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About the stock: Ajanta Pharma is a focused player in branded generics, which constitutes ~72% of overall sales, spread across geographies including India.

* As of FY23, overall exports: domestic formulations ratio was at 67:33

* Among exports, Asia accounts for ~41% of export formulations, Africa 26% and the US ~34%. The company also participates in anti-malarial tenders in Africa (included in Africa)

Key Investment Thesis:

* Increased capital allocation towards the branded generics segment (72% of the revenues): More numbers of product launches (including higher First to Market molecules) in various geographies, with differentiated delivery systems or combinations and doubling of international workforce (up 50%)

* Reduced capital allocation to US business: Inspite of mere 22% revenue contribution, 2/3rd of working capital tied to the business (overall 141 days in FY23). To counter increased erosion in the market, Ajanta aims to selectively launch products in lower competitive business and limit US revenues to 15% of consol revenues

* Improving productivity of existing employees: In FY23, employee costs jumped 170 bps due to expansion in international workforce. The management intends to improve productivity of entire 4500+ field team, by enabling them more digital tools and helping them to get most out of the growing product portfolio

* EBITDA margins expected to rebound 400 bps in FY24: Margins are likely to improve amid operational leverage, expected softening of raw material cost and incremental focus on branded business. Calculated focus, healthy margins, return profile and lighter balance sheet are some key differentiators for Ajanta

* Revenues/EBITDA/PAT expected to grow at 11%/23%/25% FY23-25 CAGR. Return ratios are expected to reach 25% levels (ROIC even higher)

Rating and Target Price

* We value Ajanta Pharma at | 1950 based on 27x FY25E P/E multiple.

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