Ajanta Pharma Limited (AJANTPHARM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Ajanta Pharma Q1 FY 2024 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Yogesh Agrawal, Managing Director of Ajanta Pharma Limited. Thank you, and over to you, sir.

Thank you. Good evening, and welcome, all of you. With me, I have Mr. Rajesh Agrawal, our Joint Managing Director; Mr. Arvind Agrawal, our CFO; Mr. Rajeev Agrawal, our AVP, Finance and Investor Relations. Friends, on July 9, we celebrated a significant milestone, the 50th anniversary of Ajanta Pharma. Today, our company stands strong and distinguished within the pharmaceutical industry. We have not only stood shoulder to shoulder with leading companies, but we have also carved out our own unique mark of excellence. Over the years, we have built large brands across geographies, state-of-the-art research and development center, top notch manufacturing facilities, robust quality systems and efficient business processes that are second to none. These accomplishments, significant as they are, aren't the only reasons for our success. At the heart of Ajanta Pharma is its people. We cultivated exceptional leadership, developed phenomenal teams and nurtured a resilient culture of excellence. On this occasion, we would like to thank all our stakeholders: Ajantaites, existing and past; customers; suppliers; banks; business partners; associates; and shareholders for their support and contribution leading to Ajanta's success. Let me take you to another important announcement that I would like to make regarding the interim dividend. I'm happy to share with you that Board of Directors have approved first interim dividend of INR 315 crores, for the year FY 2024. It translates into INR 25 per share, which is 1,250% for each [ rupees to ] face value share. This total dividend of INR 25 per share includes a regular dividend of INR 10 per share and an additional INR 10 per share distributed as a special dividend on the commemoration of 50 years of momentous journey of the company. I am happy to share that we started FY 2024 on a strong note. I and our Joint MD will take you through business-wise performance for the Q1, along with the comparison of previous year same period. Our 3 verticals of business, Branded Generics, U.S. Generic and Institution business in Africa, generated total revenue of INR 1,021 CR against INR 951 CR, posting a growth of 7%. During the quarter, 73% of the total sales came from the Branded Generics, which is spread across India, Asia and Africa. This business has surety, scalability and sustainability for the long term. The sales stood at INR 732 crores against INR 688 crores, posting 6% growth. I invite Mr. Rajesh Agrawal, Joint MD, to take you through our India business. Thank you.

Thank you. Good evening to you all. I'm happy to share key highlights of India business. Our performance has been excellent on the back of market share gains, price increase and new product launches. India business contributed 32% in the total revenue with sales of INR 319 crores against INR 279 crores, posting a healthy growth of over 14%. India business includes revenue from trade generics of INR 36 crores against INR 36 crores. During the quarter, we launched 3 new products and have pipeline of launches lined up for the coming year. Our MR productivity has improved further in line with the revenue growth as MR strength remains unchanged. We continue to grow faster than the IPM by 400 basis points, with Ajanta growing at 15% against IPM growth of 11% as per IQVIA MAT June 2023. It was same for the therapeutic segments we are present in, where our growths are much higher than the segment growth. In the covered market, we continue to be fourth largest in IPM and amongst top 10 in all our therapeutic segments. As per IQVIA MAT June 2023, we gained 1 rank since March 2023 and stood at 26. In our sales, Cardiology contributed 39%, Ophthalmology contributed 31%, and Dermatology contributed 21% of our India business, with remaining 9% coming from the Pain segment. Now I request Mr. Yogesh Agrawal, MD, to take you through the other business performance. Thank you, and over to you.

