Ajanta Pharma Limited (AJANTPHARM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Ajanta Pharma Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note 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 afternoon, everyone, and welcome to Ajanta Pharma's earnings call. With me, I have Mr. Rajesh Agrawal, our Joint Managing Director; Mr. Arvind Agrawal, our CFO; Mr. Rajeev Agrawal, our Vice President, Finance and Investor Relations. I hope all of you have received the financial results by now. I am pleased to announce that the Board of Directors has approved interim dividend of INR 32 per share on a face value of INR 2 per share, amounting to a total dividend payout of about INR 400 crores. For the overall business, we have begun the new financial year on a strong note with revenue from operations growing by 25% and profit after tax growing by 31%. We remain focused on delivering our growth momentum of high teens for the whole year. Our financial position has continued to strengthen with return on capital employed at 37% and return on net worth at 28% as at end of June 2026. These robust returns reaffirm our position amongst the industry's leading performer. Let me take you through our key business verticals, starting with the branded generic business in Asia and Africa, which contributed 34% to the total revenue. Our continued investment in people, products and markets are ensuring consistent growth. I'll begin with Asia. In Q1, our Asia-branded generic business reported sales of INR 225 crores compared with INR 304 crores in the corresponding quarter last year, representing a decline of 16%. While we had anticipated a recovery during the quarter, continued geopolitical developments in the Middle East caused supply chain disruptions and affected the dispatches. We are actively working on alternate routes to ensure uninterrupted supplies to the region. We also launched 3 new products in the region and are confident that the growth momentum will be back in coming quarters. Moving to Africa. In Q1, our Africa-branded generic business delivered a strong performance with sales increasing by 30% to INR 295 crores compared with INR 228 crores in the corresponding quarter last year. During the quarter, we also launched 3 new products, further supporting our continued expansion across the region. As can be seen, our conscious call to keep the business well diversified across markets enables us to keep performing and delivering growth in spite of challenges. Let me now turn to the other 2 verticals within our international business. U.S. generic business contributed 30% to our total revenue during the quarter, with sales growing by 57% to INR 487 crores compared with INR 310 crores in the corresponding quarter last year. The strong performance was supported by 2 product launches during the quarter. However, for the full year, we remain with our guidance of mid-single-digit growth. Moving to institution business. The Africa institutional business contributed around 4% to the company's total revenue and was in line with our expectation in Q1. Sales in current quarter stood at INR 49 crores compared to INR 28 crores in the previous year, delivering a healthy growth of 75%. Now I invite Mr. Rajesh Agrawal, our Joint Managing Director, to brief you on India business. Thank you, and over to you.

Thank you. Good afternoon to all of you. The new financial year has begun on a strong note for our India business. The investments made over the past 2 years in expanding our field force and entering new therapeutic areas have started yielding results, contributing to an excellent performance during this quarter. According to IQVIA MAT June 2026 data, Ajanta contributed -- continued to outperform the IPM, growing by 15% compared to market growth of 11%. Our volume growth was 40% higher than the IPM, while growth from the new product launches exceeded the market by 75%. This outperformance was broad-based across most of the therapeutic segments in which we operate with our growth consistently exceeding the respective segment averages. We remain confident of sustaining this momentum during the rest of the year. Within our covered market, we are placed among the top 10 across all our core therapeutic segments. Cardiology contributed 37% of our India-branded sales, followed by ophthalmology at 29%, dermatology at 22% and pain management at 10%. New therapeutic areas accounted for the remaining 2%. In Q1, the India business contributed 32% of the company's total revenue. Sales grew by a healthy 24% to INR 509 crores compared with INR 409 crores in the corresponding quarter last year. This performance was supported by 8 new product launches during the quarter. The India business also includes our trade generics segment, which contributed INR 48 crores during the quarter compared with INR 39 crores in the corresponding period last year. With this, I now invite Mr. Arvind Agarwal, our CFO, to take you through the financial performance. Thank you, and over to you.

