Systematix Institutional Equities
Ajanta Pharma 19 July 2021 Diversified branded generics play; US region to add to operating leverage INITIATING COVERAGE Ajanta Pharma (AJP)’s business model offers a distinct mix of consistency and fast Sector: Rating: BUY growth with strong operating metrics (debt-free balance sheet, RoE >20%). The Pharmaceuticals company derives 68% of its revenues from the branded generic markets of India, CMP: Rs 2,145 Target Price: Rs 2,481 Africa and Asia, which lend long term earnings visibility, while its US business is scaling up fast, driving operating leverage benefits. The culmination of a large Stock Info capex (Rs 13bn over FY17-21) should further aid growth and drive a 21% EPS CAGR Sensex/Nifty 53,140/15,923 over FY20-23E. Given its strong earnings visibility, best-in-class operating and Bloomberg AJP IN returns metrics, AJP deserves to trade at a premium to its long term average and in Equity shares 87mn 52-wk High/Low Rs 2,195/1,330 line with the Nifty Pharmaceutical Index. We initiate coverage on the stock with a Face value Rs 2 BUY rating and a target price of Rs 2,481 based on 26x (PE) FY23E EPS. M-Cap Rs 187bn/ USD 2.5bn Interesting brand play: AJP derives 68% of its revenues from the branded generics 3-m Avg value USD 3.5mn markets of India, Africa and Asia. This provides consistency and visibility of strong
Financial Snapshot (Rs mn) profitability and returns. Its strategy of focusing on niche/first-to-market products in Y/E March FY21 FY22E FY23E India and customized portfolios in emerging markets should lead to continued strong Sales 28,897 31,870 35,549 outperformance. We expect its branded business to grow at a CAGR of 12% over the Gross profit 22,446 24,221 27,195 next two years, higher than the industry growth of 8-10% in these markets. Gross Margin % 77.7 76.0 76.5 US – Rising scale to improve operating leverage: Unlike peers, AJP started with a EBITDA 9,986 9,720 11,376 Margin % 34.6 30.5 32.0 front-end set up in its initial days in the US. The business has grown at an impressive PAT 6,539 6,693 8,227 CAGR of 36% over FY17-21 led by market share gains and new launches. We expect EPS 76 77 95 the momentum to continue with 9-10 launches per year and market share gains in DPS(Rs) 16 19 23 mature products. The company aims to file for 10-12 abbreviated new drug ROE(%) 23 21 22 applications (ANDAs) per year and has 15 ANDAs pending approval with the USFDA. P/E(x) 29 28 23 The business achieved break-even in FY19 and has started contributing to EV/EBITDA(x) 19 19 16 profitability; with increasing scale, we expect operating leverage benefits to support margin growth. We are building in a CAGR of 14% for the US business over FY21-23E. Shareholding pattern (%) Dec-20 Mar-21 Jun-21 Capex cycle ending; balance sheet remains strong: Despite an aggressive capex cycle
Promoter 70.3 70.3 70.3 (Rs 13bn over FY17-21), the company maintained a low-debt profile and consistently –Pledged 15.1 15.4 14.9 generated free cash. Its RoCE has declined to 30% from 41%+ in FY17 due to FII 7.9 8.3 8.9 investments in relatively lower RoCE geographies like the US and other business DII 13.3 12.6 12.2 headwinds (slow growth in India, institutional businesses, currency headwinds in Others 9.2 8.6 8.4 emerging markets). With most of the capex complete, we expect FCF generation of Rs 10.3bn over FY21-23E (vs. Rs 9.8bn in FY17-21) and RoE to expand by 300bps to Stock Performance (1-year) 22% in FY23E vs. 19% in FY20. 2,400 2,200 Initiate with BUY: AJP is likely to continue its growth momentum in the branded 2,000 1,800 markets while its US growth trajectory should improve led by new launches. The 1,600 stock currently trades near its 5-year average of 23x (PE) FY23E EPS of Rs 95. Given 1,400 1,200 its large brand franchise, best-in-class margins, strong balance sheet and improving
1,000 FCF and returns profile, it deserves to trade at a premium to its historical average. Jul-21
Jul-20 We initiate coverage on the stock with a BUY rating and target price of Rs 2,481 (16%
Jan-21
Jun-21
Oct-20
Apr-21
Sep-20 Feb-21
Dec-20
Aug-20
Nov-20
Mar-21 May-21 AJP Sensex upside from the CMP) based on 26x FY23E EPS, in line with the Nifty Pharmaceutical
Index.
Praful Bohra [email protected] +91 22 6704 8064 Tausif Shaikh, CFA [email protected] +91 22 6704 8046 Investors are advised to refer disclosures made at the end of the research report. Systematix Research is also available on Bloomberg SSSL
19 July 2021 Ajanta Pharma Contents
Story in charts ...... 3
Executive Summary ...... 4
Company Background ...... 5
Milestones ...... 8
Investment Analysis ...... 10
India business – Outperforming consistently ...... 10
Focus on first-to-market products a key growth driver ...... 11
Niche launches support premium pricing ...... 13
Portfolio skewed towards chronic therapies ...... 13
Top-10 brands skewed towards chronic therapies ...... 14
MR productivity improving gradually ...... 15
Cardiac: Strong despite the entry of established players ...... 16
Ophthal: Maintaining its leadership with new launches ...... 17
Derma: Back on track after the subsiding of concerns on Melacare ...... 18
Pain – Focused on a few brands ...... 19
US market: Ready to reap the benefits of economies of scale ...... 20
Branded exports (Asia and Africa): Outperformance to continue led by its customized product basket ...... 24
Institutional business: Low growth market but RoCE accretive ...... 26
Global Fund has reduced its allocation towards anti-malaria ...... 27
Diversion of funds towards low volume specialized drugs ...... 29
Financial Analysis ...... 30
SWOT Analysis ...... 35
Valuation and recommendation ...... 36
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19 July 2021 Ajanta Pharma Story in charts Exhibit 1: Business mix (%) FY21 Exhibit 2: Expect revenue CAGR of 11% over the next two years
40,000 26% 30% 22% 35,000 25% 30% 30,000 20% Domestic Formulation 25,000 12% 15% 10% 12% Africa (Branded+Insti 20,000 6% 10% Malaria) 15,000 5% Asia 0% -4% 10,000 0%
US 5,000 -5%
21,309 21,309 20,554 25,879 28,897 31,870 35,549 24% 20,016 - -10% FY17 FY18 FY19 FY20 FY21 FY22E FY23E 24% Revenue (Rs mn) Growth yoy (RHS)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Exhibit 3: EBITDA margin amongst the best in the industry Exhibit 4: Earnings growth to normalize after an aberrational FY21
12,000 40% 100 50% 34% 35% 40% 32% 35% 90 40% 10,000 31% 28% 31% 80 26% 30% 23% 23% 30% 8,000 70 25% 60 20% 2% 6,000 20% 50 10% 0% 15% 40 0% 4,000 -8% 30 10% -17% -10% 2,000 20
5% 10 -20%
58 58 53 44 54 76 77 95
11,376 11,376
9,720 9,720 6,869 6,869 6,584 5,664 6,833 9,986 0 0% - -30% FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY17 FY18 FY19 FY20 FY21 FY22E FY23E
EBITDA (Rs mn) EBITDA Margin (%) EPS (Rs) Growth yoy (RHS)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Exhibit 5: India business: Consistency + market outperformance Exhibit 6: US business growth has been impressive on a low base
12,000 14% 9,000 82% 90% 12% 12% 11% 8,000 80% 10,000 12% 10% 7,000 70% 10% 8,000 60% 6,000 46% 50% 8% 5,000 6,000 6% 40% 6% 4,000 23% 30% 4,000 3,000 16% 13% 20% 2% 4% 5% 2,000 0% 10% 2,000 2%
0% 1,000 0%
10,211
6,140 6,290 6,900 7,690 8,130 9,117
1,940 2,835 1,846 5,160 6,370 7,380 8,319 0 0% 0 -10% FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY17 FY18 FY19 FY20 FY21 FY22E FY23E
Domestic formulation (Rs mn) Growth yoy (RHS) US (Rs mn) Growth yoy (RHS)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
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19 July 2021 Ajanta Pharma
Executive Summary AJP provides the best of both worlds - a large branded generic presence (68% of revenues) which lends sustainability and long term growth visibility and a rapidly growing US business which should drive operating leverage benefits. The company’s earnings have grown at an impressive CAGR of 24% over FY11-21 backed by a strong balance sheet (debt-free, RoE consistently above 20%). Over the last decade, the company has built a strong moat in the domestic market by focusing on the ophthalmology, dermatology, cardiology and pain segments. The genesis was laid in the mid- and late-1990s, when it adopted a two-pronged restructuring and the new generation promoters (Yogesh and Rajesh Agrawal) took over the business and exited from the conventional API, OTC and government business. The company started focusing on innovation and providing tailor-made solutions for each of its markets. It has benefitted significantly and achieved higher- than-industry growth through its strategy of focusing on first-to-market products. Within the Indian pharmaceutical market (IPM), the company ranks 28th with a market share of ~0.66%. Its India business focuses on cardiology, ophthalmology, dermatology and pain therapies. It is the second-largest player in ophthalmology and ranks 18th in cardiology. A consistent track record of outperforming its covered markets by concentrating on first-to-market launches led to market share gains and a 9% CAGR over FY16-21 in a challenging macro-environment. Despite COVID, AJP maintained its growth momentum (8% growth) and outperformed IPM (4%) in FY21. Exports account for 70% of the company’s revenues, and have grown at a CAGR of 12% over FY16-21 in its key export markets (US, Asia and Africa). Export growth has been led by the US and the branded African market though the anti-malaria tender arm has remained sluggish and volatile due to lower allocation by funding institutions. We expect AJP to continue its growth momentum in the domestic formulation market by outperforming its covered market while new launches will support its US growth trajectory. With most of its capex completed, we estimate an EPS CAGR of 21% along with a RoE expansion of 300bps over FY20-23E. The stock currently trades near its 5-year average of 23x (PE) FY23E EPS of Rs 95. Given AJP’s large brand franchise, best-in-class margins, strong balance sheet and improving FCF and returns profile, it deserves to trade at a premium to its historical average. We initiate coverage on the stock with a BUY rating and target price of Rs 2,481 (16% upside from the CMP) based on 26x FY23E EPS, in-line with the Nifty Pharmaceutical Index.
