Ajanta Pharma

Another strong set of results from Ajanta, sales grew at 27%, there was margin compression which led to PAT being flat. Management is confident of getting back to 25-26% EBITDA margins in FY23. Notes from concall below.

FY23Q1 concall

• Sales grew at 27% (looks higher due to lower base of Q1FY22), Gross margin ~ 71% (2% due to one-time inventory write-off + 1% due to raw material and packaging price increase + 1% US price erosion), EBITDA margins ~ 23%, PAT margins ~ 18%. Expect gross margin to recover to 74% and EBITDA margin to 25-26% in FY23
• US:
  o 6% YOY growth (gain in market share + 0 new launches), despite severe price erosion. Estimating price erosion to come down to 6-8%
  o Filed 1 ANDA and received 1 tentative approval, plans to file 10-12 ANDAs during FY23 (0 new launch)
  o Have 20 ANDAs under approval and 4 tentative approvals
  o Without new product approvals, expect around 5% growth for FY23
  o gChantix – Still under review with FDA
  o gVimovo – Approval can happen after facility inspection
• Domestic:
  o 22% YOY growth, launched 7 new products (2 is first to market). Most of the new launches will be in cardiology and diabetes
  o 7% price increase + 6% volume growth + 3% new product increase
  o 3rd fastest growing company in Top-30 cos (IQVIA MAT June 2022)
  o Trade generics: 33 cr. vs 27 cr. last year. Growing similar to peers, focusing more towards chronic therapies. Manufacturing is a mix of in-house and outsourced
  o Improved overall rank to 28 from 29 (in Q4FY22), gained 1 rank in dermatology and cardiology and 2 ranks in pain management
  o Growth due to new product launches, market share gain & price increase
  o 3 brands are now in top-500 in IPM
  o 12% is under NLEM
• Emerging market (branded generics)
  o Africa branded grew by 34%. New product launches + higher field force. 20-25% growth was sustainable, excluding 1-time benefit from lower base. Expect this to sustain at around 15%
  o Have larger presence in Franco Africa, 8% has been growth in MR network in Africa
  o Asia branded grew by 45% (looks elevated due to slightly lower base of FY22Q1)
  o Launched 10 new products
• Africa institution
  o Growth of 44% YOY
• CAPEX of 43 cr. in quarter (full year planned capex of 200 cr.)
• R&D stood at 6% of sales
• Freight costs increased from 6% to 8% of sales
• Quarterly other expense rate was 266 cr. (increased slightly from 258 cr.)

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