year
    o 3 brands in top 500
    o Doing very well in dermatology and pain management
    o Gained 2 ranks in pain management
    o Trade generics: 38 cr. (vs 30 cr. in Q2FY22); 71 cr. in H1FY23
  • Emerging market (branded generics)
    o Africa branded declined by (-8)%. Should grow at high single digit for full year
    o Asia branded grew by 31%. Expect 20%+ growth for full year
  • Africa institution
    o Decline of (-50%) YOY
  • Working capital: Significant reduction in inventory days to 73 (vs 88 in Q4FY22), slight increase in receivable days 115 (vs 113 in Q4FY22) and payable days (76 vs 70 in Q4FY22)
  • CAPEX of 63 cr. in H1 (full year planned capex of 150 cr.). Capacity utilization is 60-65%
  • R&D stood at 6% of sales

Disclosure: Invested (position size here, no transactions in last-30 days)