Thank you. I'm now happy to brief you about the Branded Generics business in Asia and Africa, which contributed 42% in the total revenue during the quarter. Let's start with Asia. In Asia, our business is spread across Middle East, Southeast Asia and Central Asia, covering about 10 countries. During Q1, the sales was INR 254 crores against INR 240 crores, growth of 6%. We launched 2 new products during the Q1 in the region. We maintain our guidance of mid-teen growth for the FY 2024. Let's move to Africa. In Africa, the business is spread over West and Eastern African markets in 20 countries. During Q1, sales was INR 159 crores against INR 168 crores, posting 5% degrowth. Continued strikes in France for pension reforms till mid of May 2023 led to delays in delivery of consignments, which is now normalized. Hence, we continue to guide for the mid-teen growth in FY 2024. Let's move to the next vertical, U.S. Generics. U.S. Generics contributed 21% to the total revenue in Q1, with sales of INR 213 crores against INR 179 crores, posting 19% growth. We expect revenue for the next 3 quarters to be on a similar level. In Q1, we filed 3 ANDAs and expect to file about 5 ANDAs in the rest of FY 2024. We received 3 final approvals during the quarter and expect to launch 4 to 5 products in the rest of the year. We have 41 products available on the shelf and 21 ANDAs are awaiting approval with U.S. FDA. Let's now move to the third and the last piece of our business, which is Africa Institution. This business contributed 6% in the total revenue, which comprises of antimalarial products. In Q1, the sale was INR 65 crores against INR 77 crores, posting 16% degrowth. As the supplies are dependent on the procurement agencies' funds availability, it remains unpredictable. I now invite Mr. Arvind Agrawal, CFO, to take you through the financial performance. Thank you, and over to you.

Thank you. Good evening, and warm welcome to the first earnings call of FY 2024. We will look at the consolidated financials as always and provide year-on-year comparison. The key financial highlights for Q1 2024 are as follows: Total revenue stood at INR 1,021 crores against INR 951 crores, posting a 7% growth. Gross margin stood at 75%, which was in line with our guidance for the year. The 2% improvement in the margin is a result of softening API prices and euro coming back to normal against INR. We expect gross margin to remain at this level for FY 2024. Personnel costs increased by 17%, part of which about 6% is on account of regrouping of related expenses from selling expenses as explained in Q4 FY '23 Earnings Call, and balance was regular annual increment. Other expenses stood at INR 285 crores in Q1, an increase of 7% over previous year same period. In terms of national logistics cost, it is now at pre-COVID levels, which has resulted in a benefit of about INR 25 crores or about 2.5% of export sales against average of FY 2023. R&D expenses was INR 55 crores against INR 54 crores for the quarter or 5% of revenue. We expect R&D expenses to inch up a little in coming quarters and at about 6% for the FY 2024. EBITDA margin stood at 26% of revenue from operations at INR 271 crores against INR 222 crores on the back of benefit in gross margin and logistic cost. We retain our guidance of about 25% plus minus 1% EBITDA margin for FY 2024. Other income was at INR 32 crores in Q1, mainly contributed by ForEx gain of INR 20 crores. Income tax stood at 23% for Q1 and we expect it to be same level in FY 2024. Profit after tax in Q1 was INR 208 crores against INR 175 crores, 20% of revenue from operations. We incurred CapEx of INR 26 crores in Q1 FY 2024. CapEx including maintenance CapEx for FY 2024 is estimated to be at INR 200 crores, which also includes new corporate house CapEx. With these highlights, I open the floor for the question-and-answer. Thank you.

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] We have the first question from the line of Rashmi Sancheti from Dolat Capital. Well, we see Ms. Sancheti has taken her question off. We move to the next question from the line of [ Ungar Kungarti from Shree Investments ].

Yes. My question is regarding the target which we have set for say, next 3 to 4 years for the company in terms of revenue as well as margin.

See, 3 to 4 years is a little long term, I think. And I think we should not be able to -- we will not be able to give you the guidance on that. The only thing which we talked generally was that we are expecting mid-teen growth for the next year.

You said what kind of growth for the next year?

Mid-teen growth.

And directionally, what kind of revenue and margin trajectory we should look at? I'm not looking for a specific guidance here, but more of a direction.

As we mentioned earlier also in Q4, I think the direction is absolutely positive because all the levers are there. Branded Generics business is growing, so naturally, the direction has to be positive.

Okay. And for the next couple of years, any big opportunity you are looking at for increase in revenue?

