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Ajanta Pharma Ltd. reported earnings were above our estimates. Revenue at INR 11,449mn (+12.1% YoY and +8.6% QoQ) came on the back of robust performance in India and African Branded business. EBITDA margin grew by 228bps YoY and 245bps QoQ at 28.9% attributed to the combined benefits of reduction in API prices, decline in logistic costs, and stabilization in US Price erosion. The management expects consolidated low teens top-line growth in FY25, driven by branded generic and India business.

* India Branded Generic Business: In Q1FY25, the India business grew by 10.7% YoY and 8.3% QoQ to INR 3,530mn, the growth was driven by increased volume, increase in the price, and new product launches during the quarter. During the quarter, the trade generic business managed a revenue of INR 410mn vs INR 360mn in Q1FY24. The company expects to continue to outperform the Indian business by 200-300bps over the IPM growth. The growth from new product launches was 1.3x more than the IPM growth. The IPM growth is expected to be around 8-9%. It focuses on four specialty therapies in India through which FY25 growth will be driven by the fastest growth in derma followed by ophthal and cardio.

* US Business: During the quarter, the U.S. market had a revenue of INR 2,280mn (+7% YoY / -12.6% QoQ), driven by normalization in the price erosion. The company will file 8-12 ANDAs every year. The price erosion in the US is expected to be around 8-10% and the business is expected to grow in mid-single digit in FY25.

* Branded Generic: During the quarter, the Branded Generic market had a revenue of INR 5,070mn (+22.8% YoY/+28.7% QoQ). The consolidated gross margin improvement during the quarter was majorly driven by higher contributions from the branded generic business. It is expected to grow in the mid-teens in FY25, which will be driven by increasing the marketshare, increasing the field force, and new product launches.

* Margin Profile: The gross margin saw an improvement of 128bps YoY and 169bps QoQ to 76.6%, and the EBITDA margin grew by 228bps YoY and 245bps QoQ at 28.9% attributed to the combined benefits of reduction in API prices, decline in logistic costs, and stabilization in US Price erosion. There was a one-time charge of INR30 crores in employee expenses due to a change in the policy of gratuity being paid to employees. The management expects gross margin and EBITDA margin to be in a similar range, i.e., 75-76% & 29% respectively.

Outlook and Valuation: The company’s growth story is based on factorsincluding the midteen growth in the branded generic segment, higher than IPM growth in the domestic business, normalization in the price erosion, new product launch to drive the US growth at mid-single digit, and increase in the field force which going forward will increase the efficiency. We expect FY23-26E Revenue /EBITDA /PAT CAGR of 13.5% /27.7% /28.4%. We value the stock based on FY26E EPS to arrive at a target price of INR 2,758 (valuing at 28x) and maintain our BUY rating on the stock

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