Ajanta Pharma Limited (AJANTPHARM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Ajanta Pharma Q1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this call is being recorded. With this, 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 to all of you. With me, I have Mr. Rajesh Agrawal, our Joint Managing Director; Mr. Arvind Agrawal, our CFO; and Mr. Rajeev Agrawal, our VP, Finance and Investor Relations. The results are already with you. We will take you through the business-wise performance for the quarter 1 current year, along with the comparison of the previous year same period. The year commenced on a strong note with revenue from operations growing by 14% and margins remaining resilient despite higher expenses. We remain committed to sustainable growth, strengthening every aspect of our business to create long-term value for our shareholders. Our financial strength continue to improve with ROCE at 33% and return on net worth reaching 26% at the end of June 2025, reaffirming our position among the best in the industry. Our performance resilience is further demonstrated by the strong cash conversion ratio of 80% and free cash flow to PAT conversion of 82% during the period. Let's move to the business details. Let me take up the international business, and I will first start with the Branded Generic business in Asia and Africa, which contributed 41% in the total revenue. So let's begin with Asia. Ajanta's Asia business spans nearly 10 countries across Middle East, Southeast Asia and Central Asia. In Q1, the region delivered a sales of INR 304 crores, up 10% from INR 277 crores in the previous year. We are pleased to report the launch of 10 new products this quarter, primarily in chronic therapies, which further strengthens our portfolio in the high potential market. Our continued investments in both people and products reflect our strategic intent to scale this business meaningfully. This expansion reinforces our position for sustained growth in the current year and beyond. Let's move to Africa. In Q1, our sales from Africa business stood at INR 228 crores, a slight degrowth of 1% compared to INR 230 crores in the same period last year. As previously indicated, the Africa pharma market is expected to see moderate growth in the current year and also for Ajanta with the impact of high base in the previous year. Despite the short-term headwinds, we continue to strengthen our presence in the region with the launch of 2 new products, further expanding our chronic therapy portfolio. We remain confident in the long-term growth potential and strategic relevance of our Africa business. Let us talk about 2 -- other 2 verticals of international business now. Let's move to U.S. Generics. U.S. Generic business contributed 24% in the total revenue during the quarter. As guided, the business performance has been excellent, with Q1 sales at INR 310 crores against INR 228 crores, posting a very healthy growth of 36%. This growth is attributed to 5 new launches made in the second half of the last year and 1 new launch in this quarter. We are expecting 2 to 3 more launches for the year. Our superior execution continues to keep us as a preferred partner of choice for our buyers. Let's now move to Africa institution. Africa institution contribution from the antimalarial business is just 3% now with a revenue of INR 38 crores in the Q1, against INR 42 crores in the previous year, posting a degrowth of 8%. As highlighted over the years, this business remains unpredictable with its dependence on procurement agencies and we maintain a cautious outlook on the segment. Now I invite Mr. Rajesh Agrawal, our Joint Managing Director, to take you through India business. Thank you, and over to you.

Thank you. Good evening to all of you. FY 2026 indeed, has started well for our India business. A few new initiatives taken in the previous year has started showing good signs. Coming to the performance, we continued to outpace the IPM, the India pharmaceutical market by 29% as per IQVIA MAT June 2025, with Ajanta delivering an impressive growth of 10% compared to IPM's 8% growth. Notably, our value [Technical Difficulty]...

Sorry to interrupt, sir, but your voice is breaking.

Okay. Am I audible now?

Yes. Yes, you are audible, Rajesh.

This positive trend is evident across most therapeutic segments in which we operate, where our growth has consistently outpaced segment averages. We remain confident of sustaining this momentum in the coming years. In QY -- FY 2026 India business contributed 32% of the company's total revenue, supported by the launch of 8 new products, including 1 first time in the country. During the quarter, sales stood at INR 409 crores compared to INR 353 crores in the same quarter of the previous year, registering a healthy growth of 16%. Our India business also includes revenue from the trade generic segment which contributed INR 39 crores in Q1 against INR 41 crores. In the covered market, we are fifth largest in the IPM and among top 10 in our therapeutic segments, as per IQVIA MAT June 2025. Cardiology contributed 37%, Ophthalmology, 30%, Dermatology, 23%, with remaining 10% coming from Pain in the branded sales. The new therapies of gynecology and nephrology are taking good shape and are expected to contribute meaningfully in the coming years. I now invite Arvind Agrawal, CFO, to take over the finance -- to take you through the financial performance. Thank you, and over to you, Arvind.