I think it's a culmination of a lot of things coming together, increasing the market share from the existing products and existing people, then launching of the new products, adding more people. So all the R&D work which we are doing in the current year or which we have done last year will come to the light the next year and subsequently. So all the things are in a positive direction. So there are a lot of work which is happening in the R&D, regulatory front, to pilot off here. As we get the approach, we are able to bring those products to the market. So overall, I think it's a composition of multiple things which will -- going right. There is no 1 single thing which we can point out and say that 1 big thing will happen like this.

So any big product launch lined up in a couple of years can be a big opportunity for the company, in terms of market size?

I can't give you anything specific like that. But as I said, in general, all the products which we will file in the U.S., let's say 8 this year, they will get approval next year. What we filed last year got approval this year. All those, I think, cumulatively, it should add up to giving us the mid-teen growth. That's the aspiration. And second thing is we always look out to grow faster than the market. So both things put together, we are optimistic about the future growth.

So directionally, you are talking about around mid-teens kind of growth for the couple of years down the line?

You can say directionally, yes, but we don't give out that long guidance. Normally, we just say that the current -- next year, which is current year now. So this is the guidance, mid-teen, we are giving. But directionally, you can say that, yes, that is our aspiration, to grow at the mid-teens.

Yes. And what about the margin trajectory?

Should remain in the similar vicinity of what we have said for the current year. EDITDA at, we've guided around 25%, 26%. So around there is what we are looking at to maintain, yes.

Okay. And what kind of U.S. business we can look for in the next 2, 3 years?

2, 3 years, I think, as I said, is a little far away. We don't give out our guidance that way. I think current year, we have started off very well in the Q1. We have posted a healthy growth of 17% or we've done INR 214 crores for the Q1. For the rest of the quarter, we can expect similar kind of levels to maintain and post a healthy growth despite the challenges which we have seen in the U.S. of price erosion and things like that. But a lot of things will -- should go right, we should be able to hold on to the current quarter for the rest of the year -- rest of the quarter.

Okay, as I can see the ROE of the company has been going down for the last 2, 3 years. Any specific things you are looking to increase that?

Yes. As we laid out, improvement will come in the EBITDA margin. I think that, that also will improve positively. And 1 thing is that we are already finished our CapEx, big CapEx plan. Now it's only maintenance CapEx which is going to be there. So ROE is going to improve.

So any internal targets which you have set for this?

No, we don't give out that number. Thank you.

[Operator Instructions] We have the next question from the line of Rashmi Sancheti from Dolat Capital.

Yes. Thanks for the opportunity, and good evening, everyone. So first question is related to the U.S. business. We were planning that there won't be any incremental capital allocation on the U.S. business, and we will focus more on the branded market, because there was a lot of uncertainty. But now U.S., that because of the abating price erosion and the opportunities are improving due to the supply disruption and all, is the plan changing and we would focus on U.S. also? Or we still stick to the same plan?

No, you're right, the U.S. is an evolving landscape. Scenario has turned tables now. There's a lot of talk about shortages which are happening in the U.S. market, for various reasons. Some geopolitical, some compliance, [indiscernible], things like that. So that's an evolving market. Having said that, I think CapEx, we don't need to do because we have enough capacities in the production for whatever products, which we have filed and whatever we have work in progress in R&D. Even if we file in next 2 years and commercialize, we have done the mapping and we -- there are no additional capacities required, maybe maintenance. So there is no significant CapEx required as such, otherwise low, because we have capacity. In R&D also, we have enough CapEx which is done. So there is enough bandwidth there also. So I think CapEx will otherwise also remain low, whether it is U.S. or non-U.S. OpEx is what we were saying that we will be very judicious about for the U.S. market, because the cost of filing an ANDA is very high. So we still remain that way. We still will continue to be very -- putting a lot of filters in product selection because the cost is very high. So having said that, we have already filed 3 ANDAs in this first quarter. And we plan to file at least 5 ANDAs in the rest of the year. So I think the plan is, smart product selection, a very robust supply chain, no stock-out, no back orders, all that are positive with us, and we will continue to build on that.

And any improvement in the price erosion which you are seeing? I remember that the last quarter of FY '23, you said that the price erosion in high double digits. But what is the price erosion currently in this quarter?

