Reduce Ajanta Pharma Ltd for the Target Rs. 2,450 By Choice Broking Ltd
Margins Under Pressure
Growth Continues, but Margin Under Pressure
AJP’s investment-led phase continues, with management maintaining focus on field force expansion, brand building, and strengthening market presence. While revenue growth is expected to sustain in high single to low double-digits, EBITDA margin are likely to remain stable at ~27% through FY26–27E, as reinvestments offset operating leverage benefits. We have revised our EPS estimate by +4.5%/-2.7% for FY26E/FY27E and reduced our target multiple, from 30x to 25x, factoring in the absence of margin expansion (flat since FY24). Our stance also reflects the lack of high-value pipeline assets relative to peers with exposure to GLP-1s and complex generics. Accordingly, we arrive at a revised target price of INR 2,450 (vs. INR 2,995 earlier) and downgrade the stock to REDUCE.
Topline Meets Expectations; Profitability Below Estimates
* Revenue grew 14.1% YoY / 3.9% QoQ to INR 13.5 Bn (vs. CIE estimate: INR 13.5 Bn).
* EBITDA grew 5.4% YoY but declined by 6.7% QoQ to INR 3.3 Bn (vs. CIE estimate: INR 3.6 Bn); margin contracted 201 bps YoY / 276 bps QoQ to 24.2% (vs. CIE estimate: 27.0%). Excluding the one-off forex loss, the adjusted EBITDA margin stood at ~27%.
* PAT increased 20.2% YoY / 1.9% QoQ to INR 2.6 Bn (vs. CIE estimate: INR 2.7 Bn).
Growth Led by India and North America; Asia, Africa to Support
AJP reported another strong quarter of revenue growth and the management expects growth to sustain across regions, which we believe will be driven by new launches and therapy expansion.
* India: Expected to outperform the IPM (expected ~9% in FY26E), driven by volume gains, new launches and traction in Gynaecology and Nephrology.
* North America: Likely to grow in mid- to high-teens, supported by new launches (including Topiramate) and market share gains in existing products.
* Asia & Africa Branded: Asia growth expected in low teens, led by new chronic launches. Africa should deliver low double-digit growth, aided by footprint expansion and a steady launch pipeline.
* Africa Institutional: Remains volatile, though contribution is limited (<3% of total revenue).
Margins to Stay Steady at ~27% Amid Growth Investments
Management does not anticipate meaningful margin expansion, as the current focus remains on field force expansion, brand building, and new business initiatives. In line with this, we expect EBITDA margins to remain around 27% through FY26–27E, reflecting continued focus on revenue growth.
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