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19 July 2021 Ajanta Pharma Company Background AJP was founded by the Agrawal family in 1973. It started the business with the re- packing of generic products. In 1979, it set up its first manufacturing factory in Chikalthana and launched an OTC (over-the-counter) product Pinkoo Gripe Water. The company ramped up its domestic business between 1986-89 with the launch of 30+ products and the commercialization of its second manufacturing facility at Paithan. In the early 90s, it forayed into the international market by setting up a subsidiary in Mauritius and JV in CIS. However, the CIS business didn’t take-off and the company had to write off most of its investments; this led to the beginning of a financial crisis with debts piling up and the company reporting losses. Till the early 2000s, AJP was mainly into herbals, OTC products, active pharmaceutical ingredients (APIs) and institutional sales. The next generation promoters (Yogesh & Rajesh) stepped in, took over the management of the business and turned the tide for the company when it was going through a challenging time. The duo not only convinced the company’s lenders to restructure their loans but also to open their wallets and lend further. AJP exited non/low-profitable businesses and laid the roadmap for a strong branded generics business in India and international markets with a focus on growth, innovation and expanding its reach to different countries. In the domestic market, the company focused on launching first-to-market products in cardiology, dermatology, ophthalmology and pain therapies. While AJP is still a small player in the Indian market, its focus on first-time and low-competition products has made its story more successful than its peers. Its export business spans the African region, 30+ emerging countries and the US market. It has built its own front-end for the export markets which gives it better control over marketing, thereby aiding higher margins. It became the first generic company in the world to get pre-qualification by WHO, Geneva for its anti-malarial drug. Although the company has been a late entrant in the US market, the management has guided that it will be a key growth driver in the coming years as it aims to file 10-12 ANDAs every year. Exhibit 7: Key management personnel
Name of Person Designation Education Roles and achievements
Joined the company in 1995. His first project was to set up the Mauritius subsidiary with a manufacturing base that would cater to the West African market. He returned to India in 2000 and joined the main operations of Managing Graduated from Johnson & Wales AJP. In 2003, he convinced the company’s lenders to finance new R&D and Yogesh Agrawal Director University, USA manufacturing facilities. He currently heads AJP’s foray in the regulated and emerging international markets. He helped in transforming the company’s research program and manufacturing capabilities, setting up state-of-art facilities that meet stringent regulatory requirements.
Has been with the company since 1997 and focused on AJP’s domestic market and the Philippines business. He took the responsibility of building Graduated in Business Studies from out the product portfolio for the Indian market during its difficult period Jt. Managing Rajesh Agrawal the University of Buckingham, UK and and laid the foundation for growth in the key segments of cardiology, Director MBA from Bentley College, USA dermatology and ophthalmology. He focused on launching first-to-market products that would give the company an edge over other leading pharma players. Source: Company, Systematix Institutional Research
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19 July 2021 Ajanta Pharma Exhibit 8: Business segments
Domestic (30%) Exports (70%)
Cardio (13%) – Ranking improved to Ophthal (9%) – 2nd largest player in Derma (6%) – IPM rank improved Pain (2%) – Sizeable business but 18 in FY21 from 38 in FY05 India over the years to 15 currently has outperformed IPM significantly
Africa (24%)- Branded (Anglo & Asia (24%)- Present in 30 countries; US (22%)- 42 final approvals and 15 Franco Africa) & Anti-malaria (Insti) Philippines & Iraqkey markets awaiting. FY21 sales: USD86mn
Anti-malaria (9%)- Global Fund key Branded Generics (15%)- Franco client with ACTS product portfolio Africa key market
Source: Company, Systematix Institutional Research
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19 July 2021 Ajanta Pharma Exhibit 9: Plant details
Plants Details Dosage form
Paithan, Aurangabad – Tablets, capsules & Built in 1984, the facility is approved by the USFDA. Maharashtra dry powder Dedicated SEZ facility for the US and other emerging markets. Commenced commercial operation in April’17 though the first product for the US was Tablets, capsules, Dahej - Gujarat dispatched only in Oct’18. Commissioned oral solid dosage site in FY20. This powder & jelly facility’s tax benefit would come down to 50% from 100% from FY22E onwards. Tablets, capsules, The first phase was operationalized in Jan’17. In FY18, the derma section was Guwahati - Assam ointments, jelly & commissioned while the new ophthalmic block was commissioned in Dec’20. sterile eye drops
Pithampur - Madhya Pradesh New oral solid facility inaugurated in 2020. Tablets & capsules
Tablets, capsules, Chittegaon - Maharashtra Commissioned in 2009. powder & jelly
Chikalthana - Maharashtra First manufacturing factory for AJP built in 1979. Liquid & capsules
Waluj - Maharashtra Started API plant in 2009 for captive use. API
Established a dedicated R&D facility at Kandivali in 1998. Later expanded in Charkop - Mumbai R&D facility 2014 for India and the emerging markets. Another block expanded in 2020. Source: Company, Systematix Institutional Research
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19 July 2021 Ajanta Pharma Milestones Exhibit 10: AJP - Key milestones 1973-2000 - Early days
1973 - Started operations as a repackaging unit and launched 4 products in the same year under its brand name.
1979 - Set up its 1st manufacturing factory in Chikalthana (Maharashtra) and launched 1st self-manufactured OTC product Pinkoo Gripe Water.
1989 - Launched a block buster OTC product '30+' in India.
1992 - Forayed into the international markets by entering Mauritius.
1995 - Established a subsidiary in Mauritius with a manufacturing facility.
2000-2009 - Crises and then the consolidation
2001-2002 - Reported a consolidated loss of Rs 10mn and ended up with a debt burden of Rs 1300mn by the following year. 2002 - Entered the domestic prescription market with a focus on the specialty segment in three areas - ophthalmology, dermatology and cardiovascular. Began focusing on first-to-market products and built in-house R&D facilities. 2003 - Second-generations entrepreneurs, Yogesh and Rajesh, convinced lenders SBI and EXIM to extend the loan facility. 2003 - Yogesh and Rajesh chalked out the transition plan and convinced its lenders to extend the loans to expand research, upgrade and set up new manufacturing facilities. 2005 - Shut down its OTC unit. 2009 - Set up an API facility in Waluj for captive consumption and became the first company in the world to get WHO Geneva Pre-qualification for its anti-malarial drug. 2010-2020 - On growth path
2011 - Sold 30-Plus to Dabur.
2010 - Entered the Philippines market.
2013 - Entered the US market.
2014 - Inaugurated a new facility in Dahej, Bharuch, Gujarat and entered the pain management segment in domestic formulation.
2017 - Inaugurated and commissioned the 1st phase of a new facility in Guwahati Assam. The Dahej facility received USFDA approval.
2018 - Commissioned its first-ever derma facility in Guwahati.
2020 - New manufacturing facility for oral solid inaugurated at Pithampur.
2020 - Its first sterile eye drop production unit commissioned at its Guwahati facility. Source: Company, Systematix Institutional Research
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19 July 2021 Ajanta Pharma Exhibit 11: Annual Report Analysis
Domestic formulation Institutional US Asia
MR strength of 700+ for the The USFDA completed the African and Asian branded inspection of its Dahej and The Indian institutional business markets. Paithan manufacturing facilities. declined by 40% in FY17 given FY17 AJP’s de-focus due to low Primary focus on anti-malaria, Introduced seven new products margins. antibacterial, cardiovascular, including two successful day-one orthopaedic, gynaecology and launches in the US. pediatric. Improved the productivity of its field force by creating specialised GST implementation impacted teams for different therapies in Reduction in allocation by the A challenging year in the US the industry growth, leading to every market. buyers impacted revenue from market with buyer consolidation FY18 inventory destocking. IPM institutional sales which declined and increasing competition growth was the lowest in the last Emerged as the 2nd fastest- by 13% on a YoY basis. leading to sharp price erosion. five years. growing and amongst the top-20 pharma companies in the important market of Philippines. The US generics industry saw Launched nine first-to-market some stability after last year’s Asian and African branded products including Fimasartan, The anti-malarial institutional sharp price erosion. Registered generic sales remained almost the latest generation business of Africa faced a strong 46% growth on the back flat after pipeline filling in the Angiotensin Receptor Blocker FY19 sharp decline of 49% in FY19 as of eight new product launches previous year; has (ARB). These launches would guided. Expect an uptick and during the year. streamlined the inventory to a ensure continued growth while new orders in FY20. reasonable level by resorting to the growth of existing products Silodosin capsules were one of limited growth in these markets. MetXL-Metoprolol continues. the key day-one launches. Launched a total of 18 new The branded generics business in products in India of which seven The anti-malaria institutional the Rest of Asia and Africa grew were first-to-market. business for Artimether- by 27% and 14%. Launched 27 Lumefnatrine in Africa grew 25% new products and existing Achieved 82% growth in FY20 on These include eye drop - Ripatec in the year due to the low base. brands grew stronger. the back of seven new product FY20 (Ripasudil), anti-hypertensive The business is lumpy in nature launches and market share gains drug - Azusa (Azilnidipine) and as it depends on funding bodies. Created separate divisions for in existing products. moisturizer - Aqurea HF. While sales to focus on various the existing products like MetXL, Expects to protect its market therapies; introduced new Softdrops and others continue to share in the business. therapies to some of these grow. markets. Launched 21 products of which The institutional business Received 12 ANDA approvals and five were first-to-market. remained lumpy and dependent commercialized nine products Emerging markets across Asia Existing brands also continue to on funding bodies; remains during the year. and Africa performed well with gain market share, leading to committed to protecting market 9% growth for the year. FY21 persistent growth. share without any compromise. ANDA filing has felt the maximum impact of the Added 19 new products in FY21 Added a production line for lockdown (filings of only two vs. along with new therapies to sterile eye drops at its Guwahati the planned filing of 10 to 12 satisfy the unmet medical needs facility. ANDAs). of the patients. Source: Company, Systematix Institutional Research