No, it has -- thankfully, it has stabilized quite a lot. And you would hear this commentary, I think, in multiple con calls of Indian and multinational companies. So we are seeing that into the high single digit as an average price erosion. So yes, that has come down in a normal range, which used to be there earlier also.

Okay. And can you give any update on Vivomo launch and your update on Topiramate and Chantix products, what is happening over there? We still have queries or we have approval for any launch timelines which you can give?

Three products you asked for. The first one is Vivomo. That is already commercialized. We did commercialize in the last quarter only. So I think it's just -- initial supplies have started. The second is Chantix. That is work in progress.

That is [indiscernible].

That is work in progress for the Chantix. Ongoing, it depends on the regulatory landscape. From our side, we have given everything what FDA has asked for. There have been no more questions from the FDA. So now we're just waiting for the FDA to give us a nod. We are getting ready to launch. All is going well. If we get the nod, it could be a Q4 or next year Q1 launch. So subject to the regulatory approvals. And the third was Topiramate. That is, I think, we are bound by some confidentiality which we have signed with the company that we have settled the matter. So I think we'll leave it at that.

Okay. Okay. So I have more questions, I'll join back the queue.

[Operator Instructions] We have the next question from the line of Kunal Randeria from Nuvama.

So in the domestic business, 14% growth is quite impressive. But could you just share how much of the growth was impacted due to Met XL price cuts in the last quarter?

Met XL price cut, we have not calculated the exact impact. But the overall impact, we have been able to nullify by way of the growth in volumes that we have tried to push forward. So -- but that figure can be worked out and shared with you at a later date because it's a very kind of an integrated figure on that.

Sure. And sir, could you share how much of your domestic revenue comes from trade generics?

INR 36 crores in this quarter.

Right, thank you. And that is growing at a much, much faster rate. And what's the outlook maybe you would like to share, maybe slightly aspirational outlook for the next couple of years on this business?

No, no. Actually, it has grown only by 10%. Last year, it was INR 33 crores; this year, it is INR 36 crores. So it has just grown by 10%. So our overall business has grown by 14%, but that has grown by 10% only.

And aspirationally, going forward, I expect it to grow in low double-digit number itself, maybe between 10% and 12%. So that's what we aim for.

And I mean, just a slightly larger question on this. Some of your competitors, one of the bigger competitors, has entered this business very recently. What is it about this market that all of a sudden making it very attractive for pharma business?

As a matter of fact, most of the large companies have been in this segment for quite some time. We have been very careful and a late entrant as such. Having said that, we have done exceptionally well in the last 3 years because of our own internal focus on the strategies that we deployed for this segment. This segment continues to be very attractive for all the Indian pharma companies because it operates at a very different kind of a business model. And it's growing in low double digits. So it's an attractive market for all of us actually to operate in.

Sir, do you think maybe that longer run, it could cannibalize the branded growth?

This business has been existent in the country for over 2 decades. And so far, we haven't seen that playing out. So I don't know really if that's going to play out in the future as well. At least in the near future, foreseeable next 5-year horizon, I don't see that as a major threat to the pharmaceutical -- prescription pharmaceutical business.

Sure. And just 1 last one for Arvind. Arvind, you mentioned in the presentation that freight cost has gone down sharply. So pre-COVID it used to be around 4% of revenues; last year it was around 6.5%. So would it be fair to assume it's back to around 4% and you expect it to remain so?

Yes, I think it should remain at this level now because these are the levels which have come down now. So we expect this to be the level which should be there. And accordingly, that benefit should flow in, in the P&L.

We have the next question from the line of Foram Parekh from B&K Securities. [Technical Difficulty]

Yes. Okay. So congratulations on a good set of numbers. Can you just throw some color, like U.S. segment has grown by 19%. So what are the levers for this growth?

It's been a combination of existing products, increasing the market share and some new product launches. So a combination of all these things, we've been able to register a good space and good growth.

So -- and you just said that price erosion has now settled to lower single digits. So do you see any further deescalation of price erosion? Or it would be -- I mean, it will settle at the same price?

Very difficult to predict. But just wanted to correct, I did not say low single digit. I said high single digit. It's around 8% or so. That's the price erosion which we are seeing that. No, it's very difficult to predict. U.S. is a very different set of market. Having said that, from visibility we have right now, we feel it should remain in this similar range unless something unexpected happens.

