Buy Ajanta Pharma Ltd for the Target Rs.3,730 By Prabhudas Lilladher Ltd
Growth intact; near-term margin pressure
India: Contributes 32% of revenues, with chronic portfolio at 65%. Cardio, Ophthal and Derma remain the key therapies, while ~11% of the portfolio is under NLEM. MR strength stood at ~3,750 with another ~400 planned in FY27E. PCPM at ~INR 0.45mn. A second Gynaecology division is being launched, while nephrology remains relatively slow. Company plans 18–20 launches annually including extensions, with 9 extensions in the pipeline. Productivity is expected to improve as recent MR additions mature.
Branded Africa: Contributes 18% of revenues and grew 29% YoY in Q1FY27, led by launches, productivity improvement and deeper penetration. Growth is expected to normalize from the exceptional Q1 level, with high double-digit growth maintained for FY27E. Africa also received a large institutional order from the US.
Branded Asia: Contributes 16% of revenues and remained weak in Q1 due to Middle Eastrelated logistics disruption. Delayed shipments are expected to be recognised in Q2FY27E, supporting a strong rebound and high double-digit growth. Alternate routes through Jordan/Turkey and air freight are being used, resulting in some incremental logistics costs.
US generics: Contributes 30% of revenues; 2 products were launched in Q1 and 5–7 ANDA filings are planned for FY27E. Management maintains mid- to high-single-digit growth guidance in CC, with Q2 expected to benefit from a favourable base. Focus remains on semi-complex/complex oral solids and products with lower competition.
Brexpiprazole: Tentative approval received for Brexpiprazole, an ~$8–10bn innovator product. Management sees $20–30mn annual revenue potential even after maximum price erosion, with the product expected to go off-patent in FY29. 4–5 US launches are expected in Q4FY27E, subject to FDA approvals.
New geographies: Expansion into new markets remains at the product-selection and registration stage, with contribution expected over the next 3–5 years. Focus includes LATAM, Canada, Saudi Arabia and UAE, while EM headcount is expected to increase by 5–7% annually.
Capex & capacity: FY27E capex maintained at ~INR4bn, including ~INR2.5bn for Pithampur expansion and ~INR1.5bn maintenance. Pithampur is expected to come online in 2HFY29 after validation. Overall capacity utilisation is expected to reach full levels over the next 1–1.5 years.
Margin outlook: Freight costs are expected to remain broadly stable, while Q1 saw limited raw-material inflation due to existing inventory. However, higher crude-linked input costs and logistics expenses are expected to put pressure on gross margins in 2HFY27. War-related disruptions could also push up API prices.
Regulatory /R&D: EIR received for Paithan, with new approvals and launches expected from Q4. R&D spend is guided at ~5% of revenues in FY27E. Tax rate expected at 26–27% following the expiry of Guwahati tax benefits.
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SEBI Registration number is INH000000933