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19 July 2021 Ajanta Pharma Investment Analysis AJP’s large, diversified presence in the branded generics markets of India, Asia and Africa (~68% of revenues) provides revenue stability/visibility and mitigates business risks. Its business model has stark similarities to peers like Ipca, Alkem and Torrent Pharma and we expect the growth trajectory to be similar. We expect AJP to deliver a 21% EPS CAGR over FY20-23E, along with higher FCF generation (given culmination of a large capex) and expansion in RoCE. India business – Outperforming consistently Domestic formulation accounts for 30% of AJP’s total revenue and is the most profitable segment. The company ranks 28th in the IPM with a market share of 0.66%. It is focused on four key therapies - cardiology, ophthalmology, dermatology and pain - and has consistently outperformed the IPM even in adverse years for the industry (FY18 – GST implementation; FY21 - COVID-led lockdown). Its India business has a field force of 3,000 Medical Representatives (MRs) spread across 15 divisions and an offering of 300+ products. Despite multiple headwinds (Melacare issue/COVID), AJP’s India revenues have grown at a 9% CAGR over FY16-21 led by strong performance in cardiology and ophthalmology (combined 72% of domestic revenue). The derma segment has underperformed due to issues related to its top brand Melacare and COVID-led lockdown. The pain segment has outperformed the covered market (though still relatively small) in recent times. Exhibit 12: Therapy-wise break-up (%) FY18 Exhibit 13: Therapy-wise break-up (%) FY21
FY18 FY21
6% 7%
28% 29%
Ophthalmology Ophthalmology Dermotology Dermotology 41% Cardiology Cardiology 43% Pain Pain
25% 21%
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research Exhibit 14: Growth to remain 200-300bps higher than the industry 12,000 14% 12% 12% 11% 10,000 12% 10% 10% 8,000 8% 6,000 6% 6% 4,000 2% 4% 2,000 2%
0%
10,211
6,140 6,290 6,900 7,690 8,130 9,117 0 0% FY17 FY18 FY19 FY20 FY21 FY22E FY23E
Domestic formulation (Rs mn) Growth yoy (RHS) Source: AIOCD, Systematix Institutional Research
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19 July 2021 Ajanta Pharma Focus on first-to-market products a key growth driver AJP’s strategy of focusing on niche, first-to-market products gives it an early mover advantage and has led to its outperformance. The first-to-market launches have either been with a differentiated delivery system or combinations of existing molecules. Typically, these products attain critical scale in 3-4 years post-launch. This is also reflected in a higher share of India growth due to new launches in the pre- COVID era (Exhibit 18) – Glenmark/Cipla/Cadila’s share of new launches in India growth was higher than AJP in FY21 on the back of their COVID portfolios (Faripiravir/Remdisivir) and hence, not reflective of the normal trend. We have mapped the performance of some of AJP’s recent launches (Exhibit 17) to get a better perspective. AJP has guided for 25-30 new launches each fiscal and one- third of them will be first-to-market. Exhibit 15: AJP, IPM growth (%): Outperformance by new launches Exhibit 16: Number of new launches in the domestic market
18 35 16 16 32 16 30 28 14 13 25 25 12 11 11 21 10 9 20 18 8 8 15 6 6 6 9 4 10 7 7 7 4 5 2 5 0 0 FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21
Total Ajanta Growth Total IPM Total launches First to market
Source: AIOCD, Systematix Institutional Research Source: AIOCD, Systematix Institutional Research
Exhibit 17: Scale-up in the top-25 new products launched from CY18-21; contribution at 6% of overall domestic revenue in FY21 Brand MAT Value (Rs mn) Brand MAT Value (Rs mn) Mimod 82 Bilanta M 15 Zorbax 58 Cinod Beta 14 Bilanix 54 Hyane 14 Optidew 32 Volga R 14 Civaderm 24 Biosilk 12 Ripatec 24 Alcarex Kt 12 Vilatin M 23 Fimanta 12 Aqurea Hf 22 Trilage 11 Apxenta 21 Vilatin 11 Bilanta 20 Presidio 11 Soft Drops Pm 17 Nevirin Nt 11 Clenia 16 Sunstop Gold 9 Azusa 15 Source: AIOCD, Systematix Institutional Research
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19 July 2021 Ajanta Pharma Exhibit 18: New product growth in the pre-COVID era amongst the best in the industry – MAT Value March-20
2.5
7.8 2.2 2.0 2.2 1.8 1.7 3.9 3.2 2.8 2.4 2.0 1.5 1.4 1.3 4.8 4.5 4.6 6.4 1.7 1.6 1.1 6.0 1.9 5.8 0.7 4.6 3.9 2.9 2.6 8.3 6.0 5.2 5.7 5.2 6.3 7.3 6.2 0.7 6.4 8.7 6.6 7.8 7.6 0.3 6.1 7.0 5.6 6.6 6.3 4.8 4.2 5.3 4.3 5.4 4.3 3.5 3.8 5.0 4.0 1.4 3.0 2.4 2.0 1.4 2.6 1.9 3.4 0.0 -1.5 -0.6 -0.4 0.0 -4.2 -5.4
-6.4 -5.8 -7.6
FDC
ERIS
IPCA
CIPLA
LUPIN
PFIZER
MERCK
SANOFI
ALKEM
NATCO
INDOCO
AJANTA
ABBOTT ABBOTT
ALEMBIC
TORRENT
MANKIND
RANBAXY
NOVARTIS
GLENMARK
MACLEODS
DR. REDDYS
GLAXOSMITH
SUN PHARMA SUN
ZYDUS ZYDUS CADILA NOVO NORDISK NOVO VOL GR PRICE GR NP GR
Source: AIOCD, Systematix Institutional Research
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19 July 2021 Ajanta Pharma Niche launches support premium pricing Niche launches help AJP command a premium pricing over its peers. We mapped the pricing differential in some of its key brands and observed that in most of the products where it has a first-mover advantage, its pricing has been much higher than peers. Exhibit 19: Pricing differential of the top brands in the segment
25.0 Atorfit Cv Soft Drops 20.0 Rosufit Cv 15.0
10.0 Cilamet
5.0 Met Xl Am
0.0 Feburic Rosutor Gold -5.0 Met Xl Melacare -10.0
-15.0 Cinod -20.0
Source: AIOCD, Systematix Institutional Research Portfolio skewed towards chronic therapies Nearly 63% of AJP’s portfolio is skewed towards chronic/sub-chronic therapies (cardiac/derma) vs. 56% for IPM. It has outperformed IPM growth by at least 200- 300bps over the last few years as these therapies are growing faster than the overall market. AJP’s chronic segment grew by 16.6% vs. 6.5% growth for IPM in FY21. Chronic/sub-chronic products have higher revenue stickiness with lower marketing expense as patients often receive ‘repeat’ prescriptions without the requirement of additional consultation with the physician; the demand for acute products is seasonal with a medication period of a few days/weeks; derma was adversely impacted during COVID but since it is a non-elective therapy, the impact is transitionary and sharp recovery is likely once the pandemic subsides. Exhibit 20: IPM chronic/sub-chronic/acute mix (%) Exhibit 21: AJP’s chronic/sub-chronic/acute mix better than IPM
120.0 100% 10.0 10.2 9.5 90% 100.0 80% 19.8 19.6 20.0 80.0 70% 52.6 50.3 53.5 60% 60.0 35.2 35.0 36.2 50% 40% 40.0 30% 20.0 45.1 45.4 43.8 20% 37.4 39.5 36.9 10% 0.0 0% FY19 FY20 FY21 FY19 FY20 FY21
ACUTE CHRONIC SUB CHRONIC ACUTE CHRONIC SUB CHRONIC
Source: AIOCD, Systematix Institutional Research Source: AIOCD, Systematix Institutional Research
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19 July 2021 Ajanta Pharma Exhibit 22: IPM chronic/sub-chronic/acute growth (%) Exhibit 23: AJP’s chronic/sub-chronic/acute growth (%) better than IPM
12.0 10.9 11.2 18.0 16.6 10.2 10.0 16.0 10.0 9.1 14.1 14.0 12.4 8.0 7.0 6.5 12.0 10.8 6.0 5.5 10.0 8.0 4.0 6.2 5.9 6.0 2.0 3.4 4.0 2.4 2.3 0.0 2.0 FY19 FY20 -0.4 FY21 0.0 -2.0 FY19 FY20 FY21 ACUTE CHRONIC SUB CHRONIC ACUTE CHRONIC SUB CHRONIC Source: AIOCD, Systematix Institutional Research Source: AIOCD, Systematix Institutional Research Top-10 brands skewed towards chronic therapies AJP’s top-10 products contribute to 46% of its India revenues and have grown at a CAGR of 11% over FY18-21. Seven out of these ten products are concentrated in the cardiac segment and have grown faster at a 13% CAGR over the last three years. Growth was dragged by brands like Melacare (pigmentation issue) and SoftDrops (market shift to better molecules like MaxMoist) but these have now stabilized. Exhibit 24: Performance of top-10 products CAGR 18-21 MAT Value (Rs mn) Therapy API Mar-18 Mar-19 Mar-20 Mar-21 % Met Xl Cardiac Metoprolol 871 1031 1099 1293 14.1 Melacare Derma Hydroquinone + Mometasone + Tretinoin 483 494 505 540 3.8 Atorfit Cv Cardiac Atorvastatin + Clopidogrel 520 549 534 529 0.6 Feburic Pain Febuxostat 269 338 358 423 16.2 Rosutor Gold Cardiac Aspirin + Rosuvastatin + Clopidogrel 203 229 273 417 27.1 Cinod Cardiac Cilnidipine 190 232 255 323 19.3 Met Xl Am Cardiac Metoprolol + Amlodipine 224 253 269 319 12.4 Rosufit Cv Cardiac Rosuvastatin + Clopidogrel 210 218 214 257 7.0 Cilamet Cardiac Cilnidipine + Metoprolol 95 112 134 173 22.4 Soft Drops Ophthal Carboxy Methyl Cellulose 175 153 165 163 -2.3 Source: AIOCD, Systematix Institutional Research
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19 July 2021 Ajanta Pharma MR productivity improving gradually AJP has set up 15 marketing divisions for its four therapies with a total field force of 3,000 medical representatives (MRs). The MR strength over the last few years has been constant (3,000 in FY18) and the company has remained focused on improving productivity. The MR productivity increased to Rs 0.26mn/month in FY21 (vs. Rs 0.20mn/month in FY18) and the company has guided for improvement to Rs 0.32mn/month in FY23E. It targets to launch 25-30 products annually with the same headcount. AJP’s MR productivity of Rs 0.26mn/month seems lower compared to larger peers but it is strictly not comparable as MR productivity of the ophthal segment is usually significantly lower than other segments; the revenue contribution of ophthal products might not be significant for peers versus 29% of domestic revenue for AJP. Its cardiac productivity is fairly comparable to larger peers. Exhibit 25: MR productivity on an improving trend Exhibit 26: Scope to improve MR productivity
11% 11% 0.35 11% 12% Field force productivity (Rs mn/month) 0.30 9% 9% 10% 0.90 0.83 0.80 0.73 0.73 0.25 8% 0.70 0.20 6% 0.60 0.50 0.15 4% 0.40 0.40 0.10 1% 2% 0.32 0% 0.30 0.26 0.24