Okay. And in India business, what we -- I mean, would we have any guidance on the number of launches that we expect in this year?

In this year, we would expect anywhere between 3 to 5 more launches to come in. We are expecting to launch first time in the country product in the cardiovascular segment anytime soon. And other than that, we would still be in the top 3 in the industry to launch those products, which we have lined up for the remaining year.

Okay. And sir, I see the EBITDA guidance -- EBITDA margin has come back to like 25% as guided, but 2, 3 years down the line, do we expect it to be in the normal or you're to be normal [ would we still have ]? So any guidance over there? Like can we inch up to 30% margin in 3 to 4 years' time?

I think you'll appreciate that such a long time guidance will be difficult. Directionally, I have always been telling that, yes, we will keep on improving on this because all the levers are now in place and we are able to really contain the cost, et cetera, which were beyond our control. So there is absolutely no problem on that count, but giving any number will be very, very difficult.

We have the next question from the line of Rashmi Sancheti from Dolat Capital.

I just missed the number. Did you give any guidance on the U.S. sales for FY '24?

Yes, we are saying single-digit growth, mid-single digit.

Mid-single digits. So I just want to ask 1 more thing that all the expansion plans, like adding [indiscernible] and registering more products in the Asia and Africa branded business, that we have already completed, right?

Yes. Big part has been completed. Now normal increase whatever happens, but the expansion drive is completed here.

Okay. So with this, we are also seeing the softening of the input cost, then we are seeing all our geographies are expected to do well. Branded like in the mid-teens; even U.S. price erosion will be coming down, which would help gross margins to improve. So do you think that this 25% EBITDA margin in FY '24 is very conservative in nature? Or you feel that the investment in other expenses or R&D expenses or something is likely to go up and that would hold back the expansion in a big way in EBITDA margin?

You're absolutely right. Because there are other expenses, which are still to be incurred. There are other things also which -- you must have seen R&D expenses in this quarter were just 5%, which we expect that it will inch up to 6%, as I mentioned in my call. So I think we are very confident of about this 25% plus minus 1% EBITDA margin for this year.

[Operator Instructions] We have the next question from the line of [ Akash ] from Motilal Oswal Financial Services.

I have just 1 question. Does U.S. sales guidance include Chantix sales as well?

No. It doesn't include Chantix.

[Operator Instructions] We have the next question from the line of [ Chandra Gupta ], an investor.

So I have 2 questions. First is, there is a news about the launch of malaria vaccine recently in Africa on a large scale. So just wanted to know whether it will have any impact on our Africa sales, both institutional as well as the branded. That was the first question. Second question is this interim dividend, you're calling it as the first interim dividend. So does it indicate there would be more to follow. More broadly, does it indicate any shift from buybacks to dividends as a means of distribution, because now that the share price has improved, whether there is any thought process like that to move from buybacks to dividends? This is the second question.

First question about the Malaria vaccine. It's very early to kind of gauge that what impact it will have in the private antimalaria business market or the Institution business. I think there will be -- scaling up will take some time in Africa. The funding has to be organized. There are certain other challenges of vaccination. And even if the vaccination is done, at what percentage level at, it's going to take some time, even if it is implemented at full capacity. So with that, my assessment would be it would be a very marginal impact. And it will take a long time for it to kind of have a significant impact on the anti-malaria business right now. So that is one. Regarding the dividend, as we have shared in our press release also, we are -- we marked the occasion of 50 years of -- Ajanta's 50th anniversary. So on account of that, INR 10 is our normal dividend, which we have paid, which we normally do every year. Interim dividend of INR 15 was on the occasion of the 50th anniversary. It was the first dividend in the first quarter. So that's why we are calling it first dividend. Let us see during the year how the things progress and what kind of cash balance and what kind of approach we take. So unable to guide you or tell you what will happen in the rest of the year, what kind of dividends will be given.

[Operator Instructions] We have the next question from the line of Amar Maurya from AlfAccurate Advisors.

Congratulations for a good margin recovery. Sir, just wanted to understand 1 thing. This Chantix opportunity, how big the opportunity in U.S.?