Thank you, and good evening to all. On this call, our discussion includes certain forward-looking statements, which are projections or estimates about future events. These estimates reflect management's current expectations about future performance of the company. These estimates involve a number of risks and uncertainties that could cause our actual results to differ materially from what is expressed or implied. Ajanta does not undertake any obligation to publicly update any forward-looking statements, whether because of new confirmation, future events or otherwise. We will look at the consolidated financials and provide year-on-year comparisons. The key financial highlights for Q1 FY 2026 are as follows. Total revenue in Q1 stood at INR 1,303 crores against INR 1,145 crores, posting a healthy growth of 14%, which was in line with our guidance. Our gross margin stood at 79% in Q1, an improvement of 200 basis points over previous year. Improvement in margin was the result of better product mix and favorable API prices. Full year FY '26 margin is expected to be around 78% plus/minus 1%. Personnel cost was at INR 303 crores against INR 284 crores, an increase of 7% over previous year. Our R&D spend was at 4% of total revenue and is expected to move to 5% for full year. Lower expenses was due to nonfiling of ANDA during the quarter. In Q1, expenses were INR 56 crores against INR 51 crores. Other expenses in Q1 stood at INR 373 crores against INR 263 crores, an increase of 42% from previous year. The expenses were higher due to our trust on the Branded Generic business, where we are consistently investing in products and people, which will keep other expenses elevated in the FY '26 in mid-teen range. The expenses also includes mark-to-market hedge loss of INR 25 crores in Q1 FY 2026. Our EBITDA margin stood at 27% for Q1 against 29% in previous year. EBITDA stood at INR 351 crores against INR 330 crores, a growth of 6% in Q1 FY '26. Higher personnel costs for MR additions and saving expenses for addition of new therapies and divisions in H2 of FY 2025, we'll keep EBITDA to be around the FY '25 range in FY '26. In Q1, our PAT margin stood at 20%. PAT was INR 255 crores against INR 246 crores, a growth of 4%. Mark-to-market ForEx loss stood at INR 25 crores. Excluding the impact of ForEx loss, EBITDA stood at INR 376 crores, reflecting a 14% growth with an EBITDA margin of 29%, which is equal to last year. PAT grew by 12% with a PAT margin of 21% if we remove the mark-to-market ForEx loss. Other income was at INR 26 crores in Q1, which includes ForEx gain of INR 9 crores in Q1 FY 2026. Income tax stood at 23% for Q1 and is expected to remain in the range in the FY '2026. We incurred CapEx of INR 72 crores during the quarter and is in line with our guidance of INR 300 crores for this year. Our cash flow from operations stood at INR 282 crores for the quarter, with cash conversion ratio of 80%. Free cash flow generated was INR 209 crores with 82% PAT conversion. This reflects our efficient cash flow management. ROCE and RONW continue to improve and be comparable to the best in the industry. ROCE stands at 33% and RONW at 26% at the end of June 2025. With these highlights, I open the floor for the question and answer. Thank you.

[Operator Instructions] The first question comes from the line of Rehan Saiyyed from Trinetra Asset Managers.

I have a couple of questions. First on the R&D side, like your R&D spend is has risen INR 56 crores in the quarter. So could you highlight the key strategic area you are prioritizing in R&D and when we can expect meaningful revenue impact from this investment? Am I audible?

No, your voice is not clear. We are not able to clearly understand what you're saying.

Yes, I'll repeat my question again. Sir, this R&D spend has risen to INR 56 crores this quarter, could you highlight the key strategy areas you are prioritizing in R&D and when we can expect meaningful revenue impact for this investment?

When can we expect meaningful what?

Revenue, revenue, sir.

Revenue from maybe therapy focus in the R&D and is there anything which we will get from that?