0.05 0% 0.20
0.22 0.20 0.20 0.24 0.26 0.29 0.32 0.00 -2% 0.10 FY17 FY18 FY19 FY20 FY21 FY22E FY23E 0.00 MR productivity (Rs mn/month) Growth yoy (RHS) AJP Sun Lupin Torrent DRRD IPCA Indoco Pharma Source: AIOCD, Systematix Institutional Research Source: AIOCD, Systematix Institutional Research
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19 July 2021 Ajanta Pharma Cardiac: Strong despite the entry of established players Cardiac is the largest therapy for AJP and constitutes 43% of its domestic formulation revenues. It currently ranks 18th (vs. 16th in FY18) in the cardiac segment and has a market share of 2.1%. Over the last several years, its cardiac segment has outperformed the covered market significantly led by new launches and market share gains. Healthy growth in top molecules: Top-10 brands contribute to 90% of total cardiac revenues and most of its top brands grew in double-digits over FY18-21 even after increasing competition from established players. It was the first company to launch Rosutor Gold, Rosufit CV and the second to launch Cilamet. The company has lost market share in Atorfit CV and Rosutor Gold due to increased competition, but the overall growth momentum remains strong. Met XI is the largest brand in the segment with a MAT value of Rs 1.29bn. It remains the largest even with the presence of established players like Sun Pharma and Cipla. Amongst the top-5 competitive brands in Metoprolol, AJP’s Met XI is the only brand that has gained market share (21% in FY21 vs. 17.5% in FY18) while other brands have either lost or maintained their share. Exhibit 27: AJP - Cardiac (%) has outperformed covered market Exhibit 28: Most brands have a decent market share (%)
25 28 22 30 25 20 18 25 21 21 19 19 19 14 20 17 15 13 12 12 15 11 15 10 12 12 10 11 11 11 11 8 9 6 10 7 7 6 7 5 5
0 0 FY17 FY18 FY19 FY20 FY21 FY18 FY19 FY20 FY21
Ajanta Cardiac Covered Market Met Xl Atorfit Cv Rosutor Gold Cinod Met Xl Am
Source: AIOCD, Systematix Institutional Research Source: AIOCD, Systematix Institutional Research
Exhibit 29: MAT sales value (Rs mn) for top-10 brands in Cardiac: Growth remains in double-digits despite increased competition Brand API Mar-18 Mar-19 Mar-20 Mar-21 CAGR 18-21 % Met Xl Metoprolol 871 1031 1099 1293 14.1 Atorfit Cv Atorvastatin + Clopidogrel 520 549 534 529 0.6 Rosutor Gold Aspirin + Rosuvastatin + Clopidogrel 203 229 273 417 27.1 Cinod Cilnidipine 190 232 255 323 19.3 Met Xl Am Metoprolol + Amlodipine 224 253 269 319 12.4 Rosufit Cv Rosuvastatin + Clopidogrel 210 218 214 257 7.0 Cilamet Cilnidipine + Metoprolol 95 112 134 173 22.4 Met Xl 3D Telmisartan + Chlorthalidone + Metoprolol 29 72 114 156 74.7 Metxl Trio Telmisartan + Metoprolol 72 79 47 133 22.9 Cinod T Cilnidipine + Telmisartan 68 89 100 108 16.6 Source: AIOCD, Systematix Institutional Research
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19 July 2021 Ajanta Pharma Ophthal: Maintaining its leadership with new launches The company is the second-largest player (third in FY18) in Ophthal with a market share of 9.2% and is the market leader in the Anti-Glaucoma segment in India. Ophthal contributes to 29% of domestic formulation revenues and the segment has outperformed the covered market significantly over the last few years. Growth led by new launches: Top-10 brands contribute to 33% of total Ophthal revenues and the larger part of the growth has been led by new launches as its top- 10 products have underperformed with a 5% CAGR vs. 11% for the segment. AJP faced muted growth in its top brand Soft Drops, as the market shifted to another of its product, MaxMoist. It had a market share of 40% in Hyaluronic Acid in FY16 but subsequently faced competition from Allergan and Micro Labs, which led to a decline in its market share to around 24% in FY21. Over FY18-21, Allergan’s brand - Refresh Gel, grew at a 17% CAGR to Rs 1,071mn and captured a market share of 30%. Despite the competition in top brands, the company could outperform the covered market led by new launches. Growth should be on track once COVID concerns subside: Ophthalmology largely deals with elective surgeries that were significantly affected during FY21 due to the COVID-led restrictions, leading to a growth of merely 1%. As the COVID-19 situation resolves, the pent-up demand for surgeries should drive strong outperformance in this segment. Exhibit 30: FY21 growth (%) impacted due to COVID Exhibit 31: Market share profile (%) in key molecules
18 17 16 40 37 16 34 14 35 31 14 13 31 31 30 27 29 12 11 11 27 10 9 25 8 7 20 6 15 12 4 10 10 10 9 2 1 5 4 4 5 0 5 -2 -1 0 FY17 FY18 FY19 FY20 FY21 FY18 FY19 FY20 FY21
Ajanta Ophthalmology Covered Market Soft Drops Olopat Nepaflam Brinzox
Source: AIOCD, Systematix Institutional Research Source: AIOCD, Systematix Institutional Research
Exhibit 32: MAT sales value (Rs mn) for top-10 ophthal brands; growth driven by new launches Brand API Mar-18 Mar-19 Mar-20 Mar-21 CAGR 18-21 % Soft Drops Carboxy Methyl Cellulose 175 153 165 163 -2.3 Maxmoist Hyaluronic Acid – Ophthalmic 99 100 119 138 11.6 Olopat Olopatadine Eye Drops 113 113 125 109 -1.1 Nepaflam Nepafenac 81 78 88 92 4.3 Brinzox Brinzolamide 72 67 79 91 7.7 Apdrops Lp Loteprednol + Moxifloxacin 71 78 81 72 0.1 Tovaxo Travoprost 47 49 57 71 14.8 Brivex Brinzolamide 16 39 51 67 61.1 Aqualube Carboxy Methyl Cellulose 62 55 63 65 1.6 Apdrops Moxifloxacin 69 62 74 64 -2.6 Source: AIOCD, Systematix Institutional Research
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19 July 2021 Ajanta Pharma Derma: Back on track after the subsiding of concerns on Melacare AJP ranks 15th (14th in FY18) in India’s derma segment with a market share of 1.5%. Derma contributes to 21% of its domestic formulation revenues and the portfolio is mainly focused on cosmetic dermatology products. Top-10 brands contribute to 57% of total derma revenues and 74% of the revenue in this segment is chronic/sub- chronic in nature. The Melacare issue dragged overall segment growth: The company launched a triple combination Melacare (Hydroquinone + Mometasone + Tretinoin) in FY12 to treat dark circles under the eyes. Melacare contains steroids and can be sold only through prescription. However, patients were able to get it OTC and started using it as a skin whitening cream. Once they stopped using Melacare, some incidences of side effects were reported that led to doctors withdrawing prescriptions for the entire category. This led to a decline of 4% in FY18 (vs. the covered market growth of 14%) in the segment. The Melacare incident also led to a higher attrition rate in the derma segment in FY18-19. However, revenues have now stabilized and the derma segment is back on track under new leadership. Exhibit 33: Growth (%) impacted by the Melacare issue Exhibit 34: Ivrea and Pacroma witness market share (%) gain
20 80 16 71 14 70 63 15 13 13 57 57 60 53 10 50 9 10 8 50 44 45 38 6 6 40 36 35 33 32 31 5 30 30 20 18 20 15 16 0 10 10 -5 -4 0 FY17 FY18 FY19 FY20 FY21 FY18 FY19 FY20 FY21
Ajanta Derma Covered Market Melacare Aquasoft Ivrea Pacroma Peroclin
Source: AIOCD, Systematix Institutional Research Source: AIOCD, Systematix Institutional Research
Exhibit 35: MAT sales value (Rs mn) for top-10 derma brands : Ivrea and Pacroma witness healthy growth Brand API Mar-18 Mar-19 Mar-20 Mar-21 CAGR 18-21 % Melacare Hydroquinone + Mometasone + Tretinoin 483 494 505 540 3.8 Aquasoft Glycerol 100 105 114 127 8.4 Ivrea Ivermectin 48 70 88 106 30.2 Pacroma Pimecrolimus 59 63 78 104 20.4 Peroclin Clindamycin + Benzoyl Peroxide 47 43 51 65 11.4 Salisia Kt Ketoconazole 59 60 58 57 -1.1 Aquasoft Fc Glycerol 17 30 46 52 45.2 Elyn Eflornithine 32 33 34 37 5.1 Amfocin Amorolfine 2 9 24 29 148.7 Gorgeus Propylene +Sodium Lauryl Sarcocinate 19 23 28 28 13.3 Source: AIOCD, Systematix Institutional Research
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19 July 2021 Ajanta Pharma Pain – Focused on a few brands AJP entered the pain segment in FY14 and currently ranks 33rd (43rd in FY18) in India with a market share of 0.6%. Its covered market in the pain segment is relatively small and the contribution to domestic revenues is only 7% - but it has consistently outperformed its covered segment. Although it has a basket of 50 products, its top-4 products contribute to 98% of revenues - Feburic is the largest brand in its pain portfolio and contributes to 59% of segmental revenues. The company launched this uric acid controller drug in FY10. It currently ranks 3rd and holds a 15% market share in the category. Exhibit 36: Growth (%) led by few brands Exhibit 37: Feburic gains market share (%) despite new competition
25 120 22 100 100 100 20 18 16 80 15 12 61 11 60 9 10 8 8 40 4 22 20 20 23 5 15 20 13 11 14 14 1 7 6 6 0 0 0 FY17 FY18 FY19 FY20 FY21 FY18 FY19 FY20 FY21
Ajanta Pain Covered Market Feburic Vertizac Mimod Tapenax
Source: AIOCD, Systematix Institutional Research Source: AIOCD, Systematix Institutional Research
Exhibit 38: MAT sales value (Rs mn) for top-4 pain brands: Ivrea and Pacroma witness healthy growth Brand API Mar-18 Mar-19 Mar-20 Mar-21 CAGR 18-21 % Feburic Febuxostat 269 338 358 423 16.2 Vertizac Cinnarizine +Dimenhydrinate 110 118 134 163 14.0 Mimod Iguratimod 0 0 33 77 - Tapenax Tapentadol 34 38 35 36 2.3 Source: AIOCD, Systematix Institutional Research
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19 July 2021 Ajanta Pharma US market: Ready to reap the benefits of economies of scale The US business contributes to ~22% of AJP’s revenues. It entered this market in 2013 but the journey has been rather unconventional with the company starting off with a front-end base in the initial phase itself, unlike most peers who started off as back-end partners. It hired Mr. Jeff Burd, current President of its US business, and Mr. John Adams – both have vast experience in the US generics market, largely in sales and marketing. Over the years, it has commercialized around 42 products, largely in the oral solids space and almost all of these are fairly competitive. On an average, the company files for around 10-12 ANDAs and launches around 8-10 products annually; only two filings in FY21 (due to Covid-related R&D delays) was an aberration to this trend. Its R&D is headed by Dr. Ramesh Jhawar, who has been with the group for the last 20 years. The US market is serviced from the Paithan and Dahej plants. Around 60% of the existing commercialized US products are from Paithan while most new filings are from its Dahej plant. The US business broke even in FY19 and is now contributing positively to the EBITDA. The strategy is to attain a reasonable scale and then climb up the value chain with higher complexity products. AJP is not vertically integrated but scale benefits will ensure strong profitability from this geography. The compliance track record for the company has been clean so far, with no major adverse observations in the past. We expect its US business to grow at a CAGR of 14% over FY21-23E led by the launch of its pending pipeline of 15 ANDAs (57 ANDAs filed of which, 42 are approved). Exhibit 39: US growth momemtum to continue with 10-12 annual filings
