Ajanta Pharma Limited analyst Q&A

Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask questions may press ‘*’ and 1 on their touchstone telephone. If you wish to remove yourself from the question queue, you may press ‘*’ and 2. Participants are requested to use handsets while asking questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. To ask questions, please press ‘*’ and ‘1’. The first question is from Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.

Sir, thanks for the opportunity. Sir, with respect to the start of new therapies in the India market, does this quarter reflects the additional expenses related to these therapies or these are expected to further increase in the coming quarters? That’s my first question.

So as far as people cost is concerned, about 200 people which have been added in these 2 therapies is already included, and it will continue in the coming quarters also.

And the marketing expenses?

Marketing expenses are yet to take off, I think it will slowly go up in the coming quarters.

Got it. So, effectively, c onsidering these factors, maybe I have missed the EBITDA margin guidance for FY '25-'26?

It remains at the same level what we have given last year, at the beginning of the year, we have maintained 28%, plus-minus 1%. So, I think we feel that we should go in that direction for the whole year.

Yes. It will be achievable. There are a lot of ANDAs, which are skewed towards the quarter end. So, we are expecting to file 4 more ANDAs in the last quarter.

So, will the result in higher, say, at least some accounting point of view, R&D costs and so that will have from a Q4 perspective, you have to ask, in terms of the impact on the margins?

No. Actually, R&D cost is already incurred because it's just waiting for the stability data to come out and things like that. So that is already baked in into the current quarter and the last quarter. So, we don't see any significant expense increase in the next quarter also. Th ere could be a marginal increase, but not a significant increase in the expenses, considering R&D, domestic launches, what we have done for, in addition, all the people, all those things. Maybe we can see a slightly more impact in the next year. But we will talk about the next year when we finish the year.

Got it. And just lastly, if I may, like considering so many therapies available, what sort of factors went in to drive to a conclusion of selecting nephrology and gynaecology as the next sort of additional growth lever for India markets?

Nephrology is a natural extension of what we have been doing already for so many years. We have been covering nephrologists by way of marketing and selling our largest brand , Feburic, which is the second largest brand in that particular subtherapeutic segment. So , nephrologists made logical sense for us to expand our footprint and product portfolio, have a dedicated team and taskforce. It is also a small kind of set of customers that we need to cover. So that suits the way that we have really built our business. Gynaecology, I feel this market is still large. It is Rs. 11,000 crores-plus market, and I feel that we have required a product portfolio, and the skill set to make our presence in this segment. It's a large segment, and we would like to be prominently present over the coming 3 to 5 years.

Got it. Thank you.

Thank you. The next question is from Amlan Das from Nomura India. Please go ahead.

Hi, sir. I just wanted to ask what is your outlook for the Africa antimalarial business? Is it going to remain low? Or do you have any outlook regarding this?

Yes. As you have seen in the current quarter, we saw significant dip. And for the whole year also, there’s a sizeable degrowth, I think, of about 40% odd. So, for the whole year, that's what we're looking at, around 40% degrowth from the last year. Going forward is a bit uncertain , because of the announcement made by the Trump administration of not in favour of funding the U.S. aid and some more things. But then there was a rollback and some clarification given after 24 hours or 2 days that they ’re going to continue with some critical medicines and life-saving medicines. So , I think that's still an evolving landscape, that determines purely on how much money the donor countries give to this procurement agency. But yes, current year, we've seen a degrowth of 42%. But I think in overall scheme, it's become a very small component of our business. It is now 3%, maybe next year, the way our other businesses will grow, the Branded Generics business in India, emerging markets and U.S., this will even become a much smaller part.

Okay sir, thank you. Sir, one more question regarding the India business. Have you booked any sales for the new therapies that you have added in this quarter? There is the 12% growth? What is the contribution of this new therapies?

In the current quarter?

Yes, current quarter.

No, it is insignificant. We have just onboarded the new team. They would take quite a few months to be productive. This is insignificant compared to total domestic business.

Sir, what is the PCPM right now?

