Ajanta Pharma Limited analyst Q&A

Thank you very much. We will now begin the question-and -answer session. The first question comes from the line of Rehan Saiyyed from Trinetra Asset Managers. Please go ahead.

Yes. Good evening team, thank you for giving me the opportunity. Sir, I have a couple of questions. First on the R&D side, like your R&D spend has risen Rs. 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?

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 have 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 have 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 Rs. 72 crores, and for the whole year, we have given a guidance of about Rs. 300 crores. The normal CapEx, which is the maintenance CapEx is something in the range of Rs. 150 crores to Rs. 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, Rs. 150 crores to Rs. 200 crores is normal maintenance CapEx and balance it will not be more than this. It will be in this range only.

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

Thank you. The next question comes from the line of Tushar from Motilal Oswal Financial Services. Please go ahead.

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 repeat the same thing, that the product mix, of course, the revenue mix which you are talking about, the Branded Generics and U.S. Generics that is something which has changed this time. 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 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% the improvement in the gross margin.

Understood. So, that might be a non-recurring. So, that was...

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

Okay, sir. 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 1 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.

Okay, sir. And lastly, if you could let us know how many MRs we have 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 210. 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 s. And rest of the year, we are expecting another 210 to get added. So, for the whole year, we are expecting 250 new headcounts to be added, the field size for the emerging markets.

Okay. 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 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 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.

Got it, sir. Thank you and all the best.

Good evening, everyone, and thanks for the opportunity. 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 one of the oldest facilities we have, very small capacity, which now we are expanding, Pithampur we have put a brand-new facility, which is also global standard. So, that is primarily to cater to our emerging markets.

Okay. 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.

Okay. 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 brands. Met XL is a very large brand. If you take the full family of Met XL, it is exceeding about Rs. 250 crores. So, that's Rs. 300 crores. Wherein Cinod range which is about Rs. 120 crores; Atorfit is touching Rs. 100 crores; Feburic, there are quite a few good brands, which are touching about Rs. 100 crores.

Got it. Thank you. That’s all from me.

Thank you.

The next question comes from the line of Bino from Elara Capital. Please go ahead.

Good evening. 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 rupee depreciation against the euro, that is what we have pointed, the Rs. 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 Rs. 25 crores has come because of that only. So, right now, I think there is no impact of the 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.

Got it. Thank you.

The next question comes from the line of Rashmi from Dolat Capital. Please go ahead.

Thanks for the opportunity. One question on India. Your new launch contribution is also going up compared to the IPM. So, when you are doing new launches around 7 to 8 products, you were targeting which therapies? Which therapies have you launched these particular products?

If I may answer. Yes, 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, if the IPM is growing at 8%, then we are aiming in our aspiration to grow at 10% and above.

Understood. Got it. 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 lot of new launches. And earlier also, we have invested into the people so that would also bring some MR producti vity. So, is this a one-off quarter and from the subsequent quarters, at least, we would be able to see some single-digit growth...

So, last year, we have posted a very robust growth in the Africa market. We posted growth of around 28%, which was very robust, it's 2x of the normal growth, which we post ed. Normally, we have seen growth of 13%, 14%. Against that, we posted 28% growth. And beginning of the year itself, we had guided that considering 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 1st Quarter has 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.

Understood. And coming to Asia branded, 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 Asia.

And on operating margin front, if you remove the FOREX, this quarter, we have done around 28.9% and you have said that FY '26 EBITDA margin should be equal to FY '25. And whereas in last quarter, you mentioned that EBITDA margin guidance would be 28% (+/ -1%). So, just need a little clarification. We would be improving on the gross margin. I understand that other expenses in R&D will be higher. But are we on track to achieve at least around 28% this year?

I think we will be comfortable at 27% (+/ -1%). So, you can always say, okay, it can be 28%, 26% also. So, 27% (+/-1%) is something which we will be more comfortable.

Okay. And this is mainly because of the increase in other expenses, what is the outlook in FY '27? Because most of the expenses will be done this year. So, can we expect expansion in FY '27?

Yes. Certainly, certainly.

Okay. All right. Thank you. That’s it from my side.

Thank you.

Thank you. The next question comes from the line of Abdulkader from ICICI Securities. Please go ahead.

Hi sir. Sir, thank you for the opportunity. Just first quickly on your Asia business. So, would you like to highlight why is that growth being slipped down to, say, mid-single digit, I understand you have been guiding for this, but considering the geographies we are into, shouldn't we be growing at a slightly faster pace as compared to what we are growing now?