9,000 82% 90% 8,000 80% 7,000 70% 60% 6,000 46% 50% 5,000 40% 4,000 23% 30% 3,000 16% 5% 13% 20% 2,000 0% 10%
1,000 0%
1,940 2,835 1,846 5,160 6,370 7,380 8,319 0 -10% FY17 FY18 FY19 FY20 FY21 FY22E FY23E
US (Rs mn) Growth yoy (RHS)
Source: Company, Systematix Institutional Research
Exhibit 40: US plant details Formulation Type Inspection details Remarks facilities Last inspected in Jun’19 and received EIR 60% of products commercialized in the US Paithan Orals and suspension in Sep-19. are manufactured in Paithan. Dahej Orals and suspension Inspected in July-18 with no observation. 80% of new ANDAs are filed from Dahej. Source: Company
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19 July 2021 Ajanta Pharma Exhibit 41: US constant currency growth over FY19-21 (%)
50 45
40
30
20 14
10 7 5 -2 -4 -4 -3
0 Cipla
-10 Lupin
Cadila
Ajanta
Glenmark
Aurobindo
Dr.Reddy's Sunpharma FY19-21 CAGR
Source: Systematix Institutional Research We do not envisage a sea-change in AJP’s US strategy in the near term and the focus will be to attain scale by filing Para III products largely in the oral solids space. It is also reflected in its guidance to keep R&D at 6% of sales in FY22. Exhibit 42: AJP USFDA filings data FY17 FY18 FY19 FY20 FY21 FY22E FY23E
ANDA filed 8 8 13 11 2 12 10 New launches 12 6 8 7 12 9 10 Cumulative approved 17 19 27 32 42 51 61 Source: Company, Systematix Institutional Research
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19 July 2021 Ajanta Pharma Exhibit 43: Para IV filings Patent Market Size Litigation Status of Brand Molecule Innovator /Exclusivity Comments (USD) filed litigation expiry Innovator entered into a settlement agreement 2023(End of with Zydus Cadila and Par Pharma to allow the exclusivity) USD 295mn launch of a generic version of Trokendi XR on Jan 1, Trokendi XR Topiramate Supernus Mar-21 Open &2027 (CY19) 2023 and April 1,2025 or before under some (Patent circumstances. There are 3 other known filers for expiry) Trokendi. 2023(End of Innovator has settled with nine generic companies Metformin exclusivity) to bring their products to the market in May 2027 HCL & USD 477mn Janumet Merck Nov-20 Open &2027 or earlier under certain circumstances. Dr. Reddy’s, Sitagliptin (CY20) (Patent Aurobindo and Viatris (Mylan) are the other known phosphate expiry) ANDA filers. Brexpiprazole was discovered by Otsuka and is being co-developed by Otsuka and Lundbeck. Sandoz and Alkem are other known filers. USD 250mn Brexpiprazole is currently approved for the Rexulti Brexpiprazole Otsuka Oct-19 Open 2026 (CY19) treatment of schizophrenia and major depressive disorder and the innovator is also conducting Phase III trials for the treatment of agitation in patients with dementia. 2023(End of The innovator has settled with nine generic exclusivity) companies allowing them to bring their products to Sitagliptin USD 1.47bn Januvia Merck Jun-20 Open &2027 the market in May 2027 or earlier under certain phosphate (CY20) (Patent circumstances. Dr. Reddy’s, Aurobindo and Viatris expiry) (Mylan) are the known ANDA filers. Naproxen & Dr. Reddy's was the first generic player to launch in USD 400mn Vimovo esomeprazole Horizon Sep-19 Closed May-22 Feb’20 and continues to be the sole player. Lupin (CY19) magnesium and Mylan are also known filers for Vimovo. Pfizer continues to be the sole seller even after its main patent expired in Nov’20. Other patents USD 900mn Chantix Varenicline Pfizer Jul-19 Closed 2022 expire in 2022. Par Pharma had also filed Para-IV for (CY19) Chantix but later withdrew its suit after initial trials. Generics could be launched in 2022. AJP entered into a settlement agreement with the innovator to launch once the patent expires in USD 600mn Bystolic Nebivolol HCL Allergan Jul-19 Closed Dec-21 Dec’21. Actavis, Alkem, Amerigen, Glenmark, (CY19) Hetero, Indchemie and Torrent have also entered into a settlement agreement. Pfizer has settled lawsuits against Zydus and Micro 2023(End of Labs while Aurobindo is also a known filer. Pfizer’s exclusivity) lawsuit against Aurobindo is still outstanding and USD 493mn Xeljanz Tofacitinib Pfizer Mar-19 Closed &2025 there could be a few more ANDA filers. Pfizer also (CY20) (Patent has an application for the AS (Active Ankylosing expiry) Spondylitis) indication and the PDUFA goal date is in 2Q 2021. Source: US FDA, Systematix Institutional Research
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19 July 2021 Ajanta Pharma Exhibit 44: Current product portfolio concentrated around oral solids Active Ingredient Brand No of players Approval Date First Generic Dosage Form Duloxetine Hydrochloride Cymbalta 10+ Jan-2017 Dec-13 Capsule, Delayed Rel Pellets Ranolazine Ranexa 10+ May-2019 Feb-19 Tablet, Extended Release Omeprazole; Sodium Bicarbonate Zegerid 10+ Jul-2016 Jul-10 Capsule Valganciclovir Hydrochloride Valcyte 10+ Jan-2020 Nov-14 Solution Fenofibrate Antara 10+ Sep-2018 Nov-12 Capsule Amlodipine Besylate; Olmesartan Azor 10+ Oct-2016 Oct-16 Tablet Medoxomil Sildenafil Citrate Revatio 10+ Nov-2019 Dec-17 Suspension Tadalafil Cialis 10+ Mar-2019 Sep-18 Tablet Doxepin Hydrochloride Sinequan 10+ Sep-2019 Jul-13 Capsule Almotriptan Malate Axert 3 Mar-2016 Jul-15 Tablet Aripiprazole Abilify 10+ Sep-2016 Apr-15 Tablet Voriconazole Vfend 10+ May-2016 Sep-13 Tablet Silodosin Rapaflo 10+ Dec-2018 Mar-17 Capsule Eletriptan Hydrobromide Relpax 5 Aug-2017 Jun-17 Tablet Zolmitriptan Zomig 10+ May-2016 May-13 Tablet Clonidine Hydrochloride Kapvay 10+ Nov-2017 Dec-11 Tablet, Extended Release Entacapone Stalevo 10+ Aug-2017 Aug-12 Tablet Oxybutynin Chloride Ditropan 10+ Feb-2019 Dec-06 Tablet, Extended Release Risperidone Risperdal 10+ Aug-2011 Jul-08 Tablet Montelukast Sodium Singulair 10+ Jul-2015 Aug-12 Granule Metformin Hydrochloride Glumetza 10+ Apr-2020 Feb-16 Tablet, Extended Release Captopril Capoten 6 Dec-2019 May-97 Tablet Divalproex Sodium Depakote 10+ Mar-2020 Jul-08 Capsule, Delayed Rel Pellets Tolterodine Tartrate Detrol 10+ May-2020 Jan-14 Capsule, Extended Release Memantine Hydrochloride Namend 10+ Nov-2015 Jul-15 Tablet Cholestyramine Questran 10+ Apr-2020 Aug-05 Powder Doxycycline Hyclate Vibramycin 10+ Jun-2020 Jun-17 Tablet Solifenacin Succinate Vesicare Ls 10+ May-2019 Apr-19 Tablet Clomipramine Hydrochloride Anafranil 10+ Oct-2020 Oct-19 Capsule Oseltamivir Phosphate Tamiflu 10+ May-2020 Nov-17 For Suspension Droxidopa Northera 10+ Feb-2021 Feb-21 Capsule Chlorthalidone Hygroton 10+ Nov-2020 Mar-17 Tablet Lamotrigine Lamictal 10+ Jan-2021 Jul-08 Tablet, Orally Disintegrating Tetrabenazine Austedo 10+ Dec-2020 Aug-15 Tablet Source: Company,USFDA
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19 July 2021 Ajanta Pharma Branded exports (Asia and Africa): Outperformance to continue led by its customized product basket AJP’s Asia branded business contributes to around 24% of its total revenue. The Philippines and Iraq key markets company has a presence in 10 countries with the Philippines and the Middle East (mainly Iraq) being the key markets. Unlike in India, AJP’s presence in the Asian branded markets is spread across multiple therapies like cardiac, pain, antibiotics, gastro, antihistamines, respiratory and CNS (central nervous system) categories. On an annualized basis, the company launches around 15 products, which have been driving growth in these markets. Philippines is the largest market for AJP in these regions: The Philippines is the third-largest pharmaceutical market in the ASEAN region, just behind Indonesia and Thailand and had a market size of ~USD 4bn in CY2020. The market grew at a CAGR of 5% between FY16-20. It is mainly a branded generic market (71% share) and 62% of all registered drugs in the Philippines’ FDA are imported; India has the highest share at 28% with AJP being one of the key suppliers. Exhibit 45: Macro environment to stay favourable for branded players in Asia
10,000 27% 30% 9,000 25% 8,000 7,000 18% 20% 6,000 5,000 12% 12% 15% 4,000 10% 3,000 7% 2,000 4% 5%
1,000 0%
8,821 4,170 4,930 5,280 6,730 7,032 7,876 0 0% FY17 FY18 FY19 FY20 FY21 FY22E FY23E
Asia Growth yoy (RHS)
Source: Company, Systematix Institutional Research Africa branded: The African branded business (Franco Africa- East is the key market) contributes to 15% of its total revenue. The company is the 3rd largest player in this region with Mauritius being its largest market. Over FY17-21, the African branded business grew at a CAGR of 17%. AJP has more than 1,000 product registrations across these markets and a pipeline of 40+ products. While growth has been broadly stable in these markets (9% CAGR over FY16-21), FY19 was an aberration owing to currency depreciation in a few markets. The company plans to launch around 12-15 products annually in these markets. Mauritius is one of the largest markets for AJP in this region: Within the African region, Mauritius is one of the company’s key markets. The size of the Mauritian pharma market is over Rs 5bn and 80% of the pharmaceutical spends in the country are private. India is one of the key exporting nations to Mauritius and represents around 58% of total volume and 25% of the total value of imports in the country. The country has a favourable pricing environment with a mark-up of 35% on the cost price of medicines. AJP is the only licensed manufacturer of pharmaceutical products in Mauritius and has a WHO-Good Manufacturing Practice (GMP) compliant manufacturing facility, providing it a natural advantage over peers.
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19 July 2021 Ajanta Pharma Exhibit 46: Customised product basket will drive growth in African branded generics
6,000 31% 35% 30% 5,000 21% 25% 20% 14% 11% 4,000 12% 15% 10% 3,000 0% 5% 2,000 0% -5% 1,000 -10%
-14% -15%
2,720 3,550 3,070 3,490 4,208 4,657 5,216 0 -20% FY17 FY18 FY19 FY20 FY21 FY22E FY23E
Africa Branded formulation (Rs mn) Growth yoy (RHS)
Source: Company, Systematix Institutional Research With favourable macro-dynamics and AJP’s strong positioning in these markets, we expect the company to continue outperforming industry growth in Asia and Africa branded markets and build in a 12% revenue CAGR in Asia and 11% revenue CAGR in Africa over FY21-23E.