PCPM is about Rs. 3.9 lakhs at a company blended average basis, including all the therapies, including all the MRs that we are present with. But I'm not adding the MRs that we have added in the last 6 months, essentially because they will take at least another year to be productive. So this Rs. 3.9 lakhs is at a base of 3,000-plus MRs.

Okay, sir. Thank you. That's all.

Sure. Thank you.

Thank you. Next question is from Vishal from Systematix. Please go ahead.

Yes. So, sir, with respect to the U.S. Generic business, can you guide for the next year in terms of how many launches we can expect, and any colour on the type of these launches with respect to the market size that they address , and whether they are early to the market in terms of immediately post patent expiry or limited competition?

I don't think I will be able to give you that in-depth granular details to you. But as I told you, we have launched 5 new products during the year, and there are more launches which will happen next year, and in the next quarter and the next year. So, in the beginning of the year, we had guided mid -single digit growth for the US market. We are pretty much trending towards that for the whole year. 9 months also has been like that for the whole year. So, we are pretty much on what we had given the guidance and what we had made a budget internally. Next year, we feel we should post the higher growth, much higher growth. It will be double digit growth. But I will give you the growth in the next call on what we are going to look for the US, once all our budgets and targets are finalized. But there will be, I think, decent number of new product launches which will happen in the next year also.

So would you be able to share any limited competition launch that you expect? Complex product launch?

Unfortunately, sir, I don't have those kind of granular details. There would be a few products which are limited competition, that much I can tell you. There will be at least 2 or possibly 3 products which would be of limited competition.

Got it.

Yes. Two products we are definitely looking at the horizon which would be limited competition. Yes.

Okay. And with respect to these branded markets, Asia and Africa. Can you explain the reason for these markets to be volatile over quarters, like we can see sharp growth in some quarters while it becomes subdued, like this quarter was a subdued quarter for the Asia and Africa market.

So, essentially what happens here is actually our sales, which is secondary sales which happens in the market, that is at a steady state. But because we are shipping from India to our distributors, and then there are AS9 factors , and there are transit time factors which are all there. So, that is the reason we see these kind of peaks and valleys, the lumpy, sales up and going down. I think quarter to quarter variation is not the right way to look at the export phase. I think the 9 months or 12 months horizon is the right way to look at that growth. And at the beginning of the year, we had guided for the Branded Generic business to be in the mid-teens. And as you will see, if you remove the quarter to quarter, if you see the 9 months or what we are forecasting for the whole year, it remains pretty much in the outlook or guidance, which we had given of hitting that mid-teen Branded Generic growth. So, I would suggest don't read too much into the quarter to quarter, I think look at the horizon. If you see the Asia, the 9 months growth is 14%. So, which is what normalised, because second quarter we saw 28% growth, quarter 3 we saw 8% growth , and Q1 was 9% growth. So, on the whole 9 months basis it got normalised to 14% average blended growth.

And just one more on the new division launch in nephrology and gyna c, so whether these 12 products that you launched, any colo ur in terms of whether these are kind of new launches in large markets, and you would be a new brand in those categories, and multiple established brands there already or you are doing a different strategy here? Or you are getting into very fast-growing categories within the space?

You're absolutely right. These are high -growth, subtherapeutic segment s, which we have identified as our go -to-market strategy. So, the tailwinds are already there in our favo ur, and none of them are first-to-markets at this point, but we are confident of being able to differentiate, given our ability to engage the customer on the scientific activities , and also through unique customer engagement activities that we do and that we have done in other specialties. We are quite confident the team that we have is a highly experienced team in these respective therapies, which gives us a head start. So, this is how we will differentiate and make a presence.

Got it, sir. Thank you. That’s all from my side.

Thank you. The next question is from Nitin Gosar from BOI Mutual Fund. Please go ahead.

Hi, team. Wanted to understand 2 aspects. Now keeping in mind that the Branded Generics forms a very dominant share of our revenue, and the outlook in Branded Generics is somewhere around 10%, 12%, 13% kind of a growth. And the U.S. becomes the only key moving part to driv e the additional growth. How should we look at this company now from next 2 to 3 years' perspective, Ajanta, where we are having lot of resources to be deployed, but growth rate is slightly, you can say, close to GDP or slightly anaemic? How should one look at the organization from next 3 - year perspective?

