Ajanta Pharma – My Notes from 2020 Annual Report

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Ajanta Pharma – Key Business Updates

  • Ajanta Pharma is a specialty pharma company engaged in the development, manufacturing, and marketing of quality finished dosage. 70% of business comes from branded generics and 30% comes from generics in the USA and anti-malarial institutional business in Africa
  • Company has done Rs 2588 crore of revenue, has 8 manufacturing facilities and 7000+ employees
  • Revenue distribution: 30% from India, 26% of the rest of Asia, 24% from Africa and 20% from the USA

Business Segments:

Branded Generics:

  • Indian branded generics grew at 13% against the industry growth of 11%
  • Branded generics in the rest of Asia and Africa grew at 27% and 14% respectively with the launch of 27 new products

Generics and Institutional

  • The anti-Malarial institutional business grew at 25% on the back of the lower base of the previous year. In the near term, expect this business to be volatile
  • US market had 82% growth through 7 new launches.
  • Ajanta Pharma is very positive about US business and expecting reasonable growth in high teens in next couple years at the back of 10-12 new filings every year

Financial Performance of Ajanta Pharma

  • Consolidated revenue of Ajanta Pharma grew by 26% to Rs 2588 crore whereas the markets performed well across generics and branded generics in emerging Asia and Africa
  • EBITDA margin was at 26% as the operating cost of new plants to continue to charge to P&L whereas utilization levels of these new plants were still low.
  • Once these plants reach a reasonable level of utilization, operating leverage benefits would kick in and lead to margin improvement
  • PAT grew by 21% to Rs 468 crore
  • Branded generics in emerging Asia and Africa grew at 22%
  • Despite CAPEX of Rs 240 crore, FY20 generated an operating free cash flow of Rs 235 crore. This will improve going forward as CAPEX comes to an end
  • Return on capital employed is up from 23% to 26% but still lower than 44% 5 years back
  • With CAPEX coming to an end, we expect an easing of pressure on operating free cash flows
  • Out of total export, Asia is 38%, the USA is 29%, Africa branded is 19% and Africa institutional is 14%
  • Material cost is up from 19% to 25% due to an increase in share of US business and some raw material price increases. This is expected to remain in the same range
  • Employee cost is up from 19% to 21% and other expenses down from 33% to 29% of sales
  • Some deterioration in the working capital cycle is due to growing USA business
  • Rs 13 dividend declared by Ajanta Pharma with Rs 114 crore payout
  • Total R&D expenses are 7.57% of revenue and most of it is expensed
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Annual Review of Ajanta Pharma Management

  • The major impact of covid will be seen in quarters ahead
  • Though demand disruption of covid on pharma is least compared to other industries, operational challenges are still huge
  • Launched 18 new branded generics products out of which 7 were first to market. Eye drop Ripatec, anti-hypertensive drug Azusa are some of the launches. MetXL, Softdrops, etc. keep climbing new highs
  • US generic business has started contributing meaningfully
  • New oral solid manufacturing facility inaugurated at Pitampur

Ajanta Pharma Announces the Launch of Aripiprazole Tablets

Source: PR News Wire

Market Trends

  • Developing nation growing at 2-5%, pharmerging growing at 5-8% and the rest of the world growing at 2-5%
  • Global pharma invoice spending has been $1.2 trillion


  • Growth drivers are multiple first to market products, specialty segment in India, 10-12 ANDAs lined up annually in the USA, leveraging brand power of key products, and 22 ANDAs waiting for approval in the USA
  • In the last 6 years, the company has invested almost Rs 1600 crore CAPEX which comes to an end as of now. This included 3 greenfield manufacturing facilities and expenses in the R&D center. The tail end of this CAPEX cycle ends with the ophthalmic section at Guwahati to be commissioned in Q2 FY21. This was completely funded with internal accruals. This CAPEX will meet the growing demand for the next 5 years
  • Over the last 5-6 years, the net margin has gone down from 25% to 18% and some of this will be covered through operating leverage with better capacity utilization of new facilities.
  • Branded generics contributes 70% of overall revenue. This generated 17% growth and expected to grow in the range of low teens
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 Other Points

  • 71% holding with the promoter, retail down from 7.2% to 6.6% and 18% owned by institutions
  • Mirae asset is one of the key shareholders and has increased its holding over the years
  • 20-30% of salary is through variable commission. Remuneration is within the regulatory limit
  • Non-managerial remuneration hike is 12% and managerial remuneration hike is 10% which is in line with the performance

Risks and Open Questions

  • 70% of revenue comes from export and hence there is a forex risk. The company has a hedging policy with hedging 50% of foreign currency exposure with plain vanilla forwards
  • Ajanta pharma Mauritius and Philippines is highly profitable but Ajanta Pharma USA has generated only Rs 13 crore PBT on Rs 599 crore of sales
  • A significant jump in receivables from Rs 460 crore to Rs 776 crore which more than a 60% jump
  • A significant jump in the cost of material consumed
  • What is Rs 74 crore of exchange different in other income, this may not be sustainable
  • In other expenses, selling expenses is up from Rs 240 crore to Rs 303 crore which is a 25% jump, in line with revenue growth
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Also Watch: Ajanta Pharma Share Buyback Plan

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Saurabh Kumar

Saurabh Kumar

Saurabh is a finance and analytics enthusiast with professional experience in both fields. He is an avid investor in the Indian stock market and academically interested in the application of analytics in the value investment field.
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