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19 July 2021 Ajanta Pharma Institutional business: Low growth market but RoCE accretive AJP was the first generic company in the world to get WHO Geneva Pre-qualification for Anti-Malaria in 2010 for its drug Artefan (Artemether and Lumefantrine). Global Fund is the largest client as it provides 56% of all international financing for malaria. The Global Fund negotiates favourable procurement terms for medicines through the Pooled Procurement Mechanism. Currently, artemisinin-based combination therapy (ACT) is recommended for the treatment of P. falciparum malaria and artemisinin is combined with other companion drugs from a different class for complex treatments. Artemisinin derivatives include dihydroartemisinin, artesunate and artemether while companion drugs include lumefantrine, mefloquine, amodiaquine, sulfadoxine/pyrimethamine, piperaquine and chlorproguanil/dapsone. Exhibit 47: Product requirement and qualified suppliers for Global Fund Anti-malaria drug requirement API Key supplier by Global fund (%) – No of prescriptions Artemether + Lumefantrine (FDC)-Tablet and Dispersible Ajanta, Cipla, Strides, Ipca, Mylan, Novartis, Macleods 32
Artesunate + amodiaquine Guilin, Cipla, Ipca and Strides 6
Amodiaquine + sulfadoxine-pyrimethamine Guilin 31
Artesunate injection 60mg Guilin and Ipca 6
Chloroquine Remdica and Alliance Pharma 0
Primaquine Sanofi/Valeant Pharmaceuticals 4
Sulfadoxine/pyrimethamine 500/25mg Guilin 20 Systematix Institutional Research, Global Fund In FY17, the Global Fund decided not to allocate any volume of Artemisinin based Combination Therapy (ACTs) to IPCA Labs due to regulatory issues owing to which the incumbents (including AJP) received incremental business. However, this changed in FY19 with the requalification of IPCA Labs. Additionally, lower fund allocation by the Global Fund and price erosion in ACT molecules also impacted revenues (were down 50% YoY). Currently, manufacturer sales of ACT drugs and NMP (National Malaria Programme) deliveries to Sub-Saharan Africa are almost near a decade low and prices of the first-line of treatment drugs have declined by 20-35% in the last 4 years. However, there has been a shift in demand in favour of dispersible tablets and low volume specialized drugs where the competition is limited - this would drive growth for the incumbents. While the macro environment would remain uncertain for anti-malaria players, we believe that AJP will continue to maintain its market share. We are building in a nominal growth of 5% over FY21-23E for the segment.
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19 July 2021 Ajanta Pharma Exhibit 48: Africa Anti-malaria institutional arm stablizes after sharp erosion in FY17-19
5,000 40% 4,500 25% 30% 4,000 11% 20% 5% 5% 3,500 0% 10% 3,000 0% -13% 2,500 -10% 2,000 -20% 1,500 -30% 1,000 -40% -49%
500 -50%
2,705 4,400 3,840 1,950 2,440 2,840 2,982 0 -60% FY17 FY18 FY19 FY20 FY21 FY22E FY23E
Africa Institutional (Rs mn) Growth yoy (RHS)
Source: Company, Systematix Institutional Research Global Fund has reduced its allocation towards anti-malaria The Pooled Procurement Mechanism is a Global Fund strategic initiative that Life-saving antimalarial treatments aggregates order volumes on behalf of participating grantees to negotiate prices and pooled procurement declined in 2019 to delivery conditions with manufacturers. In 2017, the Pooled Procurement 120mn from 190mn in 2017. Mechanism managed the allocation of USD 1bn for the overall treatment and medical supplies for HIV, TB and Malaria. The allocation towards anti-malaria reduced by 10% from USD 92mn in 2017 to USD 82mn in 2019. This reduction led to price erosion and a decrease in volumes, impacting anti-malaria suppliers. Exhibit 49 : Global Fund allocation towards the Pooled Procurement Mechanism (USD mn) witnessed a decline in anti-malaria
CY17 Other, 154 CY19 Other essential, 79 Rapid diagnostic test, long-lasting 37 insecticidal ARVs, 383 nets, 173 ARV, 357 Anti-malaria medicine, 92
Indoor sprays, 30 Rapid Anti-malaria diagnostic test, Long-lasting medicine, 82 70 nets, 247 Source: Systematix Institutional Research, Global Fund
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19 July 2021 Ajanta Pharma Exhibit 50: Manufacturing sales and NMP (National Malaria Programme) deliveries at a decade low for ACTs
Source: Systematix Institutional Research, Global Fund
Exhibit 51: First-line of treatment witness significant price erosion between 2017-21 % price change Product Description (Price treatment USD) 2017 2018 2021 from 2017-21 Artemether/Lumefantrine 20/120mg, 6x1, dispersible tablets 0.36 0.30 0.27 -25
Artemether/Lumefantrine 20/120mg, 6x2, dispersible tablets 0.67 0.48 0.47 -30
Artemether/Lumefantrine 20/120mg, 6x1, non dispersible tablets 0.32 0.30 0.27 -16
Artemether/Lumefantrine 20/120mg, 6x2, non dispersible tablets 0.5 0.48 0.47 -6
Artemether/Lumefantrine 20/120mg, 6x3, non dispersible tablets 0.67 0.55 0.52 -22
Artemether/Lumefantrine 20/120mg, 6x4, non dispersible tablets 0.84 0.68 0.6 -29 Source: Systematix Institutional Research, Global Fund
Systematix Research is also available on Bloomberg SSSL
19 July 2021 Ajanta Pharma Diversion of funds towards low volume specialized drugs Artemether-lumefantrine (AL) and Artesunate-amodiaquine (ASAQ) are mainly being used as first-line treatment in African countries which account for 92% of global cases. During 2018, the combined volume of AL and ASAQ was 64% of the total number of treatments delivered by the Global Fund which helped Indian companies like AJP, Cipla and Strides. The latest requirement of the Global Fund for anti-malaria drugs has seen a major shift in demand towards low volume specialized drugs like amodiaquine + sulfadoxine - pyrimethamine and sulfadoxine or pyrimethamine which are low competition drugs and manufactured only by Guilin Pharma. The requirement of these drugs has increased to 30% in 2021 (from 9% in 2018) and 20% (from 14%) of the total treatment courses required by the Global Fund. Exhibit 52: Demand skewed towards first-line treatments in CY18 Exhibit 53: Shift in demand towards specialized drugs in CY21
4% 5% 8% 6%
First-line treatment First-line treatment 37% Specialized & low volume Specialized & low volume 23% FDC FDC Severe malaria Severe malaria
65% Low transmission CQ Low transmission CQ sensitive sensitive 52%
Source: Systematix Institutional Research, Global Fund Systematix Institutional Research , Global Fund
Exhibit 54: Non-dispersible tablets were convential drugs in CY18 Exhibit 55: Dispersible & specialized drugs demand increase in CY21
6% AL-dispersible AL-dispersible 14% 17% 21% AL-non dispersible AL-non dispersible 3% 1% ASAQ ASAQ
8% amodiaquine + sulfadoxine- 4% amodiaquine + sulfadoxine- pyrimethamine pyrimethamine 0% 15% artesunate inject artesunate inject 6% 46% 9% chloroquine chloroquine 6% primaquine primaquine
13% sulfadoxine/pyrimethamine 31% sulfadoxine/pyrimethamine
Source: Systematix Institutional Research, Global Fund Source: Systematix Institutional Research, Global Fund While this business continues to depend heavily on sponsorships and has witnessed price erosion in recent times, it is still a viable model for most players due to lower working capital requirements and minimal opex. Thus, despite the lower gross margins, the overall EBITDA margin profile in this business is still decent between 15- 20%, making it RoCE accretive. We build in a 5% CAGR in this business over FY21-23E.
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19 July 2021 Ajanta Pharma Financial Analysis Despite multiple headwinds (Melacare issue in the domestic market in FY18, decline in the institutional business in FY18-19, COVID impact in FY21), AJP’s revenues have grown at an impressive CAGR of 11% over FY16-21. Key to this growth has been its large presence in the branded generics markets, which account for nearly 68% of its revenues, offering higher visibility in terms of growth and stability of margins. Further, the scale up in the US market over the last four years has also been robust (36% CAGR), albeit on a low base. While FY21 was impacted due to the pandemic, we expect AJP to grow revenues at a CAGR of 11% over FY21-23 led by a) 12% CAGR in the India business, b) 11-12% CAGR in the African/Asian branded business, c) 14% CAGR in the US business and d) 5% CAGR in the African institutional business given the challenging macro-outlook. Exhibit 56: Revenue Assumptions Region-wise revenue (Rs mn) FY20 FY21 FY22E FY23E Domestic Formulation 7,690 8,130 9,117 10,211 Exports 17,820 20,315 22,753 25,338 African branded 3,490 4,208 4,657 5,216 African institutional 2,440 2,705 2,840 2,982 US 5,160 6,370 7,380 8,319 Asia 6,730 7,032 7,876 8,821 Total 25,510 28,445 31,870 35,549 Source: Company, Systematix Institutional Research
Exhibit 57: Revenue traction should continue led by branded generic markets and US
40,000 26% 30% 35,000 25% 30,000 20% 25,000 12% 15% 10% 12% 20,000 6% 10% 15,000 5% 0% -4% 10,000 0%
5,000 -5%
20,016 20,016 21,309 20,554 25,879 28,897 31,870 35,549 - -10% FY17 FY18 FY19 FY20 FY21 FY22E FY23E
Revenue (Rs mn) Growth yoy (RHS)
Source: Company, Systematix Institutional Research
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19 July 2021 Ajanta Pharma Exhibit 58: Geography mix - FY21 Exhibit 59: EBITDA margin amongst the best in the industry
FY21 12,000 40% 34% 35% 32% 35% 10,000 31% 28% 31% 23% 26% 30% 29% 8,000 Domestic Formulation 25% 6,000 20% Africa (Branded+Insti Malaria) 15% 4,000 Asia 10% 2,000
5%
11,376 11,376
9,720 9,720 6,584 6,584 5,664 6,833 9,986 US 6,869 0 0% 25% FY17 FY18 FY19 FY20 FY21 FY22E FY23E 23% EBITDA (Rs mn) EBITDA Margin (%)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research With gross/EBITDA margins of ~75%/30%, AJN’s margin profile is amongst the best in the industry. It benefitted from lower opex in FY21 and gross margins also improved YoY as the FY20 base was impacted due to a product recall. It is moving production in-house to its Guwahati facility as against largely outsourced manufacturing earlier. While the in-house manufacturing cost is higher for AJN versus outsourced manufacturing, the transition will ensure better control over its production and supply chain. A large part of this transition has already happened last year and FY21 margins are reflective of this; thus, we don’t expect an incremental impact on margins. The company should maintain an EBIDTA margin of ~30% on a structural basis led by a) its business mix (higher contribution from the branded businesses combined with slower growth in the institutional business) and b) increasing scale of the US business (broke even in FY19) which should result in operating leverage. Exhibit 60: Gross margin to sustain at ~76% levels 84.0
