Ajanta Pharma



Decent sales growth in Q2.Growth was led by US markets again.EBITDA fell to 28% from 31% yoy.The company has done very well in the domestic markets too.Ajanta’s growth was 16% vs. 10% for the industry.Ajanta is No. 2 in Ophthalmology in the domestic market now.The investor presentation is very good & has all the key details.

Only disconcerting part for me is the stretched WC cycle.Receivables are now at ~3 months.Company had said earlier that US market has a longer inventory cycle,but the trend continues to deteriorate.Hope it stalls soon.The numbers from Africa are a bit confusing for me.Institutional biz. surged 60% in Q2,yoy. While branded shrunk a bit.Branded sales & institutional sales are almost the same after Q2.


Numbers looks very good. Technically too the stock is looking very good from investment perspective


Better than expected Q3Fy20 on all fronts. Primarily driven by strong growth in US and Emerging Market branded generic.

  • US: 140% (q3) and 80% (9m) growth, albeit on low base. Growth consistency is noteworthy. US accounts for ~20% of the sales in 9mFy20; this % to go up as per co guidance (~30%)
  • India: 12% growth in Q3 and 9m; Ophthalmology, Pain Management and Cardiology reported better than segment MAT growth. However, the first time launches driven magic charm (that Ajanta was once known for) has been missing currently
  • Africa: 13% (q3) and 20% (9m) growth in branded generic + institution combined
  • Asia: Sales in the last two qtrs has been good; need to monitor sustainability


Source: Q3Fy20 results and presentation


From Edelweiss report

Key takeaways

 AJP(Ajanta Pharma ) expects to grow 11-12% in India business over the next two years.
 The company expects to launch two first-mover products per quarter.
 Dermatology faced challenges three years ago where its largest brand melacare’s (anti
pigment cream) sales fell. But now it has started growing and is expected to surpass
industry growth in next two years.


 US revenue in FY20 to be around INR5bn. The company has 27 pending approvals and
expects 25% growth over FY19-22E.
 US is segment agnostic and the focus is on oral solids.
 AJP has witnessed sharp price erosion in the US portfolio; however, going forward, it
expects single-digit price erosion.
 The company hopes to file 8-12 ANDAs each year and launch ~10 products per year.
 Currently, 10 products contribute 70% to US sales.
 80% of filings are from Dahej plant.


 Franco African market, the largest in export branded market for the company, is
growing at 3-4%. It is USD40-45mn market for AJP.
 Asia Africa collectively growing 2x market growth.
 Global fund is 70-80% of total malaria business.
 This geography has faced hurdles during the past year, but has made a come back and
has normalised from this quarter. Major contributors being West and Central Asia.
Going forward mid teens growth is expected.


Any reason for sudden rally In Ajanta pharma in such volatile market?

Ajanta Pharma got USFDA nod for Metformin Hydrochloride tablets

Metformin is an oral diabetes medicine that helps control blood sugar levels. Metformin is used together with diet and exercise to improve blood sugar control in adults with type 2 diabetes mellitus. Metformin is sometimes used together with insulin or other medications, but it is not for treating type 1 diabetes




I am trying to explore some opportunities in Pharma space.

To me, Alkem Labs and Ajanta Pharma look descent at CMP.

Just a querry…

Can anyone on this thread tell me as to what percentage of their revenues come from Turkey ???

Just a little worried about the geo-political situation and the shadow boxing thats on between India and Turkey these days.

Ranvir Dehal

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There is no mention to Turkey in their FY19 annual report. It will be <2% (in others revenue segment)

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I did an analysis of Lupin, Aurobindo and Ajanta as i felt these were in the Value range in the Pharma sector. I find Ajanta better Quantatively in some aspects like Sales/profit gowth, Ratios and Du Pont Analysis.

One discomforting thing i see for Ajanta is 17% Promoter’s holdings are pledged.
Any thoughts on the pledging part?

On pledging: Promoters total holding is 70% out of which 17% is pledged that means un-pledged holding is 58%. This means they still have significant risk in company even assuming pledges shares are sold out.

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Results: https://www.bseindia.com/xml-data/corpfiling/AttachLive/07ed911f-61de-4c01-9738-21635ef3516f.pdf



Good performance by ajanta.

All export geographies seem to be doing well. US business though small in size is growing well.

