Ajanta Pharma - Q2FY21 Result Update - YES Securities

Ajanta Pharma (Q2FY21) - ADD (Target Rs1670, Upside 4%)

Our view: US sales seen at Rs5.8-6bn in FY21 on back of 4-5 launches in H2 while branded markets will clock 4-6% sales. India sales seen down 5% in FY21 as derma and Ophthal remain under pressure while expected 16% sales in FY22 implies there will be some element of lost sales over FY20-22 due to COVID. Gross margin seen moderating in FY21 to 75-76% from 78% in Q2 while margin gain of 200bps to 28.5-29% in FY21 will be front ended with less of incremental gains next fiscal. Guwahati ophthalmic block will add Rs150mn to other expense while other costs would gradually revive as India promotion costs come back. With no relative change in geographic profitability, retain ADD based on 25x FY22 EPS of Rs66.5 (vs Rs65 earlier)

Management interaction highlights

- Other exp - costs not fully back in a full- fledged manner as costs incurred for only 1.5month in Q2

- India MR costs not fully accounted; guidance intact of domestic sales decline of 5-6%

- Branded sales of +6-8% growth in FY21

- Dispatches higher in Africa

- Other expenses lower as Promotion costs stayed low and is a large component of exp

- Full year R&D to be on lower side due to COVID as BE studies not carried out at the earlier pace

Q2 FY21 round up

- Derma and Ophthalmic continue to be pain points and behave in acute manner which led to flat yoy India sales

- Push in dispatches led to 37% yoy jump in Africa branded while Asia branded flat yoy

- US sales got boost from launches of past 9 months even as company targets 4-5 launches in H2; see US sales at Rs6bn in FY21

- Other expense lower yoy as costs still reduced largely in the domestic promotion market as Rx displays lack of pick up; company expects costs to hit regular run rate of Rs1.8bn in Q3 and Q4.

- Gross margin improved as branded business of Asia and Africa up yoy while institutional business declined yoy

Shares of AJANTA PHARMA LTD. was last trading in BSE at Rs.1609.35 as compared to the previous close of Rs. 1574.85. The total number of shares traded during the day was 4955 in over 646 trades.

The stock hit an intraday high of Rs. 1622 and intraday low of 1584.1. The net turnover during the day was Rs. 7933566.

Source : Equity Bulls

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