I think we are pretty much outpacing the market. So, our growth has been, I think, 20% or 30% higher than the market growth. We feel comfortable the way we have positioned ourselves in the Branded Generics business. I think, cumulative, 3 years, I think low teens to mid-teens kind of growth in Branded Generics is quite doable, whereas the markets are growing at 8%, 9%, 10%. So even if you're able to do it, let's say, 12% to 15% growth on a 3 -year horizon, we would be almost beating the market by 50%. And on a base which we are , in most of the markets, our growths are on the top 5 growth percentage in the market. So , I don't know, I think you should reevaluate our figures in the past and going forward. U.S., as we had already added in the beginning over there, t his is a year where we don't have that many launches, lot of launches were skewed towards the second half, so it is going to be a mid-single-digit growth, but we are looking to post higher growth in the next year. But U.S., depends on like that. The year we have higher launches, the growth becomes higher , the next year we may not have that launches, but at over 3-year period, I think we should be able to post mid-teen growth there also, I think, on a CAGR basis or probably even higher than that.

So, we keep continuously looking at the acquisition assets, but we are not forcing ourselves. We are not pressurizing ourselves to make an acquisition, just because we have a large cash flow, which is coming through. Be rest assured whatever transaction deals are happening in the market, they come our way and when we make really very judicious evaluations, they have to fit our therapeutic segments, our presence in the market. So, multiple filters are there. We can't force and time the acquisition. As and when it happens, it happens. But we are actively on the lookout. Till that time, we will give back the money payout. Payout will continue.

That's a fair point. And in the opening remarks, there was mention ing of high cash flow generation, but vis-a-vis that if I were to see the 9-month interest outgo is around Rs. 15 crores versus last year 9 months around Rs. 6 crores. Why should be that be, sir?

That is only basically because we have done some discounting of our receivables. So, that is why that amount is being shown there. And this is again to make our working efforts more efficient. So, that is something which is a cost which has been incurred for them. And one thing is that, it is neutral because as I pay that interest cost, definitely I earn the interest also. And it is almost better than what I really pay the discounting charges.

Okay. And should now this become the norm for us?

Yes. I think we will keep on doing this as long as it something which is doing us very positive sense for the working capital efficiency building.

Got it. Thank you for answering the question.

Thank you. Next question is from Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.

Thanks for the follow -up. Sir, like the way we ’ve added new therapies in India, any plans to work on that part as far as Asia and Africa markets are concerned?

Yes, yes. We are to get into 2 new therapeutic segments in the international market. In the Q1 of next year, we will be launching a CNS line in our Asia market. And we are actively pursuing the gynaecology expansion also in the international market. So, next year, we will have 2 therapeutic segments added in the international market as well.

Got it. Sir, secondly on gross margins, where we continue to strengthen quarter on quarter. So, is it to do because of the relatively lower proportion of U.S. business or some moderation in U.S. business and that is what is driving the gross margin? Or this is a kind of gross margin, which we should sort of assume in FY '26 as well?

You are right, Tushar. I think it is more to do with the business mix. More the Branded Generics business, naturally the gross margins are going to be higher. As the proportion of the U.S. will go up, it may come down. But that is something to very clearly the proportion of the business mix, which is going to be there in the future.

Got it. And sir, lastly, as far as Asia market goes, there we have been consistently growing at 14% to 15% CAGR over the past few years. This FY '25 also 9 months, we are almost at 1 4% growth. Maybe in terms of market share, if you could just highlight what is the market share we have and what is the visibility for such sustained healthy growth in this market for next couple of years as well.

No, definitely, we command a decent market share in various countries where we have a significant presence. Our market share is in the range of 2% to 5% , despite we not being in multiple therapeutic segments. So, a number of markets, number of molecules, we are leaders, number of therapies like Cardiology, Diabetes, Opthal, Derma, our rankings are pretty high. So, I think we feel very comfortable, as I always say, I think our existing brands, they have head space to grow. We are adding more brands and more people. So combination of that, we feel comfortable to keep growing in double digits. There could be a variation quarter -to-quarter or year -over-year. But I think annualized , if you take a 3 years ’ horizon, we feel very comfortable being able to post the low -teens to mid-teens growth in the Branded Generic space.