Thank you, and good afternoon to all. Before we begin, I would like to mention that during this call, we may make certain forward-looking statements. These statements are based on management's current expectations and are subject to risks and uncertainties that may cause actual results to differ materially. The company does not undertake any obligation to update these statements publicly. I will now take you through the consolidated financial performance for current year Q1. Revenue -- total revenue for the quarter grew by healthy 25% to INR 1,626 crores compared with INR 1,303 crores in the corresponding quarter last year. This is an affirmation of our diversified business model, supporting consistent growth even in the face of challenges in part of the territory. Gross margin stood at 80% for the quarter, improving by approximately 100 basis points over Q4 FY 2026, primarily due to healthy margins from all geographies. For the full year, we expect gross margins to remain around 78% with a variation of plus or minus 100 basis points. Personnel cost. Personnel cost stood at INR 381 crores compared to INR 303 crores in the corresponding quarter last year, representing an increase of 26%. This increase was mainly attributable to annual increment during the quarter and addition done in the previous year. The R&D expenditure, which is included within personnel costs and other expenses, stood at INR 66 crores compared with INR 56 crores in the corresponding quarter last year. This represented approximately 4% of total revenue. For the full year, we expect R&D expenditure to be around 5% of revenue. Other expenses. Other expenses stood at INR 493 crores compared with INR 373 crores in the corresponding quarter last year, representing an increase of 32%. However, the growth in expenses is just 11% over the sequential quarter of Q4 FY 2026. The increase in expenses also reflects our continued strategic investment in products, brands and people across the branded generic portfolio. We expect other expenses to remain broadly in line with the current trend. Coming to EBITDA. Adjusted EBITDA, excluding the foreign exchange loss, for the quarter grew by 21% to INR 454 crores compared with INR 371 crores (sic) [ INR 377 crores ] in the corresponding quarter last year, with margin standing at 28%. During the quarter, we recorded a foreign exchange loss of INR 31 crores under other expenses and a foreign exchange gain of INR 50 crores under other income. We remain confident of maintaining an EBITDA margin of around 27% with a variation of plus or minus 100 basis points while continuing to invest in the development of our markets. Profit after tax grew by 31% to INR 334 crores compared with INR 255 crores in the corresponding quarter last year. The effective tax rate for the quarter stood at 25% and is expected to be around 26% for the full year. Capital expenditure during the quarter stood at INR 83 crores. For FY 2027, we expect capital expenditure to be around INR 400 crores. With this, we now open the floor for question and answer. Thank you.

[Operator Instructions] The first question comes from the line of Tushar Manudhane with Motilal Oswal Financial Services.

Congratulations on good set of numbers. Just on India business, some sort of misalignment or disconnect between the IQVIA growth rate and the reported growth rate, which generally has sort of aligned. So is there anything specific for this quarter, if you could highlight?

Basically, the growth rates which you are seeing are for the 3 months if you really see because it is a MAT numbers, which come in the IPM. But if you take the market 3 months and APL 3 months, I think we are at about 18% in India.

Right. But we have grown 24% for the quarter.

Yes, yes. That difference will always be there between the IPM and internal numbers. But otherwise, absolutely in line. Earlier, it is something which is a little far. If you see the math, it is just 15%, whereas for the quarter if you see, it is 18%.

Sir, secondly, for branded-Africa business, the growth rate has been very strong even in this quarter on the sort of just INR 300 crores the branded business. So what's the outlook for this segment now in terms of growth from here on?

The outlook is quite positive. We've got a good momentum. Last year also, we delivered a very healthy growth. And current year also, we had already guided to be a high double-digit growth, and the year has started really well for us. We are expecting the momentum to continue for the rest of the year. And I think we should post a very healthy growth in Africa for the whole year.

And similarly for, sir, Asia, are we now sort of given this uneven situation, how to think about the, let's say, either the sales or growth in the Asia business?

Asia, unfortunately, the current -- again, the disruption which has happened because of the geopolitical issues, which started again. Otherwise, we were expecting to resume normalizing the sales in Q1. Unfortunately, that got pushed out. But we are still continuing with our guidance of high teens growth for the Asia for the whole year. So we are expecting the Q2, Q3, Q4, the performance to be much better, and we should be able to catch up of the growth what we posted in the Q1, and we should be able to deliver mid-teens to high teens growth for the whole year.

Got it. Because like, let's say, in second, third, fourth quarter of FY '26, the sales were almost INR 310 crores, INR 290 crores and INR 274 crores and currently we are at the run rate of INR 255 crores. So you expect the scale up because if we speak about mid-teens growth, this means you are talking about plus/minus INR 350 crores per quarter run rate from INR 255 crores where we are in 1Q FY '27. And given the supply disruption that continues, which is why I'm just trying to think that would we be able to scale up like INR 100 crore additional per quarter and then sustain that figure?

Yes, just to -- sorry to interrupt. But for the Q1 also, we could have posted. Just deliveries got delayed receiving in the market. So which the sales will be captured in the Q2 now. Some of the sales which should have reflected in Q1 got pushed out to the Q2. So that much carry-forward we will see in the Q2. And you rightly said, I think for the rest of the year, other quarters, we are expecting to be the good growth. Overall, there is no constraint on the demand side or our ability to generate the business of prescriptions. It is just the geopolitical issues which are impacting our supply chain and logistics resulting into this situation. So once that is coming online from the Q2 onwards, we are optimistic that we should be able to deliver the mid-teens growth.

And just lastly on semaglutide, like at least as far as India market is concerned, at the industry level, it still seems to be gradual compared to the anticipation we had before launching the product. So your view as far as India market is concerned? And subsequently, does that strategically change as far as the Asia-Africa market is concerned?

