Ajanta Pharma: Growth driven by India, US markets

Africa business expected to normalise on the back of currency stability

The Ajanta Pharma stock has gained 18 per cent over the previous month, given the outperformance in the domestic market, stability in African business, and growth in US business. While Africa contributes about 37 per cent to sales, India accounts for about 31 per cent and the US about nine per cent. In addition to steady revenues, analysts expect margins to improve by 100 basis points (bps) over the next year on higher revenue growth and improving utilisation levels at Dahej and Guwahati.

With growth rebounding over the past two months in the Indian pharmaceutical market, Ajanta, which has a presence in key high growth therapies, should benefit. The company outperformed the India pharma market growth in November posting a growth of 11.3 per cent, compared to the 8.1 per cent for the sector, led by price increase and growth from new product launches. Its focus on specialty therapies (cardiovascular, opthalmology, dermatology), first to market strategy and strong execution has helped it to post faster growth rates than the overall market. The company has been able to gain market share even in new areas such as pain therapy, given its brand strength. While FY18 growth is likely to be in high single digits, given the GST impact and lower dermatological revenues, this is expected to improve, with analysts at B&K Securities guiding for 15 per cent annual revenue growth over the FY18-20 period on the back of stability in the dermatology portfolio and new products.

While Africa is its biggest geographical market, currency volatility and devaluation led by lower crude oil prices meant growth had fallen over the past few quarters. However, with the currency situation stabilising, the company’s performance is expected to improve. Analysts said the worst for the branded generic business in Africa is over. Analysts at SBICAP Securities expect the company to replicate the Indian generic branded growth trend in Africa and market to grow at 12 per cent annually over the FY17-20 period. However, the pain point would be the institutional business in Africa (anti-malarial tender business) as donor funding has been muted leading to lower procurement, while IPCA’s return to the tender business would translate to price erosion and market share loss. 

Incremental growth for the overall business is expected to come from the US market. Despite being a late entrant to the US market, given the faster approval process initiated by the US FDA, the company, which has 39 abbreviated new drug applications, should benefit from a larger basket of products. It is looking to move up the value chain with a focus on limited competition products. Revenues from the US market is expected to double from the current $28 million by FY20. The stock is trading at 25 times its FY19 earnings estimates and can be looked at on dips.