Understood sir. Thanks. That’s it from my side.

We have a very strong product pipeline , and just if I would like to add here. A lot of products are under registration , a nd we feel that there will be a continuous pipeline for us to keep launching, and there are a lot of products on under R&D, which is the 5% spend which you see, lot of products are getting developed, which will be filed in this country. So, you can just continue to see that I think around 2.5% to 3% of our growth , even in the emerging market is coming from the new products. So that will continue to happen for the next 2, 3, 4 years, whatever the near-term horizon, which we can see.

No, that's quite commendable , and really appreciate the kind of growth you have exhibited in this Asia market. Thanks for your response.

Thank you.

Thank you. The next question is from Rashmi Shetty from Dolat Capital. Please go ahead.

Yes. Thanks for the opportunity. Just on the U.S. business, again, we have seen both Y-o-Y and quarter-on-quarter growth. And I guess that flu season was also weak. So , what has really contributed the growth? Is it that the new launches have added or the price erosion has come off, if you can say that? And whether this new product launches, which you had done in second half would actually lead to a better quarter -on-quarter growth in quarter 4 in U.S. business, if you can guide that also?

Yes, you're right. There ha ve been a number of launches which has happened. So , we got the market business for those products. We also increased the market share in our existing products. So that also got added. The flu season was pushed out a little. So , we are seeing the flu season taking off now actually in let us say last week. So, I think we feel that probably the next quarter is where the flu season effect will come in our next quarter. So, if you see last 2 quarters, we were around Rs. 230 crores odd for the quarter. And this quarter, we did Rs. 260 crores. So, we added Rs. 30 crores. I think we should be able to improve on this figure also quarter -over-quarter for the next quarter , based on the launches market share which we have got, and the flu season kicking in. If all goes well, I think we should be able to post the number higher than the Rs. 263 crores also for the next quarter.

Understood. That's really helpful. And the number of launches we have done in 9 months is 5. So, any more expected in quarter 4?

Quarter 4, I think maybe not, I think, no. No new launches in the quarter 4.

Okay. And in FY '26, how many launches are we planning? Will it be 6 to 8 launches like we do every year or it will be higher than that?

No. I think we are looking at 6 to 8 launches for the next year.

Okay. And just on the EBITDA margin, generally, quarter 4 is weak quarter, where all the major cost comes in. And you mentioned that you'll be able to maintain this kind of EBITDA margin. So, just want to reconfirm that despite quarter 4 being weak, we would be able to maintain it? Or there is more to it?

No, I think we should be able to maintain it. As I mentioned, plus minus 1% is always there, but to we should be able to maintain it.

Okay. And this is because our branded market, U.S. market s, everywhere we will be doing business. So, even the higher cost will get absorbed?

Absolutely. You're right.

Okay. And my last question is related to tax rate. You mentioned for FY '25, it would be 24%. But what it would be in FY '26 and FY '27? Should we be modelling similar tax rate or it would be higher?

'26, it will be almost same. '27 may be higher, because some of the assumptions will go away, so '27 maybe little higher.

So '27, it would be in what range?

We will have to work out actually. Yes, probably we can share this in the next call. Right now, we don't have that figure ready with us.

Okay. Okay, sir. Thank you. That’s it from my side.

Sure. Sure.

Thank you. Next question is from Foram Parekh from Bank of Baroda Capital Markets. Please go ahead.

Yes. So, my first question is, since we are talking about entering new therapies even in Asia and Africa market, so do we want to increase our growth guidance in next 2 to 3 years? Similarly, even for the Indian market, since now we are entering newer therapies, so should we still look at 12% to 15% growth? Or can we look at higher growth because of these newer therapy?

