MOSL: AJANTA PHARMA (Buy)-Strong 2Q-stance remains positive
​Ajanta Pharma: Strong 2Q; stance remains positive
(AJP IN, Mkt Cap USD1.7b, CMP INR1221, TP INR1606, 31% Upside, Buy)
Ajanta Pharma’s (AJP) 2QFY18 financial performance was better than expectations, with sales at INR5.4b (est. of INR5b), EBITDA margin at 34% (est. of 29%) and PAT at INR1.3b (est. of INR1b).
- DF and Africa drive growth: Sales grew 4.8% YoY, led by strong institutional anti-malaria sales and a recovery in domestic formulation (DF) business. However, a decline in US sales and moderate growth in Asia sales adversely affected overall sales growth for the quarter. Superior product mix and higher operating leverage led to 40bp YoY (+640bp QoQ) expansion in EBITDA margin.
- DF business revives: There has been a recovery in the DF market post GST. New product launches and higher business in existing products led to 12% YoY growth in DF. We expect the uptrend in YoY growth to continue for AJP.
- Institutional anti-malaria (Insti-AM) drives Africa sales: Africa sales increased 25% YoY, led by 38% YoY growth in Insti-AM business. Even branded generics showed healthy YoY growth of 9%. Despite a strong 2Q, we expect a YoY decline in FY18 Africa sales due to overall lower allocation by Global Fund.
- Price erosion affects US sales: US sales declined 63% YoY to INR260m due to price erosion in some products. Based on the launch pipeline and the ANDAs awaiting approval, we expect sales to improve in the coming quarters. Management maintained its guidance of 12-15 filings in FY18 (five filed in 1HFY18).
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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