Total exports were 490 crores in q4 fy 20 as compared to 343 crores a growth of 43%. For fy 20, total exports was 1790 crores vs 1324 crores for fy 19. Out of total revenues of 2588 crores, export component was 1790 crores which is almost 70% of total sales.

Even dr reddys results today were quite good. There too export sales stole the show.

It seems most export facing pharma companies are on a strong wicket. Going ahead, strong dollar should also benefit these companies.


Hitesh bhai… any idea why Ajanta is lagging in dermatology segment in past quarters when it used to be a front runner in the dermatology? They have been consistently under performing the industry in this segment while doing well in others.


I think the marketing and product launches has been poor from Ajanta of late. Plus competition has intensified because of other biggies being aggressive in the segment.

Key area to monitor for ajanta and for most pharma companies for me is exports. That’s where the growth needs to be monitored. And I would prefer to look at companies which have large component of income from exports or companies that are majorly into APIs. There seems to be good growth shown across the board by most API companies.


My notes from Ajanta Pharma AR 2020

Ajanta Pharma:

Notes from AR 2020

Key business updates:

  • Ajanta pharma is a specialty pharma company engaged in development, manufacturing and marketing of quality finished dosage. 70% of business comes from branded generics and 30% comes from generics in USA and anti-malarial institutional business in Africa

  • Company has done Rs 2588 crore of revenue, has 8 manufacturing facilities and 7000+ employees

  • Revenue distribution: 30% from India, 26% of rest of Asia, 24% from Africa and 20% from USA

Business Segment:

Branded Generics:

  • Indian branded generics grew at 13% against industry growth of 11%

  • Branded generics in rest of Asia and Africa grew at 27% and 14% respectively with launch of 27 new products

Generics and Institutional:

  • Anti-Malarial institutional business grew at 25% on back of lower base of previous year. In the near term, expect this business to be volatile

  • US market had 82% growth through 7 new launches. Company is very positive about US business and expecting a reasonable growth in high teens in next couple years at the back of 10-12 new filings every year

Financial Performance:

  • Consolidated revenue grew by 26% to Rs 2588 crore whereas the markets performed well across generics and branded generics in emerging Asia and Africa

  • EBITDA margin was at 26% as operating cost of new plants to continue to charge to P&L whereas utilization levels of these new plants were still low.

  • Once these plants reach reasonable level of utilization, operating leverage benefits would kick in and lead to margin improvement

  • PAT grew by 21% to Rs 468 crore

  • Branded generics in emerging Asia and Africa grew at 22%

  • Despite capex of Rs 240 crore, FY20 generated operating free cash flow of Rs 235 crore. This will improve going forward as capex comes to an end

  • Return on capital employed is up from 23% to 26% but still lower than 44% 5 years back

  • With capex coming to an end, we expect easing of pressure on operating free cash flows

  • Out of total export, Asia is 38%, USA is 29%, Africa branded is 19% and Africa institutional is 14%

  • Material cost is up from 19% to 25% due to increase in share of US business and some raw material price increases. This is expected to remain in same range

  • Employee cost is up from 19% to 21% and other expenses down from 33% to 29% of sales

  • Some deterioration in working capital cycle is due to growing USA business

  • Rs 13 dividend declared with Rs 114 crore payout

  • Total R&D expenses is 7.57% of revenue and most of it is expensed

Annual Review of Management:

  • Major impact of covid will be seen in quarters ahead

  • Though demand disruption of covid on pharma is least compared to other industries, operational challenges are still huge

  • Launched 18 new branded generics product out of which 7 were first to market. Eye drop Ripatec, anti-hypertensive drug Azusa are some of launches. MetXL, Softdrops etc. keep climbing new highs

  • US generic business has started contributing meaningfully

  • New oral solid manufacturing facility inaugurated at Pitampur

Market Trends:

  • Developing nation growing at 2-5%, pharmerging growing at 5-8% and rest of world growing at 2-5%

  • Global pharma invoice spending has been $1.2 trillion


  • Growth drivers are multiple first to market products, specialty segment in India, 10-12 ANDAs lined up annually in USA, leveraging brand power of key products and 22 ANDAs waiting for approval in USA

  • In last 6 years, company has invested almost Rs 1600 crore capex which comes to an end as of now. This included 3 greenfield manufacturing facility and expense in R&D center. The tail end of this capex cycle ends with ophthalmic section at Guwahati to be commissioned in Q2 FY21. This was completely funded with internal accruals. This capex will meet growth demand for next 5 years

  • Over last 5-6 years, net margin has gone down from 25% to 18% and some of this will be covered through operating leverage with better capacity utilization of new facilities.