82.0
80.0 80.9 81.3 78.0 79.3 77.7 76.0 76.5 76.0 74.0 74.7 72.0
70.0 FY17 FY18 FY19 FY20 FY21 FY22E FY23E
Gross Margin (%)
Source: Company, Systematix Institutional Research
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19 July 2021 Ajanta Pharma Strong earnings growth to improve return ratios and FCF AJP has invested close to Rs 13bn in capex over the last five years, with investments in its Guwahati/Dahej/Paithan facilities. These facilities are now operating at utilisation levels of 40-45% and should suffice for growth over the next three years. The company will invest ~Rs 2bn in FY22 including spilled over capex from FY21, maintenance capex and investments for a new corporate office. FY21 was an aberrational year in terms of investments and hence the return profile is much better. Nevertheless, on the FY20 base, we expect its RoE to improve by at least 300bps over the next two years even as its RoCE is likely to be flattish, given the rising cash balance. While working capital increased in FY21 to ensure better availability of raw materials/finished goods due to the logistical/lockdown disruptions, we expect this to taper off a bit going forward. Led by the decline in capex intensity, we expect FCF of Rs 10.3bn over the next two years. This compares with a FCF of Rs 9.8bn over FY17-21. Exhibit 61: RoCE (%) Exhibit 62: Asset turnover to improve
45.0 41.0 2.5 40.0 2.2 2.2 2.0 33.4 1.9 1.9 35.0 30.1 2.0 1.7 30.0 26.2 26.3 27.2 1.4 23.0 25.0 1.5 20.0 1.0 15.0 10.0 0.5 5.0 0.0 0.0 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY17 FY18 FY19 FY20 FY21 FY22E FY23E
RoCE Asset turnover (x)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Exhibit 63: Working capital cycle increased by ~15 days in FY21 due to higher US sales
160 152 152 141 140 126 117 120 100 95 80 64 60 40 20 0 FY17 FY18 FY19 FY20 FY21 FY22E FY23E
WC days
Source: Company, Systematix Institutional Research
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19 July 2021 Ajanta Pharma Exhibit 64: Capex cycle complete
Guwahati (Phase 1) Ophthal at Guwahati and oral and Dahej solid at Pithampur in FY19-20 4,000
3,500 Guwahati New corporate (Phase 2 - office & 3,000 Derma maintenance
2,500 Maintenance 2,000 Maintenance
1,500
1,000
500
3,430 1,716 2,991 2,627 2,394 2,000 1,500 0 FY17 FY18 FY19 FY20 FY21 FY22E FY23E
CAPEX (Rs mn)
Source: Company, Systematix Institutional Research
Exhibit 65: FCF of reach Rs 6bn in FY23E Exhibit 66: FCF/EBITDA ratio to remain healthy
7,000 6,556 0.7 0.6 6,000 0.6
5,000 0.5 0.5 0.4 0.4 4,047 3,829 4,000 0.4 0.3 3,102 3,000 0.3 2,174 2,000 0.2 0.1 0.1 1,000 0.0 184 318 0.0 0 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY17 FY18 FY19 FY20 FY21 FY22E FY23E -0.1
FCF FCF/EBITDA (x)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
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19 July 2021 Ajanta Pharma Exhibit 67: Net cash to cross Rs 6bn in FY23E
1000 62 0 -98 -1000 -176 -353 -428 -2000 -2065 -3000 -4000 -5000 -6000
-7000 -6594 FY17 FY18 FY19 FY20 FY21 FY22E FY23E
Net Debt (Rs mn)
Source: Company, Systematix Institutional Research
Exhibit 68: Leverage (x) ratio to remain favourable Exhibit 69: Net debt/EBITDA (x)
0.04 0.10 0.06 0.01 0.03 0.04 0.02 0.01 0.01 0.00 0.00 0.00 -0.02 0.00 -0.01 -0.10 -0.04 -0.04 -0.20 -0.06 -0.05 -0.18 -0.08 -0.30 -0.10 -0.12 -0.40 -0.14 -0.50 -0.16 -0.15 -0.18 -0.60 -0.55 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY17 FY18 FY19 FY20 FY21 FY22E FY23E
Net Debt/Equity Net Debt/EBITDA
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
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19 July 2021 Ajanta Pharma SWOT analysis Strengths . Higher contribution from branded generic markets with better profitability limits the business uncertainties from the anti-malaria institutional arm. . AJP’s focus on first-to-market products in the domestic formulation segment helps it outperform its covered market. . Strong track record of growth through the organic route has led to lower leverage and efficient capital allocation vs. peers. Weaknesses . A significant API price increase could impact margins as it sources 98% of its API/KSM requirements through third party vendors. . The company’s presence is limited to four therapies in India and it needs to expand in other categories. On the positive side, it still has a low coverage in these markets and hence does not see any risks to growth. . The lumpy business environment of the anti-malaria institutional segment has been caused by the reduction in allocation by global bodies. Hence, this business continues to witness uncertainty. Opportunities . Foray into new therapies in the domestic formulation market through the inorganic route given its strong balance sheet. . Increase in the coverage of existing therapies. . Significant scope to improve MR productivity (Rs 0.26mn/month/MR currently). Threats . Currently, ~14-15% of its portfolio is under NLEM (national list of essential medicines). The revision of NLEM is due in FY22 and any addition to this list can impact its revenues. . The lockdown impacted the growth of the derma segment (21% of domestic formulation revenues) in FY21. Although COVID cases have been on a downtrend from their peak, a surge in cases or 3rd wave in India can impact the growth of the segment.
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19 July 2021 Ajanta Pharma Valuation and recommendation While AJP has a sizeable branded generics business, it has traded at a discount to its peers due to business headwinds (Melacare issue, institutional business impact, COVID impact) which coincided with the sharp rise in capex (Rs 13bn over the last 5 years). We believe these headwinds are transitory and do not see any structural risks to the company’s branded generic franchise. The stock currently trades close to its 5- year average of 23x (PE) FY23E EPS of Rs 95. With an EPS CAGR of 21% over FY20-23E and the culmination of the large capex program, we expect its RoE to improve from hereon along with a sharp rise in FCF generation – this should drive multiples higher than its historical averages. AJN’s large branded presence diffuses any significant volatility in earnings, making it one of the few businesses in the sector with a clear long-term earnings trajectory. Given its strong returns profile and debt free balance sheet, we value AJN at 26x (PE) FY23E EPS (in-line with the Nifty Pharmaceutical Index) to arrive at a target price of Rs 2,481 and initiate coverage with a BUY rating. Exhibit 70: Pharmaceutical valuation sheet CAGR over FY21-23E (%) EBITDA Margin (%) P/E (x) EV/EBITDA (x)
Sales EBITDA EPS FY21 FY22E FY23E FY21 22E 23E FY21 22E 23E
Systematix Coverage
AJANTA 11 7 12 35 31 32 29 28 23 19 19 16 INDOCO 18 27 43 18 20 21 45 32 22 20 15 12 Nifty Pharma
AUROBINDO 8 9 8 22 22 22 17 16 15 10 10 9 CADILA 8 7 6 22 22 22 31 29 27 21 19 18 CIPLA 10 14 17 22 22 24 33 29 24 17 16 14 DR. REDDY'S 14 28 28 21 23 26 38 28 23 20 17 14 DIVI'S 20 21 24 41 41 42 64 51 41 44 36 30 BIOCON 23 35 51 24 27 28 78 50 34 29 22 17 SUN PHARMA 11 13 13 26 25 26 29 26 23 19 17 15 TORRENT 12 10 17 32 30 31 41 36 30 22 20 18 ALKEM 12 10 7 22 20 21 25 26 22 19 20 17 LUPIN 13 24 36 17 19 21 45 31 24 20 16 13 Mean 13 17 21 25 25 26 40 32 26 22 19 17 Small-Mid size companies
ERIS LIFE 12 11 13 36 35 35 29 26 23 25 22 20 IPCA 11 7 5 28 26 27 23 24 21 16 17 15 NATCO 31 62 58 30 33 45 46 38 18 30 26 13 J.B. CHEMICALS 13 2 9 33 26 27 33 32 28 25 23 20 ALEMBIC 8 0 -7 29 25 25 16 20 19 12 14 12 Mean 15 16 16 31 29 32 29 28 22 22 20 16 Source: Company, Systematix Institutional Research & Bloomberg
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19 July 2021 Ajanta Pharma Exhibit 71: 1-year forward PE (x) band-AJP Exhibit 72: PE(x) range for AJP
3,000 50.0 45.0 2,500 25.0x 40.0 35.0 2,000 20.0x 30.0 25.0 1,500 15.0x 20.0 1,000 15.0 19.2 11.6 10.0 500 5.0 0.0
0
Jul-18
Jan-21
Jun-16 Jun-21
Oct-19
Apr-17
Sep-17 Feb-18
Dec-18
Aug-20
Nov-16 Mar-20
-500 May-19
Jul-18
Jan-21
Jun-16 Jun-21
Oct-19
Apr-17
Sep-17 Feb-18
Dec-18
Aug-20
Nov-16 Mar-20 May-19 P/E (x) Peak(x) Avg(x) Median(x) Min(x)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Exhibit 73: 1-year forward EV/EBITDA (x) band-AJP Exhibit 74: EV/EBITDA(x) range for AJP
200,000 30.0 180,000 160,000 14.0x 25.0 140,000 12.0x 20.0 120,000 10.0x 100,000 15.0 80,000 10.0 13.6 60,000 6.0 5.0 40,000 20,000 0.0
0
Jul-18
Jan-21
Jun-16 Jun-21
Oct-19
Apr-17
Feb-18 Sep-17
Dec-18
Aug-20
Nov-16
Mar-20
May-19
Jul-18
Jan-21
Jun-16 Jun-21
Oct-19
Apr-17
Sep-17 Feb-18
Dec-18
Aug-20
Nov-16
Mar-20 May-19 EV/EBITDA (x) Peak(x) Avg(x) Median(x) Min(x) Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
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19 July 2021 Ajanta Pharma FINANCIALS Profit & Loss Statement Balance Sheet YE: Mar (Rs mn) FY20 FY21 FY22E FY23E YE: Mar (Rs mn) FY20 FY21 FY22E FY23E Net Revenues 25,879 28,897 31,870 35,549 Equity Share Capital 175 174 174 174 YoY gr. (%) 26 12 10 12 Reserves & Surplus (Ex OCI) 25,813 29,782 34,855 41,138 Cost of Goods Sold 6,557 6,451 7,649 8,354 Net Worth 25,989 29,956 35,029 41,312 Gross Profit 19,322 22,446 24,221 27,195 Short term debt 2,230 2,141 2,141 2,141 Margin (%) 75 78 76 77 Long term debt 7 16 16 16 Employee Cost 4,856 5,483 6,215 6,932 Trade payables 3,623 3,739 3,542 3,950 Other Expenses 7,632 6,978 8,286 8,887 Other Provisions 248 296 296 296 EBITDA 6,833 9,986 9,720 11,376 Other liabilities 1,090 1,639 1,639 1,639 YoY gr. (%) 21 46 -3 17 Total Liabilities 33,187 37,787 42,663 49,354 Margin (%) 26 35 31 32 Depreciation and Amortization 957 1,161 1,200 1,300 Net block 13,602 14,292 15,092 15,292 EBIT 5,876 8,825 8,520 10,076 CWIP 1,319 1,082 1,082 1,082 Margin (%) 23 31 27 28 Other Non-current asset 117 108 108 108 Net Interest 119 83 83 83 Investments 1,739 2,030 2,030 2,030 Other Income 922 260 600 900 Cash and Cash Equivalents 2,024 1,775 3,902 8,431 Profit Before Tax 6,679 9,002 9,038 10,893 Debtors 7,753 7,384 8,145 9,085 Margin (%) 2.7 2.7 2.7 2.7 Inventories 4,957 7,665 8,853 9,875 Total Tax 1,963 2,463 2,345 2,667 Other current asset 1,677 3,452 3,452 3,452 Effective tax rate (%) 29 27 26 24 Total Assets 33,187 37,787 42,663 49,354 Profit after tax 4,716 6,539 6,693 8,227 Source: Company, Systematix Institutional Research EPS 54 76 77 95 YoY gr. (%) 23 40 2 23 Source: Company, Systematix Institutional Research Cash Flow Ratios YE: Mar (Rs mn) FY20 FY21 FY22E FY23E YE: Mar FY20 FY21 FY22E FY23E PBT 6,640 9,986 9,038 10,893 Per Share (Rs) Depreciation 957 1,161 1,200 1,300 EPS 54 76 77 95 Interest 119 83 83 83 CEPS 65 89 91 110 Others -368 -1,075 0 0 BVPS 298 343 401 473 Working capital -1,232 -2,088 -2,146 -1,554 DPS 13 16 19 22 Direct tax -1,548 -2,304 -2,345 -2,667 Return Ratios (%) Net cash from Op. activities 4,568 5,763 5,829 8,056 RoCE 26 30 26 27 Net Capital expenditures -2,394 -1,716 -2,000 -1,500 RoE 19 23 21 22 Others 150 -1,108 0 0 Balance Sheet Net Cash from Invt. activities -2,244 -2,824 -2,000 -1,500 Net Debt:Equity (x) 0.0 0.0 0.0 -0.2 Issue of share cap. / premium - - - - Net Working Capital (Days) 148 183 190 187 Debt changes 97 -440 0 0 Valuation(x) Dividend paid -1,134 -827 -1,620 -1,944 PER 40 29 28 23 Others -250 -1,914 -83 -83 EV/EBITDA 28 19 19 16 Net cash from Fin. activities -1287 -3181 -1703 -2027 Net change in cash 1,037 -243 2,127 4,529 EV/Sales 7 7 6 5 Region wise revenue(Rs mn) FY20 FY21 FY22E FY23E Source: Company, Systematix Institutional Research Domestic Formulation 7,690 8,130 9,117 10,211 Exports 17,820 20,315 22,753 25,338 Africa branded 3,490 4,208 4,657 5,216 Africa institutional 2,440 2,705 2,840 2,982 US 5,160 6,370 7,380 8,319 Asia 6,730 7,032 7,876 8,821 Total 25,510 28,445 31,870 35,549 Source: Company, Systematix Institutional Research