No. So R&D, as you would see, the expenses have been very much in control for the current quarter. In fact, it has slightly dipped only. It became 4% of the revenue as compared to the 5% for the previous year. The focus for the R&D remains in the same therapeutic segments where we are present in India and emerging markets and also for the U.S. And continuously, we have been giving in our investor presentation also, the number of new product launches, which we are making in India and other markets. In my opening comments also I've mentioned. So all these are outcome of our R&D only. It's a long cycle from the time we take the development of the product, then it goes for the manufacturing, generating the data, then filing with the regulatory agencies for the approval and then launches. So all the growth which we have seen, every quarter, we've been giving the growth from the new product which is coming in. That is the result of our R&D only. So already the meaningful results have been seen for the last 2 decades from the R&D output.

Fair enough. And second, on the working capital side, sir, working capital efficiency has improved steadily in recent years like quarter-on-quarter, so do you believe there is still scope for...

No, I think we have reached quite peak. From here, we don't expect any further achievement or efficiency in the working capital cycle.

And sir, the last question on the CapEx side, could you just guide on the CapEx on this quarter and going forward FY '26?

See, for the CapEx, this quarter, we have spent about INR 72 crores, and for the whole year, we have given a guidance of about INR 300 crores. The normal CapEx, which is the maintenance CapEx is something in the range of INR 150 crores to INR 200 crores. And balance is something which we are expanding the capacities in some one or the other plants. Like, for example, now the liquid plant is getting ready in Pithampur facility. So those kind of additions keep on coming. But otherwise, INR 150 crores to INR 200 crores is normal maintenance CapEx and balance will be -- it will not be more than this. It will be in this range only.

The next question comes from the line of Tushar from Motilal Oswal Financial Services.

Sir, just on gross margin, like sequentially, the proportion of the segmental mix has been largely stable or even on a year-on-year basis. So if you could just help explain the improvement in the gross margin for this quarter compared to fourth quarter? That's my first question.

Okay. So I think I have mentioned it already, and I will say similar -- repeat the same thing, that the product mix, of course, the revenue mix which you are talking about, the Branded Generics and U.S. Generic that is something which has changed this time. And -- but there is definitely an improvement in terms of the products which are giving the higher margin as compared to the normal margin. So that is something which is definitely there. And another aspect in this particular quarter is that there are -- we do the provisioning for the returns and the expiries. Now that is something which this quarter, I got a one-off here. So that has added me almost about 1%, I have the improvement in the gross margin.

Understood. So that might be a nonrecurring. So that was...

Absolutely. That's why we have mentioned that it will be 78%.

Sir, on the U.S. business side, while the full year, we have guided for 10 to 12 ANDAs, but we have not filed yet in quarter 2 FY '26. So any color you would like to throw on that. Any revision in number?

No, no. We are very much on track to deliver in that range. We are very confident of filing 10, the product which are manufactured bios are underway or have completed. So we are very, very confident of filing around 10 ANDAs plus, minus 1 or 2.

And lastly, if you could let us know how many MRs we've increased in Asia region compared to last year?

As you know, we don't give the region-wise breakup of the increase. But in the emerging markets, for the current quarter, we have added only 40 MR. But for the rest of the year, we are looking to add another 200. So for the whole year, our strength increase will be about 250 people in the emerging markets. So from 2,000, it will become 2,250, about 10% increase will happen during the whole year.

2,000, sorry, total, I missed the number?

Last year was 2,000. In the current quarter, the increase is 40 for the entire emerging market. And rest of the year, we are expecting another 200 to get added. So for the whole year, we are expecting 250 new headcounts to be added, the field size for the emerging markets.

And just lastly on cardiology as a therapy for us has been little soft for some time now compared to IPM. So if you could you just elaborate on corrective measures or how to look at it in terms of growth over coming near to medium term?

I think it is a small -- this one intensity way of competition, which is increasing, but I think we already started working on it, and we should be able to certainly come back to our normal IPM growth. So we will come back on that. It's just that it is a time lag, maybe in another 2, 3 quarters, you will start seeing the improvement.

The next question comes from the line of Vishal from Systematix Group.

With respect to the U.S. number this quarter, so can we expect this run rate in the upcoming quarters, the run rate to remain at current levels or it can further ramp up from here?

No, the run rate should sustain at the current level going forward.

Are there any limited period exclusivities that we are running here?