  • Branded generics contributes 70% of overall revenue. This generated 17% growth and expected to grow in the range of low teens

Other Points:

  • 71% holding with promoter, retail down from 7.2% to 6.6% and 18% owned by institutions

  • Mirae asset is one of key shareholders and has increased its holding over the years

  • 20-30% of salary is through variable commission. Remuneration is within regulatory limit

  • Non managerial remuneration hike is 12% and managerial remuneration hike is 10% which is in line with performance

Risks and Open Questions:

  • 70% of revenue comes from export and hence there is a forex risk. Company has a hedging policy with hedging 50% of foreign currency exposure with plain vanilla forwards

  • Ajanta pharma Mauritius and Philippines is highly profitable but Ajanta Pharma USA has generated only Rs 13 crore PBT on Rs 599 crore of sales

  • Significant jump in receivables from Rs 460 crore to Rs 776 crore which more than 60% jump

  • Significant jump in cost of material consumed

  • What is Rs 74 crore of exchange different in other income, this may not be sustainable

  • In other expenses, selling expenses is up from Rs 240 crore to Rs 303 crore which is 25% jump, in line with revenue growth


As companies become bigger they start encroaching spaces they are not present in value chain, See how

Ajanta Pharma is – Pivoting its fortunes

Let me refresh your memory from this [2015 on how Ajanta pharma, Granules India and Suven Life Sciences were operating in different sections of the industry

Five years and things have turned on their head in 2020

  • Ajanta Pharma – Started selling in regulated markets
  • Granules – Set upfront retail shop in the US
  • Suven – Has moved into API manufacturing at scale

each of them had their own niche and slowly [build](complementary capabilities. Nothing depicts the pivot made by Ajanta pharma better than below chart

from no presence to getting 1/5th of their is sales from the USA is no mean feat. Typically when a company moves its sales from the unregulated market to the regulated market, you expect margins to improve. However, the net margin has dropped from 21% in 2015 to 18% in 2020. Winning US business takes time and effort along with it comes the cost of compliance operating in the regulated market.

The other big change which is not visible in the income statement is that the asset size of the company has grown by 250% in 5 years

When your asset base increases by 250% but your top line increases by only 78% percent a lot of return ratios get hit. This news has not been hidden from the market and the market cap of the company hasn’t breached their 2015 highs

Management firmly believes that they are turning the corner

When we started building business in the US, five years ago – we were fully aware of the challenges. The need for building US FDA approved facility was just the beginning. The dynamics of the business does not even allow quick ramp-up of production at a facility as product filings and approvals take their own time. This, naturally, put pressure on our return ratios as we continued to incur fixed cost. Though we were fully aware of it, we needed to do it as we knew it will eventually start paying – and this year saw the beginning of it

This brings us to the tail end of a major capex cycle , with only ophthalmic section at Guwahati remaining to be commissioned in Q2 FY 2021.

Annual Report 2020

Now let’s focus on some of the current year’s highlights

  • The Company outgrew Indian Pharmaceutical Market (IPM) recording 13% growth compared to 11% for the industry, maintaining its healthy track record for the last 5 years
  • Launched a total of 18 new products in India across 4 specialty therapies. Out of this, 7 were first-to-market
  • Anti-malaria institution business for Artimether-Lumefnatrine in Africa grew 25% in the year, the business being lumpy in nature as it depends on funding bodies. However, the company expects to protect its market share in the business
  • 7 new product launches and market share by our existing products in the US business

What’s in store for the future?

  • Going forward, as the manufacturing capacity utilization improves for the newly set up facilities, expect margins to further improve over a period of time
  • With major capex cycle coming to conclusion with all major greenfield projects getting completed, expect the free cash flows to improve in coming years

As the US business becomes more prominent for Ajanta we need to watch out for pricing pressure and have to see if margins and ROCE revert back to 2014 and 2015 levels

While Ajanta pharma may look expensive when viewed from an earnings point of view (July 2020 market Cap INR 12000 crore), however, we know that earnings are likely to improve as scale builds.


Covid Updates from the company:

Disc: Invested