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Result Synopsis

Ajanta reported a robust quarter with stellar beat on margin and all round growth across geographies. Q1 performance puts behind the disappointment of last 6 months as company recouped margin driven by lower freight cost, decline in US price erosion, softening of API prices and INR depreciation against Euro. US business showed the impact of decline in price erosion as revenues jumped a rather sharp 19% YoY aided by a normalized price erosion coupled with likely volume share gain. Africa branded business recovered some of the disrupted sales in Q4 FY23 and company continues to guide for mid-teens growth in both Asia and Africa branded businesses. Q1 might turn out to be a high water mark for margin as rest of the year would see higher R&D though YoY comparison should still look favourable due to depleted base last year. We continue to like Ajanta Pharma as revenue growth still has some legs after Q1 recovery with Africa/Asia branded growth set to accelerate next year and Chantix likely adds to US sales. Our margin recovery expectation has played out in Q1 and from here on topline growth would drive bulk of earnings; retain BUY and a top pick in pharma with revised TP Rs1,850 (earlier Rs1,700) based on 26x FY25 EPS. A slight uptick in multiple from 25x as we reckon company has delivered after tough times of last 6-9 months and is likely to see further margin pick up in FY25.  

Result Highlights 

 Strong beat across markets coupled with margin at 200bps shy of pre covid run rate Domestic growth of 14% YoY driven by healthy performance in cardiac, derma and ophthalmic therapies Africa branded (Franco Africa) still somewhat impacted by protests in France but likely to recover fully in Q2 Gross margin touched 75% as softening API prices and lower US erosion would have helped GM recover Margin at 26.6% recouped all the losses of last 6-9 months on back of lower freight costs, robust operating leverage benefit and rebound in Euro to 89 vs 82 against INR

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