Mr. Bansi Desai, CFA, HDFC Securities and Mr. Karan Vora, Institutional Research Analyst, HDFC Securities
Ajanta delivered solid Q4 with revenue/EBITDA growth of 11%/71% YoY amidst challenging environment. While revenues came in line, strong recovery in India (+23% YoY) and continued growth in the US (+21% YoY) was encouraging. EBITDA margin improved to 34.3% (+200bps QoQ) driven by higher gross margin and lower other expenses. We expect margin to stabilize around ~31%+ levels in FY22 (vs. 26%/34% in FY20/21) as other expenses normalise. With conclusion of major capex and steady growth in key markets, operating leverage benefit is expected to drive ~13% earnings CAGR over FY21-23e and core ROCE expansion to 28% in FY23 (from ~17%/25% in FY20/21). Maintain BUY. Revised TP of INR2,225/sh.
Robust quarter: Revenue at INR7.6bn grew by +11% YoY as strong growth in India (+23% YoY), US (+7% QoQ, +19% YoY) and Africa Institutional biz(+86% YoY) offset muted growth in EMs (-10% YoY, supply disruption). Gross margin improved to 78% (+386bps YoY, +34bps QoQ) driven by favorable product mix and product recall exp in the base. Other expenses declined to 24% (-850bps YoY, -273bps QoQ) due to lower R&D and operating leverage benefits. In absolute terms, it normalised to ~INR1.8bn from ~INR1.5bn in 1HFY21. EBITDA margin improved to 34.3% (+1,208bps YoY, +200bps QoQ) led by higher gross margins and lower other expenses.
Strong recovery in India, outperformance continues: Ajanta's India revenue grew by 23%+ YoY vs. ~6% growth in IPM. As per AIOCD, cardiac, ophthal and pain significantly outperformed the therapy average by 11%13% and 17% respectively. With a continued recovery in domestic market, we expect India business to grow at ~13% CAGR over FY21-23e.
EM business to bounce back in coming quarters: Asia business declined by~16% YoY and Africa branded business grew by ~2% YoY impacted by supply disruption. Ajanta expects growth to normalize in the coming quarters and aims to sustain its outperformance compared to industry growth. We expect EM business to grow at 11%+ CAGR over FY21-23e driven by steady performance in Philippines (40% of Asia revenues), new launches and volume growth in Asia, stable outlook in Africa (branded business to grow in high single digit, institutional business to remain flat).
Key call takeaways: a) India - 21 new launches in FY21 (incl. 5 first-to- market), MR productivity in ophthal is among the best, scope to improve in cardiac and derma exists; b) US - aims to file 10-12 ANDAs per year, pipeline mainly consists of OSDs, price erosion has normalised; c) operating costs to inch up moderately, R&D to be ~6% of sales; d) Capex: INR2.5bn for FY22, INR150-200bn for FY23; e) extent of outsourcing has reduced for domestic business as production shifted to Guwahati.
Maintain BUY, risks: Our TP of INR2,225/sh is based on 23x FY23e EPS, inline with its 5-year historical average. Key risks: Expansion of NLEM list, lower growth in EMs, delay in US approvals, and currency volatility in EMs.
Shares of AJANTA PHARMA LTD. was last trading in BSE at Rs.1863.15 as compared to the previous close of Rs. 1835.55. The total number of shares traded during the day was 7767 in over 1012 trades.
The stock hit an intraday high of Rs. 1872 and intraday low of 1817.45. The net turnover during the day was Rs. 14355269.