MOSL: AJANTA PHARMA (Buy)-Growth momentum continues

Ajanta Pharma: Growth momentum continues

(AJP IN, Mkt Cap USD2.1b, CMP INR1494, TP INR1840, 23% Upside, Buy)

• Ajanta Pharma (AJP) delivered a better-than-expected 3QFY18 financial performance, with sales growing 10% YoY to INR5.9b (our estimate: INR5.3b). EBITDA margin showed a marginal improvement YoY to 33.6% (our estimate: 29.2%). Lower other income and a higher tax outgo led to lower PAT growth of 3.4% YoY (v/s EBITDA growth of 11% YoY) to INR1.5b (our estimate: INR1.2b).
• Asia and the US drive growth for the quarter: Growth was led by strong sales performance in Asia (+78.9% YoY) and the US (+20% YoY), partly offset by lower YoY growth in Domestic formulation sales (+7% YoY) and a decline in Africa sales (-15% YoY). Superior product mix led to a 143bp YoY expansion in the gross margin to 81.3%, while higher employee cost and other expenses led to only 20bp YoY expansion in the EBITDA margin.
• Strong revival in Asia sales: For AJP, Asia delivered highest-ever quarterly sales of INR1.6b, led by new launches, enhanced marketing efforts, and a stable currency environment.
• US sales bounce back sequentially: US sales rose 20% YoY to INR710m (1.7x 2QFY18 sales), which can be attributed to two new launches, an increased market share in existing products, and subsiding price erosion.
• Lower institutional sales hurt overall Africa sales: Africa sales declined 14.7% YoY to INR1.8b due to a decline in institutional sales, while branded generics remained on a strong footing.