As I said, I think we have given the guidance of mid-teens. And we feel that we are on course to achieve for the full year. For the export business, you have to keep in mind, I think the quarter - to-quarter numbers may not be the exact reflection. Sometimes the sales get preponed, sometimes get postponed, so inventory. Full year will be the right way to look at the export business. So, 10% in the current quarter, we have delivered the Asia growth. But for the whole year, we feel comfortable that we will be in the range of mid-teens growth for the Asia.

Understood sir. And sir, second on the trade generic business. So, if we look at the segment, I think it's growing slightly faster than our core branded generic business. So, going ahead, how should we look at this business? What are your growth and investment plans here?

I think this quarter, we are almost flattish or almost degrowth by minus 6%. So, it is not something which is very large. I think for the whole year, we are expecting it to be around 10% growth.

Understood sir. Thank you.

Thank you. The next question comes from the line of Jitesh, an individual investor. As there is no response from the participants.

If there are no more questions, I think we can then close the call.

Ladies and gentlemen, as there are no further questions, we can take this as a last question. I would now like to hand the conference over to Mr. Yogesh Agrawal for closing comments.

Yes. Are there any further people? Anyone wants to have any questions? Are there any calls if there is I will be happy to take that. If not, then I will give my closing comments. So, I guess there are no more callers. So, thank you very much, everyone, for joining this call.

Sir, sorry to interrupt. There is one question. There's one participant.

Okay. Sure.

We can take that question, yes.

So, the next question comes from the line of Yogesh from InCred Equity. Please go ahead.

Thank you sir for the opportunity. My first question is I wanted to understand our progress on the new therapies, which we have added, gynec and nephrology. How are we seeing the growth that it is in line with what we had anticipated? And second, on the MR addition front within the India business for the new therapies. Last year, we added around 200 MRs in these 2 therapies, whether we are looking to add further more?

Sir, you would like to reply? Yes. So, as far as the India business is concerned for the new therapy, I think we will be able to comment on these therapies only after 1 year, because it's just less than 1 year that we have launched these therapies. So, I think it will be good if we review them or look at their performance by this year-end. In terms of the MRs, we have added about 70 people in this quarter for India business, and we are expecting another similar number to be added in the rest of the year. So, hopefully, about 150 people will get added in this current year.

Thank you sir. That answers my question. Thank you and all the best.

Thank you. The next question comes from the line of Amit Kadam from Canara Mutual Funds. Please go ahead.

Hi, sir. Sir, somewhere in the middle of the call, you mentioned about some comments on the cardiac division, that about why our growth rate is lower than the IPM. I think you referred to some pricing related thing. Can you just elaborate on that particular part, why the division growth was lower than IPM? That's it. Thanks.

Cardiac, we have said that our performance has been a little lower than IPM, but we are working on it. And hopefully, in the coming quarters, you will see the improvement coming in. It may take 3, 4 quarters more for correcting that particular situation, but we are quite confident that we should be able to come back to the IPM growth.

Any specific category of products or any prices in the market, which led to that or something?

Not anything specific. It is just the competitive intensity, which keeps on happening, and it is cyclical thing which happens, like what you must have seen in the past also, there are some divisions or some therapies, which have not worked well, but has now been picked up very, very well. So, I think same is the case with cardio as well. So, hopefully, it should also come back.

And according to you, it will take more than 2 odd quarters, 2 to 4 quarters is what you have assumed, that means this would resume or maybe start beating the IPM, maybe in FY...

Yes, I think we should be able to match IPM in over a period of 2 to 3 quarters.

Basically, it is (Inaudible) 0:36:38 and we hope to reverse it soon.

Okay. So, it's a volume underperformance. It's nothing to do material with the price part or is it...

Correct. There has nothing to do with the price point. Our price remains an optimum pricing. It is mostly the volume and some market share loss in some of the brands.

Okay. Correct. Thank you.

Thank you. The next question comes from the line of Aman Kumar Singh, an individual shareholder. Please go ahead.

Good evening, everyone. This question is regarding our profit after tax has increased just by 4%, but top line, et cetera, we have done pretty well. So, what was the main reason behind it, please?

As we mentioned, you see the other expenses has been the real growth, which is there , and FOREX loss of Rs. 25 crores, which is the major effect. If you remove the Rs. 25 crore loss, the growth is almost 14%. So, it is just the FOREX loss, which is the major contributor to that particular growth of 4%.

So, is it a one-time loss, what we are expecting, or it can be a concurrent loss, which...

It is one-time loss actually because it is a sudden movement in euro from 93 to 100, which has really caused this particular loss. Hopefully, now euro should not go beyond this level. And because of that, it will be a one-time loss only.

Okay. Thank you.

Thank you very much.

Thank you. The next question comes from the line of Tushar from Motilal Oswal. Please go ahead.

So, just one more follow-up on U.S. your outlook for U.S. is largely driven by existing launch products? Or do we have new approvals per se, which will drive growth for FY '26 and subsequently for FY '27?

