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Export growth, margin uptick remains key drivers

We capture and expand the key highlights of our recent conversation with Ajanta Pharma in this update. Domestic growth is being driven by dermatology as was the case in FY24 while Met XL continues to weigh on cardiac sales. We reckon the top cardiac brand would deliver only 2-3% volume growth as price hike is limited in current year. About 25% of new launches in domestic business continue to be of the first to market kind, as in the past which augurs well for profitability. Branded exports should get a boost in FY25 driven by near doubling of MR count to 1,700 and sustained new product introductions. US commentary remains largely unchanged with 8-12 filings and approvals being back ended. Overall, remain positive and do not see any need to tweak estimates; believe positive margin surprise may be possible if branded exports growth runs ahead of estimated 15-17% (on back of two tepid years). Our ADD rating stays based on unchanged 30x FY26 EPS.

India – derma continues to show strength, Met XL weighs on cardiac

Our interaction with the company suggests dermatology continues to be the fastest growing therapy in Q1 followed by ophthalmology, pain and cardiac at the tail end. Met XL, which pulled down cardiac business in FY24, is likely to see just 2-3% growth as price hike is now subject to NLEM. Albeit we emphasize key points such as continued support from 1) new product share of revenues being 40% higher than corresponding IPM number and 2) slightly better volumes which should result in consistent 10-11% growth in the domestic business. First to market launches have been maintained at ~25% in last 3 years which should augur well for domestic profitability. Additionally, a reshuffling of competition in ophthalmology (due to entrance of JB Chem) has so far not resulted in any market share loss which is important as we understand Ajanta has had a high overlap with the underlying portfolio of erstwhile competitor. Trade generics continues to build up and is even present in chronic segment as price hikes on prescription brands imply non promoted ones gain advantage.

Branded exports – acceleration seen after tepid show of past 2 years

Branded business – Asia and Africa cumulative sales over last 2 years have been lagging overall revenues for reasons which have been fairly well understood. Importantly, company has doubled the MR count from 800 to 1700 in these markets which should drive the acceleration to an estimated ~14% cagr over FY24-26. While freight would be an important component driving profitability (as Iraq is a key market that has been affected by Red Sea crisis earlier in 2024), we reckon there has been no additional costs to what has been already factored in the outlook.

US – no major approval thus far in FY25, base business key to growth

A look at April to July data shows no major approval has been forthcoming which implies base business volumes would assume significance in driving growth. Company looks to file 8-12 ANDAs which would be better than FY24’s 7 filings. With most of the approvals likely to come in H2, we expect US business to clock about mid to high single digit growth in the current fiscal. A slightly higher filing rate would augur well for next fiscal even as we keep any eye on approved but settled products like Oxcarbazepine XR (going off patent in April’ 27, launch date not clear).

Inching towards ~30% margin in FY26; possible growth surprise in branded exports can act as a boost

Ajanta reiterated its outlook of heathy growth in domestic market and boost from branded exports which should help create operating leverage on back of 8-9% rise in opex. Any faster growth in Asia/Africa could lead to an even better margin prognosis not currently captured in our numbers; we reiterate our ADD rating based on 30x FY26 EPS with unchanged TP Rs2,550.

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