US/Asia businesses drive superior performance
Lower opex further supports profitability improvement
* Ajanta Pharma (AJP) delivered superior 1QFY21 performance in the US/Asia. This was supported by controlled costs, driving better operating leverage. With capex in the final phase and strong product pipeline in key markets, we believe AJP is well placed to garner healthy earnings over the next 2-3 years.
* We have increased our EPS estimate for FY21/FY22E by 5.7%/3.4% to factor in the benefit of lower opex and improving growth prospects in the branded generic segment with the lockdown easing. We value AJP at 23x 12M forward earnings to arrive at price target of INR1,815 (from INR1,700). We remain positive on AJP’s ANDA pipeline in the US, consistency in compliance and ability to outperform in the branded generics segment. Maintain Buy.
Revenue growth and steady opex leads strong margin expansion
* 1QFY21 revenues were up 9.2% YoY to INR6.7b (v/s est. INR6.4b), led by growth in exports (19% YoY to INR4.8b), US generic sales (46% YoY to INR1.5b; 22% of sales) and Asia sales (27.8% YoY to INR1.6b; 24% of sales). Africa sales dipped 2% YoY to INR1.7b (25% of sales), led by 23% YoY decline in Institutional sales to INR620m. Domestic formulation (DF) sales declined 10% YoY to INR1.78b (~26% of sales).
* Gross Margin (GM) expanded 40bp YoY to 77.1%.
* EBITDA margin expanded at higher rate of 590bp YoY with superior product mix and controlled opex. As % of sales, other expense was down 650bp YoY, which was marginally off-set by 100bp rise in employee cost.
* EBITDA grew 32.6% YoY to INR2.2b (v/s est. INR1.5b).
* R&D expenses stood at INR310m (5% of sales and down 190bp YoY).
* PAT grew at a lower rate of 29% YoY to INR1.5b (v/s est. INR1b) due to higher depreciation and tax rate for the quarter.
Highlights from management commentary
* AJP has guided for flat FY21 revenue compared to FY20.
* The company has received 5 ANDA approvals by the USFDA in 1QFY21. It has guided to file ~10-12 ANDAs and intends to launch 6-7 ANDAs in FY21. It had 19 ANDAs pending approval as at end-1QFY21.
* AJP has 3,000 MRs as on date in the domestic formulation (DF) segment.
* The Ophthalmic block in Guwahati would be commercialized in 2QFY21.
* It has guided for effective tax rate of 27-28% for FY21.
Valuation and view
* Over FY20-22E, we expect 18% earnings CAGR led by 19% sales CAGR in the US and 7% sales CAGR in branded generics with 200bp margin expansion.
* We have raised our EPS estimate by 5.7%/3.4% for FY21/FY22E to factor in lower operating costs and better product mix. Our TP has been revised to INR1,815 (from INR1,700 earlier), valuing AJP at 23x 12M forward earnings.
* We remain positive on AJP on its new launches, rising share in key markets of the US/India/Asia/Africa and improved operating leverage. Re-iterate Buy.
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