On India market, you're absolutely right. The market has plateaued. If I look at the June IQVIA data as well as the May IQVIA data, there is no significant growth. And on an ARR MAT basis, if you look at it, it would be around, let's say, INR 850 crores on market 12 months from now. But the growth rates seem to be yielding compared to the expectations that the entire industry had. But nevertheless, it's still a large enough market, and there can be market share gains that can happen amongst the brands.

For the Asia and Africa, it is too early to call out anything on this. The launches are 2 years further away. So I think right now, it is too early to comment on how the market will pan out, what is the situation there 2 years on. But considering the huge equity which we have in the space, particularly the cardio, diabetes space, and the specialists, we believe that we should be able to generate good business with this. Overall, we are optimistic, but it's too early to comment on what will happen after 2 years or 3 years.

The next question comes from the line of Rashmi Shetty with Dolat Capital.

So a follow-up from the earlier participant. You mentioned related to the Asia business that the sales will be carried forward in the second quarter. So should we expect that the Asia sales will be higher in second quarter? It will be catching up the quarter 1 and quarter 2 both sales?

It will be elevated, as I have said that Q1, some of the sales got pushed out. So it will be captured into the Q2. So yes, we should -- we are optimistic that we should be able to post a good quarter 2 for the Asia.

Okay. And again on India market, such strong growth of 24%, which therapies or which products, where we are gaining a very big traction? Is it across or it is related to certain therapies? Is it price driven mainly or you have taken higher price hikes or it's more volume driven? If you can give us just a broad picture and then if you can give a guidance for the full year only for the India business?

There are multiple questions. The growth that we have recorded internally is across all therapeutics, as I already shared in my opening comments. So for example, ophthalmology, we are growing at 1.3x the market growth rate, dermatology also growing far, far faster, including pain, gynae, everywhere else. Cardio also, internal growth rates are equal or better compared to the covered market of cardiology. Secondly, the growth components are also fairly well split between all 3 components, which is the volume. We are growing faster. Market growth of volume is 3.4%, through 11% growth max, whereas we are at 4.7% and also new product launches and price. All price is almost the same as the IPM growth rate. So volume and new launches are what is driving our growth. Third part was the -- for the remaining part of the year, our guidance remains mid-teens, which is what we have guided at start of the year. So it's too early to really be able to change that guidance.

So for full year, you're expecting a mid-teens growth basically for India business?

Yes, correct.

And on the Africa-branded market, if you can let us know like how the pharma industry in Africa is performing? What kind of growth rates it is clocking? And how vis-a-vis Ajanta is performing versus the overall pharma market?

No. Overall, the market is growing. The growth keeps fluctuating between 7% to 12% year-on-year. And as you see from our numbers, which we have posted last year and for the quarter also, our growths are much far better than what the market is growing there. So overall, it's a sizable market, sizable business which we have built. And this is a result of a huge, sizable field force, which we have built over years and years, and got a good equity with the entire medical fraternity there. So a combination of a lot of things, as you would have known that last 2, 3 years, there has been a big ramp-up in the field size. That time also, we had given the outlook that the growth will play out in the next few years, and that is what we are seeing now. So it's a combination of new product launches, the people which we added in the last 2, 3 years. They have now started becoming productive. So it's a combination of multiple things. And of course, we are growing faster than the market, so.

Okay. And what is the kind of growth that we're looking for the full year?

High double-digit is what we have guided.

Okay. And one last question related to the U.S. business. How many launches are you planning for this quarter?

In the quarter, this quarter, there are no launches. Last quarter, the Q1, which we're talking about, there we had launched 2 products. And now most of the product launches will come in the Q4.

So total we are expecting how many launches for this year?

I wish I could have given you the answer. It depends on the FDA approval. So that is linked to the FDA approval. But what we are -- the way the situation is stacked up with the FDA, we believe that the more launches should happen in the Q4. Hoping that we'll get the approvals by that time, we'll manufacture and supply the products, and we'll be able to get into the market in the Q4.

Understood. And just last clarification related to the EBITDA margin guidance of 27%, plus or minus 1%. So that 27% is basically considering the ForEx loss item, which generally sits in the other expenses or it is excluding the ForEx loss?

It is excluding the ForEx because ForEx loss is something which is very uncertain. And as you must have seen in first quarter also, there is a gain actually of INR 20 crores, but the gain goes into other income and the cost comes into other expenses. So that's why that anomaly is there. So we always give the guidance without the ForEx loss.

Our next question comes from the line of Pankaj Tibrewal with IKIGAI Asset Managers.

Congratulations on great set of results. A couple of questions. One, when I look at the U.S. market, that's a very big positive divergence we have seen over the last 3, 4 quarters. I remember at the start in FY '26, you guided for mid-to-high teens, but you ended up at 49% growth. Again, this quarter has started with 57%. How should we read for this year on the U.S. generic side, assuming that the first quarter has been a blockbuster there?