So, the U.S., we have launched 5 new products in the last year, second half. And in the 1st Quarter, we launched 1 product. And during the year, all going well, we hope to launch 3 more products. So, the last year, we have seen some part of the 5 launches, which we have done in the second half, some sales have come in. But actually, the full sale of the 5 new products which we launched has started to come from this quarter. So, that is where you have seen. And also, there have been some increase in the market share in our existing product portfolio also. There's a combination of the new launches last second half, which has blossomed the full year in the current quarter, some increase in the market share on the existing products as well.

So, this market share gain is on the back of some competitor moving out of that product or between different pricing?

No, no. Some competitors have moved out from the product.

And sorry, if I may drag that, but is it to do with their regulatory issue or more so just purely from the competition and probably they are not into the market for that product?

Very difficult to say. We don't have much visibility on what would be the reason which would be there. So, it could be capacity, it could be regulatory. It could be anything, very difficult to comment on that.

Thank you. The next follow -up question comes from the line of Yogesh from InCred Equity. Please go ahead.

Thanks once again for the opportunity. My question is on the Africa branded business, though this year we are seeing some moderation , what collective measures or steps are we taking to resume faster growth in next year?

So, actually, I will just 1 second roll back. As I said last year, our growth was 28%, which is 2x of our growth of 14%, which we normally do. So, if you take last year's growth of 28%, and this year, we have guided high single digit. If you take a blended 2- year growth, it will still be in excess of 16%, 17% growth. So, actually, there is no such correction which is required. We are doing just fine. Just last year, the base was built up a bit high. That's why we are seeing a slower growth in the current year. But all the fundamentals are well in place to deliver the sustained growth, there is no such issue which we are facing or correction, which is required. I think we should be able to be comfortable. And current year, as earlier said, high single-digit growth. Next year, again, we should bounce back to the double -digit growth , because the last year base effect should get normalized in the current year.

Understood, sir. And one more question on the India business. If you could bifurcate India growth into value volume and new launches?

So, in terms of the volume, it was 2.5% against the IPM growth of 1.5%. In terms of new launches, we have done against 2.3% of the IPM, we have grown by 3.3%. And the price increase was 4.2% for IPM, whereas it was 4.4% for us. So, practically, we are ahead of the IPM almost in every aspect, from 8% of IPM, we are at 10.3%.

Understood, sir. Thank you for the clarification.

Thank you. The next question comes from the line of Dikshant Gupta from Geojit PMS. Please go ahead.

Good evening, sir. So, my question was, what exactly was the rationale behind entering the 2 new segments of nephrology and gynec?

I think we spoke about it in the last call in Q4 . I will just repeat that, see N ephrology was a natural extension for us , because we were covering nephrology through our Pain Management segment. So, that was a very natural extension for us. And gynecology is something which is growing quite well. And we felt that we will be able to add value there by giving lot of good products to the market. So, that is where the consideration was. And both these segments are something which we will watch for in the next 5 years.

Thank you. The next question comes from the line of Nirali Shah from Ashika Stock Services Limited. Please go ahead.

Hi, I have one question. With 80% EBITDA to CFO conversion and 82% FCF to PAT, how are you thinking about capital deployment over the next 12 to 18 months? And would you prioritize scale up in India or Asia versus U.S.? Or is any inorganic play being explored?

So, generally, there's no requirement of prioritization in one geography or other. There are all kind of resources that are independent on each of the geographies, and they perform independently. There is no constraint on the resources for each of the geographies. So, there is no prioritization as such. In terms of capital allocation, we will see how to go about it , still the year is there. So, Board will make a suitable decision on what will the payout for the current year and what kind of reserves we build for acquisition for the coming year, if any. So, we will see. And in terms of inorganic growth, yes, we have been active on the lookout for finding the right asset and the right opportunity, but these are some things which we cannot force to make it happen. We will see what are the possibilities which are there, and if there is anything which we can do on that front also. But we are actively pursuing that avenue as well.

Understood. Any specific geography that you are looking for in organic? I am asking this to understand what kind of valuations are available, say for example, in India or probably any other geographies, so what would be our focus geography?

Our geography focus remains first, primarily India for the acquisition; and second is Asia and Africa. So, these are the primarily Branded Generic business, whether it is in India, if India, we would love to do acquisition in India, which would have a synergy with us. Second is Asia and Africa also, we will be very open to doing that. So, these are the 3 areas where we are actively looking.

Understood. Thanks.

Thank you.

Okay. It seems there are no more questions. So, thank you, everyone, for joining this call. If there are any further questions, please reach out to our Investor Relations team. They will do their best to answer it. Thank you, everyone, for joining the call.

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