Buy Ajanta Pharma Ltd for the Target Rs.3,200 by Motilal Oswal Financial Services Ltd
Consistent growth ahead of industry in DF/Asia
US generics shows revival in growth for two quarters
* Ajanta Pharma (AJP) delivered better-than-expected financial performance for the quarter. It recorded a 5%/8%/9% beat on revenue/EBITDA/PAT for 1QFY26 vs our estimates.
* AJP has consistently outperformed the domestic formulation (DF) market, led by the robust pace of new launches, including first-to-market, scaling up newer therapies, and increasing reach through additional MRs.
* After a moderate YoY growth in FY25, AJP has shown healthy improvement in the US generics segment for the second consecutive quarter.
* AJP is strengthening its presence in Asia by adding products in chronic therapies as well as enhancing its MR resources.
* We largely maintain our estimates for FY26/FY27. We value AJP at 34x 12M forward earnings to arrive at a TP of INR3,260. AJP is a differentiated play, with ~76% of its business in the branded generics segment. It follows a geographic-specific strategy to outpace industry growth in DF/Asia/Africa. It maintains a healthy pace of launches and offers better growth prospects in the US generics segment. Overall, we expect a 15% earnings CAGR over FY25-27. Reiterate BUY.
Product mix benefit offset by higher opex YoY
* AJP’s 1QFY26 revenue grew 14% to INR13b (our est: INR12.5b), led by growth across all key businesses.
* DF sales rose 16% YoY to INR4.1b (31% of sales). US generic sales rose 36% YoY to INR3.1b (24% of sales). Branded generics Asia sales rose 10% YoY to INR3b (23% of sales).
* Africa branded generic sales declined 1% YoY to INR2.3b (18% of sales). Africa Institutional sales declined 10% to INR380m (3% of sales).
* Gross margin expanded 220bp YoY to 78.8% due to a better product mix.
* However, EBITDA margin contracted ~260bp YoY to 29% (our est. 28%) as higher gross margins were offset by an increase in employee costs/other costs (up 110bp/390bp YoY as a % of sales).
* Operational costs (employee expense/other expense) have increased at a significantly higher rate than revenue over the past four quarters, driven by MR addition as well as increased marketing/promotional activities for newer therapies.
* Consequently, EBITDA grew 4.5% YoY to INR3.8b (our est. INR3.5b).
* Adjusting for the net forex loss impact of INR158m, Adj. PAT grew 2% YoY to INR2.7b (our est. INR2.5b).
Highlights from the management commentary
* While no ANDA was filed in 1QFY26, AJP has maintained its guidance of 10- 12 ANDA filings for the US market in FY26.
* The company aims to sustain a gross margin of 78% (+-1%) for FY26. It indicated maintaining FY26 EBITDA margin at similar levels to those in FY25.
* AJP guided for mid-to-high single-digit YoY growth in the domestic formulation segment in FY26.
* It aims to sustain the US sales run rate on the back of new launches, market share gains, and upcoming launches
* AJP has taken steps to revive YoY growth in cardiology therapy within the domestic formulation segment, with the impact expected to become visible in the coming quarters.
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