We have some products which are limited competition products, and we believe that the visibility which we have, they should remain like that for the whole current year. We don't expect any addition in that limited competition products. So we feel comfortable giving the guidance that the current run rate should continue for the rest of the 3 quarters.

Okay. And on the oral liquid plant that we are investing in, is that for the U.S. market?

No, it is for the emerging markets, ROW. So we have a very -- one of the oldest facility we have, very small capacity, which now we are expanding, Pithampur we are putting -- we have put a brand-new facility, which is also global standard. So that is primarily to cater to our emerging markets.

So are we investing anything for the U.S. market in terms of manufacturing capacities?

No. Because the existing plants, which are there, they are only taking care of the requirements.

And one question with respect to India. Like just wanted to understand, we do not have very large brands in our portfolio. Any thoughts on that?

I think we have 2 large good brand. Met XL is a very large brand. If you take the full family of Met XL, it is exceeding about INR 250 crores. So that's a large -- INR 300 crores. Wherein Cinod range which is about INR 120 crores, Atorfit is touching INR 100 crores, Feburic is also -- there are quite a few good brands, which are touching about INR 100 crores.

[Operator Instructions] The next question comes from the line of Bino from Elara Capital.

Question on the Africa branded business. In rupee terms, it looks flat year-over-year. But I believe that your billing for Africa-branded business happens in euro terms and euro has appreciated by about 10% Y-o-Y over rupee. So in euro terms, the business is down roughly 10% Y-o-Y. Is that the right way to look at it?

The benefit for the euro -- rupee depreciation against the euro. That is what we have pointed, the INR 25 crores ForEx loss, which we have incurred in the quarter, where we have seen a sharp increase. That was in a 1 month only, I think pretty much the rupee has depreciated against the euro. So there has been very less impact of the rupee depreciation against the euro in the current quarter. So the ForEx loss mark-to-market INR 25 crores has come because of that only. So right now, I think there is no impact of the euro -- rupee depreciation of euro in this current quarter.

So the business is in local currency or whatever currency it is. It is roughly flat Y-o-Y?

Correct. That's right. That's right.

[Operator Instructions] The next question comes from the line of Rashmi from Dolat Capital.

One question on India. Your launch contribution -- new launch contribution is also going up compared to the IPM. So when you're doing new launches around 7 to 8 products, you were targeting which therapies? I mean which therapies have you launched this particular product?

If I may answer. Yes, so these are -- that's correct. These are across all therapies. And wherever we find the opportunities, that is where the launches take place. So few may be in cardiovascular, few are in gynecology, some in Pain and Ophthalmology also.

And the subsequent quarter, that is second and third quarter generally, it's very good for the domestic business, and we have already reported 15.9% during this quarter. So what is the guidance on the India business? Is it something that we would be in mid-teens growth for India business this year in FY '26?

No. So 2 things. One is the quarter 2 for us has not significantly been higher because our product portfolio is not an antibiotic or a seasonal dependent product portfolio. It's almost the same across all quarters. And secondly, if you look at the growth forecast, we would like to still maintain our original growth forecast, which is growing at 20%, 25% higher than the India growth rate, IPM growth rate. So essentially, the IPM is growing at 8%, then we are aiming in our aspiration to grow at 10% and above.

And related to your Africa branded business, this year, you are expecting that there will be a moderate industry growth, but we are also doing a lot of new launches. And earlier also, we have invested into the people so that would also bring some MR productivity. So is this a one-off quarter and from the subsequent quarters, at least, we would be able to see some single-digit growth...

Yes. No. So last year, we have posted a very robust growth in the Africa market. We posted growth of around 28%, which was very robust, which is significantly -- it's 2x of the normal growth, which we post. Normally, we've seen a growth of 13%, 14%. Against that, we posted 28% growth. And beginning of the year itself, we had guided that considering there was a very high base, which has got created last year. The current year, we would have the growth of the mid-single-digit. So we still are confident of delivering the same number for the whole year, though the first quarter have been the flattish number. But overall for the whole year, we feel comfortable that we should be able to achieve the mid- to high single-digit growth for the full year.

And coming to Asia branded, would we -- we would be again that 11% to 15% sort of growth?

Correct. We have guided for the mid-teens, and I think we feel we should be able to achieve that kind of number for the whole year for the Asia.