For India, it would be too early to factor the growth rates or increase the growth rate expectations because of the 2 new therapies. As you would already know, it would take quite some time for us to really penetrate. There are already strong incumbent players in both the therapies that we have entered. So no, I don't think that will have any significant impact on the growth rates, because the growth rates are factored upon on a large base. These businesses would be very small for the next 12 to 16, 18 months. So, for domestic, we would not like to revise the guidance.

It's same for the international market, our entry is with the CNS segment is with a handful of people, it should be 30 people. So , in the overall cumulative figures, which we already have a base, it's a small percentage. Gynaecology division will be added maybe in the third quarter. So next year, I think this new therapies will not add up so much in the growth of the whole year of the numbers. But yes, they will be built over the years. So going forward, I think they should become the sizable business.

Yes, my second question is now on the similar line. So , because we are talking about these businesses becoming bigger eventually. So , can we expect 30% kind of EBITDA margin and above, because of these new therapies scaling out maybe from '27 and beyond?

Normally, we don't give so far out guidances, we give year-to-year guidance. So, I think probably it will be best that we have this chat, this conversation in the next con call, when we have all our figures, budgets, everything frozen. By logic, if you want to go, yes, when the growth will happen, the expense will not go that far, that high. So, there's always a possibility for expansion. But I can't tell you what it will be, and what range. I think let's have this conversation in the next quarter.

I don't think I will be able to give you any more insights on them, what I shared with you. So , my answer remains pretty much the same. Our endeavour will be to expand the margins. Is there a possibility? Yes, there is a possibility. What will be the number? I think I will tell you probably in the next con call.

Okay. And my last question, if I may. I see SG&A costs, ex of R&D contribution is quite low, which has increased the EBITDA margin to 28%. So going forward, with these newer therapies, and therefore newer marketing expenses would chip in . So, any outlook or guidance on what this SG&A contribution we are looking at?

I think SG&A contribution will remain almost the same. As sales will grow, that contribution also will grow. Maybe little higher proportion in the initial period, but afterwards, it will stabilize.

Okay. Got it. Thanks.

Thank you. The next question is from Rahul Arora, who is an individual investor. Please go ahead.

Thanks for the opportunity. So, my question related to biosimilar and peptide. Are you planning to go into the biosimilar or peptide market in future?

No, I think right now, no such plans actively being pursued for the peptides.

Thank you.

Thank you. The next question is from Harsh Bhatia from Bandhan Mutual Fund. Please go ahead.

Yes. Hi, sir. Good evening. Thank you. Just as a follow -up of the previous participant, I understand that we are not venturing into that part of the business, which is peptide and amaglutide or whatsoever. But if you could help us, give some of your thoughts on the market dynamics. Obviously, there is under the 12 months that are supposed to go when the international markets and even India goes off for certain molecules, but just your thought process in terms of how the groundwork is shaping up. What is the feedback from the medical community as such? Anything can be helpful.

Semaglutide, undoubtedly is expected to be a blockbuster drug even in India when it comes off patent. Of course, there are several companies that are working upon it. As we shared in our previous question, it's too early to comment really 12, 16 months out from today. So , it's like a moving target. I would not like to comment anything on that at this point. But yes, it's just going to be a very lucrative market that is going to unfold in India for sure.

But we feel that as things stands, again, whatever from your end could be helpful, but you feel that having a backward integration at the API level, which is the case of certain companies, and maybe not from any companies, but you feel that, that could sort of give an advantage given the fact that it is going to be a highly competitive market to that extent? The other point over here is also that the API is a difficult nut to crack. So just maybe your thoughts.

Look, it's a complicated product. It's not a small molecule. And therefore, it's going to be a limited play. So, if you are asking from Ajanta standpoint, we don't have those capabilities. Very few companies in the country have those capabilities to be able to manufacture Semaglutide.

Sure. Thank you, and all the best.

Thank you. Well that was the last question in queue. As there are no further questions, I would now like to hand the conference back to Mr. Yogesh Agrawal for closing comments.

Thank you, everyone, for joining this call. In case there are any further questions that remain unanswered today, please reach out to our Investor Relations team. Thank you.

Thank you, everyone, for attending this call.

Thank you very much. On behalf of Ajanta Pharma, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.