MOSL: AJANTA PHARMA (Buy)-Growth ingredients in place-EM execution + US approvals hold key

Ajanta Pharma: Growth ingredients in place; EM execution + US approvals hold key

(AJP IN, Mkt Cap USD1.9b, CMP INR1352, TP INR1840, 36% Upside, Buy)

We recently met Ajanta Pharma’s (AJP) management to get updates on its business segments. Rejigged strategies by the company in a favorable business environment have started yielding results in Asia, while its enhanced focus on Anglo Africa is expected to support growth in Africa’s branded generics business. AJP has also re-strategized to improve growth in dermatology in the domestic formulations segment, and remains on track to outperform industry. We maintain our estimates and re-iterate our Buy rating, with a price target of INR1,840, driven by superior execution in branded generics and a robust product pipeline for the US market.

•  AJP has employed a three-pronged strategy – enhanced focus on Anglo Africa, bringing on board more medical representatives (MRs) and specific therapy focus by MRs – to improve growth in its branded generics business in Africa. The company has guided for growth of 12-13% YoY (better than industry growth of 5-7%) over the next 12-15 months.
• The company has also added a considerable number of MRs for the Asia market. It also intends to add more therapies. This, along with increased traction in existing products, has led AJP to guide for mid-teens growth in the Asia market over the next 12-15 months.
• Dermatology (26% of domestic formulation business in FY17) has exhibited a subdued performance due to stable sales of Melacare group of products and increased attrition rates. With a leadership change in this division, controlled attrition and addition of new products, AJP expects this business to recover over the next 9-12 months. AJP remains on track to outperform industry in other key therapies (e.g. Cardiology and Ophthalmology) as well.