MOSL: AJANTA PHARMA (Buy)-Healthy revenue growth, product mix change dents margins
AJANTA PHARMA: Healthy revenue growth, product mix change dents margins
(AJP IN, Mkt Cap USD1.2b, CMP INR1002, TP INR1175, 17% Upside, Buy)
- Higher US generics/Asia/institutional anti-malaria sales drive revenue growth: Revenue increased 18% YoY to INR6.4b (our estimate: INR5.8b), led by growth in US generics (+41% YoY), Asia branded generics (+34% YoY) and Institutional anti-malaria (+39% YoY), partly offset by lower Africa branded generics sales (-10% YoY to INR820m). Domestic branded (DF) sales grew 6.4% YoY to INR1.8b. Particularly, the dermatology segment in DF grew at a healthy rate of 9.7% YoY for the quarter.
- Change in product mix drags margins: Gross margin shrank 830bp YoY to 74.1% due to the higher share of relatively low-margin US generics and institutional anti-malaria sales. EBITDA margin, however, contracted at a lower rate of 290bp YoY to 27.6% (our estimate: 27.3%) due to controlled operating cost (employee cost down 110bp YoY/other expenses down 460bp YoY). EBITDA grew 7% YoY to INR1.7b (our estimate: INR1.6b). However, PAT declined 6.7% YoY to INR1.2b (our estimate: INR1.1b) due to higher depreciation and tax rate. For 1HFY20, sales/EBITDA grew 19%/7% YoY, while adj. PAT was flat at INR2.3b.
- Other key highlights: (a) AJP filed six ANDAs in 1H, taking the cumulative ANDAs pending for approval to 26. It intends to file 10-12 ANDAs in FY20. (b) It has launched three products in 1H, taking the total number of products commercialized to 27. (c) There has been a considerable rise in receivables on account of higher US/Asia sales. (d) R&D spend stood at INR400m (6% of sales). (d) AJP has maintained its guidance of 10-15 YoY decline in institutional anti-malaria business for FY20. (e) It guided for growth of 10-11% YoY in branded generics and 30-35% YoY in US generics.
Ajanta Pharma Limited. Ajanta Pharma Limited is a holding company. The Company is a specialty pharmaceutical company engaged in developing, producing and marketing a range of branded and generic formulations. Its business includes branded generics in emerging markets of Asia and Africa, generics in the developed markets of the United States and Institutional sales. The branded generics business is spread in India and over 30 emerging countries across Africa, Commonwealth of Independent States (CIS), the Middle East and South East Asia. The Company serves a range of therapeutic segments, such as anti-biotic, anti-malarial, anti-diabetic, cardiology, gynecology, orthopedics, pediatric, respiratory and general health products. Ajanta has six formulations manufacturing facilities located in India and 1 in Mauritius. In addition, the Company also has an API manufacturing facility located at Waluj, India. The Company's subsidiaries include Ajanta Pharma (Mauritius) Ltd., and Ajanta Pharma USA Inc.
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