Ajanta Pharma - H2 Expectations Intact: Yes Securities

Yes Securities Report

We interacted with Ajanta Pharma Ltd. to understand growth outlook for second half and next fiscal. Key takeaways include-

1. Impact of National List of Essential Medicine inclusion on MetXL should continue till mid-December after which it should be part of base,

2. Looking to build a meaningful diabetes franchise and have launched Linagliptin after patent expiry in August 2023 in the domestic market

3. Asia and Africa branded secondary sales have been in mid-teens; H2 should see primary catching up to match secondary growth,

4. After a promising start, flu season is turning out very weak with may be just 15% of last year for Ajanta Pharma; albeit base business performance is steady with another benign price erosion situation,

5. Marketing and research and development spends should increase in H2 as indicated earlier and would offset to some extent branded exports recovery.

We believe Q3 should see slight margin dip compared to Q2 even as YoY margin recovery should persist due to now well-understood factors.

We remain positive on the stock as Ajanta Pharma represents a steady growth franchise with little likelihood of large earnings variances vis-a-vis expectation.

Albeit price-to-earning multiple may not rerate materially, and returns would continue to track underlying 15% Ebitda compound annual growth rate over FY22-25E.

In lieu of ~10% stock return since Q2 FY24 numbers and our belief PE unlikely to rerate sharply, we lower rating to 'Add' with ~10% upside.

Continue to prefer Ajanta Pharma over other domesticoriented names like JB Chememicals and Pharmaceuticals Ltd. and Alkem Laboratories Ltd.

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