I'll be not able to give you any numbers because things can change a lot from now to till that time. Already 1 player got approval, they could be launching. How many more people are there and what approval they will get, it's difficult to gauge.

So what would be the current market size?

As I remember, I think [ IQVIA ], it's quite sizable. It's hundreds of million dollars, I think.

$100 million, right?

No, no, hundreds of million. I think currently, would be a $500 million, but that's not the real sales. Once you do the charge back and all that, it would be much lower. So it would be few hundred million dollars, let's say.

[Operator Instructions] We have the next question from the line of Kunal Randeria from Nuvama.

So just 1 question. Sir, when would you need to increase your domestic field force to sustain this mid-teens kind of growth that you are aspiring for?

No. So a couple of things. One is our projection forecast for the domestic has been low teens, not the mid-teens, A. B, we don't foresee that we need any kind of expansion in the field force. I believe that we have optimum coverage in every specialty and the increase in the productivity is what will drive our business going forward. We have enough room to grow in every specialty with the existing number of medical representatives.

And this -- should I assume for the next 2 to 3 years, you don't need to do that, right?

Hard to say, 2 to 3 years. I would rather stick to the current year, at least in the foreseeable 9 months or maybe at least in 1 year, we don't see any major addition happening. There may be some minor additions or deletions based on the addition in the number of customers that happen in any particular territory, but nothing of significant as such.

[Operator Instructions] We have the next question from the line of [ Gagan Thareja ] from ASK Investment Managers.

Sir, my question pertains to the current Asia business. I think for the quarter, the sales growth supported a 6% for Asia year-on-year and a drop of 5% year-on-year for Africa branded. Africa and Asia would seem to be very volatile and the first quarter seems to have been relatively weak. Any comments there? And how should we think of it from a full year perspective?

So as I said in my opening commentary, for Africa, primary reason was the disruption in the supply chain because of the strike in France, which persisted until mid-May. And only, I think, in the June, the supply chain was restored. So despite the challenges, we have posted a decent growth. If you see our Q4, was practically INR 100 crores last year. Against that, we have smartly recovered and almost INR 158 crores we posted on the Q1.

A little more on why a strike in France has caused the disruption in French West African sales? I mean I understand there might be a couple of countries which are in a way sort of in states maybe in Africa, but by and large, how does this whole thing interplay? I'm unable to understand.

No, I will make you understand. The supplies go through France, all the supply goes to France, all the shipments go to France, and from there, the distribution occurs. So they were not able to -- the containers got backed up on the port, ship was not able to dock, whatever stock was there in the -- from the France onwards to Africa, that got blocked. So that was the reason for this disruption

Why was it routed through France, I'm sorry -- why have the supplies...?

I can't get you into so many details, but that's how the business is done there. It's not -- that's the way the nature of the business is. It goes through France.

Is it a regulatory requirement? Or is it more to do with...

It's a commercial [indiscernible] management.

Pardon me?

It's a commercial matter, not a regulatory requirement.

Okay. Okay. And why has been the Asia sales relatively weak, a 6% growth in Asia?

Yes. So Asia has started off slightly softer this quarter. But having said that, we are expecting in the next 2, 3 quarters, we will bounce back and the growth should come back. There's no particular reason which I can tell you that why the growth has been slightly below what we were expecting it to be.

But you retain your full year sort of double-digit sort of top line guidance for both these Branded Generics markets?

Yes, yes.

And I think you did a sizable increase in your international field force last year. Would some sort of operating leverage play out on that in the current year?

Not current year. It takes marginally for any addition in the field force, it takes about 2 years for them to really start giving us the advantage. So not this year, but next year or not, we should definitely get some benefit out of that. Thank you.

[Operator Instructions]

If there are no questions, then we can close it. There is no problem there.

Sure, sir. Mr. Agrawal, would you like to make any closing comments?

No, thank you, everyone, for joining this call. If there are any further questions that remain unanswered today, please reach out to our Investor Relations. Thank you. Bye.

Thank you, members of the management. Ladies and gentlemen, on behalf of Ajanta Pharma Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.