Yes. So as I read out in my opening comments, the first quarter has been quite healthy and quite elevated. But going forward for the rest of the year, our guidance still remains the same of mid-single digit, so upper slightly above the mid-single digit. We are expecting that there is some competition will come in and there could be some price erosion and some loss in the market share, which we have factored in for the next quarters -- coming quarters.

That means that the next 3 quarters, the run rate could be a decline also.

I'm sorry to interrupt. Mr. Abhishek, could you please repeat your question? Your voice was not clear.

This is Pankaj.

Yes.

Yes. I mean if you can do the math, whichever way it stacks up, that's our outlook. We are still believing that we should be landing in the range of mid-single digit to upper mid-single-digit kind of situation.

Okay. No problem. And when I look at the last 3 years CAGR, is about 14%. Can I take a medium...

Sorry, can you speak louder? We are not able to hear you.

Yes. Can you hear me now?

Now, it is better, yes. Go ahead.

Can you hear me now? So when I look at the last 3 years, the CAGR has been about 14% on both top line as well as bottom line. And I believe that a large part of investment on sales force and feet on ground has been done. When you look at slightly from a medium-term perspective, can you talk about the engines of growth where we think the business could accelerate growth from where we were in last 3 years? Any thoughts on that from an overall outlook on the business side?

If you see my investor presentation, we give our outlook. So yes, basically, we are very focused on those aspects, which we have clearly spelled out. There is a huge thrust on filing the new products and getting the approvals, whether it is India, emerging markets or U.S. New product always contributes 2% to 3% of the growth, which will come. So we have a very, very healthy product pipeline under registration, under approval, under development also. So very, very good situation we are in. Next is always challenge -- our aspiration has been to increase the market share in the products which we already operate in. The large brands which become hundreds of crores, there increasing the market share becomes slightly challenging because then we are a dominant player already. So basically, then the newer brands, newer products which we launch in, we see the accelerated or higher growth in that. But cumulatively, it adds up into a good rate of growth. We are also looking at -- I think, going forward, we are looking to enter into some new markets as well, which is maybe in Asia, Middle East and Latin America. So these are the new geographies which will play out in 3 to 5 years because we are at a drawing board where we are doing a product selection, filing and it all plays out in 3 to 5 years. But there will be new geographies also which will get added. So basically, these are the 3 engines and every year, we see there are the possibilities to add more feet on the ground by adding more headcount either in the existing divisions or by forming the new divisions. So that also is one component which adds up. It takes a little time for the new people to be productive. But in second and third year, then they start to add up into the growth. So basically, all these 4 growth levers, we believe that we are on top of these things. And all going well, we should be able to continue doing executing well in all these parameters. But again, having said that, it has to be supported with the tailwinds of the market growth also. So if the markets are not growing or there are challenges like what we have seen in the Asia geopolitical issues, then they are out of our control that we get impacted as the whole industry gets impacted.

Yes, that's been the only negative divergence from your commentary over the last 4, 5 quarters Asia, where we were expecting mid-to-high teen growth and actually it's come down quite substantially. So second quarter onwards, you have been guiding that that should pick up also.

Correct. That's right. That's right, Pankaj.

The next question comes from the line of Bino Pathiparampil with Elara Capital.

Congrats on a great set of numbers. Most questions answered. Just one follow-up. Arvindji, the impact of higher freight cost, raw materials, et cetera, is that all reflected in the margins and expenses this quarter? Or do we expect to see something more incremental in Q2?

In terms of expenses, I think the run rate should remain in the range which is there currently. So I don't expect a major increase in the run rate. But just I think as MD has pointed out that the U.S. business may see some price erosion, et cetera, because of which there can be some impact. But otherwise, our guidance of 27% for the whole year stands.

The next question comes from the line of Kavya Shah with Plus91.

Congratulations for giving good set of numbers. Actually, I joined late so I missed a few points. So why was there a growth of 57% in U.S. generic market?

No, it is the momentum which we are carrying forward from the last year. If you see our previous quarters also for the U.S., they have been in the similar range. So the momentum carries forward from the last quarters, which we were expecting to continue. But as we -- I think you missed that point that we believe that this growth should normalize and it should become normal. So for the full year, our guidance has been the mid- to high mid-single-digit growth.

Okay. And can you give CapEx guidance for that?

Yes. For the quarter, we have spent about INR 83 crores on the CapEx. And for the full year, we are planning to spend about INR 400 crores.

[Operator Instructions] The next question comes from the line of Foram Parekh with Bank of Baroda.

Congratulations on the good set of numbers. My first question is on the Asia business. So we mentioned that from next quarter, the performance will get elevated as some of the business got pushed to Q2. So can we quantify the amount of business that got pushed and therefore we will see some incremental growth?