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19 July 2021 Ajanta Pharma
Institutional Equities Team
Nikhil Khandelwal Managing Director +91-22-6704 8001 [email protected] Navin Roy Vallabhaneni President & Head – IE & ECM +91-22-6704 8065 [email protected] Equity Research Analysts Industry Sectors Desk-Phone E-mail Rahul Jain Metals & Mining +91-22-6704 8066 [email protected] Ronak Sarda Auto, Auto Ancillaries +91-22-6704 8059 [email protected] Rakesh Kumar Banking, Insurance +91-22-6704 8041 [email protected] Praful Bohra Pharmaceuticals and Healthcare +91-22-6704 8064 [email protected] Shubhranshu Mishra NBFCs & Diversified Financials +91-22-6704 8024 [email protected] Sanjeev Kumar Singh Cement, Building Materials, Paints +91-22-6704 8017 [email protected] Premal Kamdar Consumer Staples +91-22-6704 8090 [email protected] Amar Kedia Infra, Cap Goods, Logistics, Consumer Durables +91-22-6704 8084 [email protected] Ashutosh Joytiraditya Consumer, Retail +91-22-6704 8068 [email protected] Naushad Chaudhary Chemicals, Textiles, Building Materials, Midcaps +91-22-6704 8036 [email protected] Harsh Mittal Cement, Building Materials, Paints +91-22-6704 8098 [email protected] Poorvi Banka Auto, Auto Ancillaries +91-22-6704 8063 [email protected] Nikhil Shah Banking, Insurance +91-22-6704 8091 [email protected] Tausif Shaikh Pharmaceuticals and Healthcare +91-22-6704 8046 [email protected] Shweta Dikshit Metals & Mining +91-22-6704 8042 [email protected] Shilpashree Venkatesh Macro-Strategy +91-22-6704 8078 [email protected] Equity Sales & Trading Name Desk-Phone E-mail Vipul Sanghvi Director and Head - Sales +91-22-6704 8062 [email protected] Ashok Kumar Agarwal Sales +91-22-6704 8058 [email protected] Jigar Kamdar Sales +91-22-6704 8060 [email protected] Rahul Khandelwal Sales +91-22-6704 8033 [email protected] Pawan Sharma Director and Head - Sales Trading +91-22-6704 8067 [email protected] Mukesh Chaturvedi Vice President and Co Head - Sales Trading +91-22-6704 8074 [email protected] Vinod Bhuwad Sales Trading +91-22-6704 8051 [email protected] Rashmi Solanki Sales Trading +91-22-6704 8097 [email protected] Rahul Thakar Sales Trading - Derivatives +91-22-6704 8073 [email protected] Vipul Chheda Dealer +91-22-6704 8050 [email protected] Amit Sawant Dealer +91-22-6704 8054 [email protected] Paras Shah Dealer +91-22-6704 8047 [email protected] Suketu Vyas Dealer +91-22-6704 8050 [email protected] Corporate Access Audrey Leolyn Mendonca Assistant Vice President +91-22-6704 8088 [email protected] Production Yukti Vidyarthi Editor +91-22-6704 8071 [email protected] Mrunali Pagdhare Production +91-22-6704 8057 [email protected] Vijayendra Achrekar Production +91-22-6704 8089 [email protected] Operations Sachin Malusare Vice President +91-22-6704 8055 [email protected] Sugandha Rane Assistant Vice President +91-22-6704 8056 [email protected] Jignesh Mistry Manager +91-22-6704 8049 [email protected] Ravikiran Dasaka Manager +91-22-6704 8622 [email protected] Ravi Agarwal Assistant Manager +91-22-6704 8016 [email protected]
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19 July 2021 Ajanta Pharma
DISCLOSURES/APPENDIX
I. ANALYST CERTIFICATION
I, Praful Bohra, Tausif Shaikh; hereby certify that (1) views expressed in this research report accurately reflect my/our personal views about any or all of the subject securities or issuers referred to in this research report, (2) no part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research report by Systematix Shares and Stocks (India) Limited (SSSIL) or its group/associate companies, (3) reasonable care is taken to achieve and maintain independence and objectivity in making any recommendations.
Disclosure of Interest Statement Update Analyst holding in the stock No Served as an officer, director or employee No
I. ISSUER SPECIFIC REGULATORY DISCLOSURES, unless specifically mentioned in point no. 9 below:
1. The research analyst(s), SSSIL, associates or relatives do not have any financial interest in the company(ies) covered in this report.
2. The research analyst(s), SSSIL, associates or relatives collectively do not hold more than 1% of the securities of the company(ies) covered in this report as of the end of the month immediately preceding the distribution of the research report.
3. The research analyst(s), SSSIL, associates or relatives did not have any other material conflict of interest at the time of publication of this research report.
4. The research analyst, SSSIL and its associates have not received compensation for investment banking or merchant banking or brokerage services or any other products or services from the company(ies) covered in this report in the past twelve months.
5. The research analyst, SSSIL or its associates have not managed or co-managed a private or public offering of securities for the company(ies) covered in this report in the previous twelve months.
6. SSSIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party in connection with this research report.
7. The research analyst has not served as an officer, director or employee of the company(ies) covered in this research report.
8. The research analyst and SSSIL have not been engaged in market making activity for the company(ies) covered in this research report.
9. Details of SSSIL, research analyst and its associates pertaining to the companies covered in this research report:
Sr. Yes / Particulars No. No. 1 Whether compensation was received from the company(ies) covered in the research report in the past 12 months for investment banking transaction by SSSIL. No 2 Whether research analyst, SSSIL or its associates and relatives collectively hold more than 1% of the company(ies) covered in the research report. No 3 Whether compensation has been received by SSSIL or its associates from the company(ies) covered in the research report. No Whether SSSIL or its affiliates have managed or co-managed a private or public offering of securities for the company(ies) covered in the research report in the 4 No previous twelve months. Whether research analyst, SSSIL or associates have received compensation for investment banking or merchant banking or brokerage services or any other 5 No products or services from the company(ies) covered in the research report in the last twelve months.
10. There is no material disciplinary action taken by any regulatory authority that impacts the equity research analysis activities.
STOCK RATINGS
BUY (B): The stock's total return is expected to exceed 15% over the next 12 months. HOLD (H): The stock's total return is expected to be within -15% to +15% over the next 12 months. SELL (S): The stock's total return is expected to give negative returns of more than 15% over the next 12 months. NOT RATED (NR): The analyst has no recommendation on the stock under review.
INDUSTRY VIEWS
ATTRACTIVE (AT): Fundamentals/valuations of the sector are expected to be attractive over the next 12-18 months. NEUTRAL (NL): Fundamentals/valuations of the sector are expected to neither improve nor deteriorate over the next 12-18 months. CAUTIOUS (CS): Fundamentals/valuations of the sector are expected to deteriorate over the next 12-18 months.
II. DISCLAIMER
The information and opinions contained herein have been compiled or arrived at based on the information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy completeness or correctness.
This document is for information purposes only. This report is based on information that we consider reliable; we do not represent that it is accurate or complete and one should exercise due caution while acting on it. Description of any company(ies) or its/their securities mentioned herein are not complete and this document is not and should not be construed as an offer or solicitation of an offer to buy or sell any securities or other financial instruments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. All opinions, projections and estimates constitute the judgment of the author as on the date of the report and these, plus any other information contained in the report, are subject to change without notice. Prices and availability of financial instruments are also subject to change without notice. This report is intended for distribution to institutional investors. This report is not directed to or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity that is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject to SSSIL or its affiliates to any registration or licensing requirement within such jurisdiction. If this report is inadvertently sent or has reached any individual in such country, especially USA, the same may be ignored and brought to the attention of the sender. Neither this document nor any copy of it may be taken or transmitted into the United States (to U.S. persons), Canada, or Japan or distributed, directly or indirectly, in the United States or Canada or distributed or redistributed in Japan or to any resident thereof. Any unauthorized use, duplication,
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19 July 2021 Ajanta Pharma redistribution or disclosure of this report including, but not limited to, redistribution by electronic mail, posting of the report on a website or page, and/or providing to a third party a link, is prohibited by law and will result in prosecution. The information contained in the report is intended solely for the recipient and may not be further distributed by the recipient to any third party.
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