In January, Ajanta came out with its Q3 FY17 results. Let us look at how Ajanta performed during the quarter. Before we go into the results analysis please go through the below links, if you have not gone through them yet.

India:

Indian Sales for Q3 FY17:

India is still a major market for Ajanta pharma. In fact Ajanta reports India’s numbers and Asia numbers separately. Ajanta has a field force of more than 3000+ medical representatives in India.  Ajanta is predominantly present in Cardiology, Ophthalmology, Dermatology and pain management. Therapeutic area wise sales numbers for Q3 FY17 are given below. This seemed to be a muted quarter. Even Cardiology, which grows at a faster pace, seems to have slowed down. Even sequentially there is a drop seen in sales.

Segment Q3 FY17 (Crores)  Q3 FY16 (Crores) Change (%)
Cardiology 63 54 16%
Ophthalmology 37 35 7%
Dermatology 38 32 17%
Pain management 11 10 6%
Institutional Sales 5 6 -10%
Total 154 137 12%

Ajanta’s segment wise ranking vis-a-vis competition in India

Below table shows Ajanta’s standing in the Indian Pharma market [1]. Y-o-Y Ajanta moved up one spot in Ophthalmology and Pain management. On a Q-o-Q basis it has moved one notch up in Ophthalmology.  In case of dermatology and cardiology, the company stayed put. Heartening to see that the company is now 4th in Ophthalmology!

Segment 2016 (Dec) 2015 (Dec) 2016 (Sep)
Ophthalmology 4 5 5
Dermatology 13 13 13
Cardiology 20 20 20
Pain management 44 45 44
Overall 33 33 33

Ajanta’s segment wise growth vis-a-vis competition in India

Below table shows Ajanta’s growth with respect to Indian Pharma Market (IPM) [1]. Ajanta has been growing faster than the overall industry (except dermatology where it has been a constant laggard over the past few quarters). Ajanta has been able to achieve this “above average” growth for the past five years (though the gap has been narrowing off-late).

Segment Ajanta (Dec 2016) Indian Pharma Market (IPM) (Dec 2016)
Dermatology 10% 16%
Cardiology 22% 10%
Ophthalmology 13% 11%
Pain management 12% 9%
Overall 17% 11%

Emerging Markets:

As we have been observing over the past many quarters, Ajanta’s major Emerging market revenue comes from Africa. As noted in Q2 FY17, Ajanta is present in 19 countries in Africa, three countries in west Asia, 6 countries in CIS and three countries in south-east Asia. There has been no change in this in Q3 FY17. Ajanta’s product registrations in Asia has increased from 349 in Q2 FY17 to 354 in Q3 FY17. In Africa, the number of registrations have DECREASED from 1,195 IN Q2 FY17 TO 1183 in Q3 FY17 that is strange! As shown below, Ajanta has a region specific product basket. The international sales are managed by 700+ medical representatives.

Region Therapeutic Area
Asia Cardiology, Pain Management, Gastro intestinal, Antibiotic, Dermatology, Anti Histamine
Africa Pain Management, Gynecology, Multivitamin, Cardiology, Anti-malaria, Antibiotic

The sales (in rupee terms) for Q3 FY17 vis-a-vis Q3 FY16 are shown below:

Regions Q3 FY17 (Crores) Q3 FY16 (Crores) Growth (%)
Africa 211 196 7.6%
Asia 90 129 -30.2%
Others 1 3 -66%
Overall 302 328 -7.9%

African sales seemed to be on expected lines. However Asia saw a decline of sales by 30%.  Q3 saw an overall decline of 7.9%. This was a disappointing quarter with respect to Emerging markets due to decline in sales in Asia. Even in Q2, Asia sales were bad and we saw a decline in sales by 21%. Looks like Asia sales for FY17 are going to be disappointing.

USA:

The drop in sales in Asia was amply compensated by the increase in sales in USA. Ajanta saw 1290% increase in sales in US. Ajanta saw revenues of 59 crores from US in Q3 FY17 compared to mere 4 crores in Q3 FY16,

At the end of Q3 the company had 16 final ANDA approvals (compared to 15 in Q2 FY17), 2 tentative approval (compared to 2 in Q2 FY17) and 14 pending approvals (compared to 12 in Q2 FY17).  As we noted in previous quarters, the company plans to file 8-12 ANDAs every year.

Manufacturing Facilities:

The company has 3 facilities in Aurangabad, 1 in Mauritius. The Dahej plant will be operational from April 2017. Guwahati plant will be operational from Q4 FY18. The company has another API plant in Aurangabad which is utilized for captive consumption.

R&D:

In Q3 FY17 the number of R&D engineers increased to 800+ engineers compared to 750+ in Q2 FY17. The company spent 45 crores on R&D (compared to 37 crores in Q2 FY17).

Overall Financials:

The table below compares the Q3 numbers for FY17 with the numbers for FY16 [1].

  Q3 FY17 (Crores) As a % of Sales Q3 FY16 (Crores) As a % of Sales % Growth
Total Revenue 533 477 12%
EBITDA 178 33% 164 34% 9%
PBT 181 34% 153 32% 19%
PAT 143 27% 114 24% 25%

Revenue grew at a very modest pace of 12%. EBITDA growth was even slower at 9%. The saving grace was PBT which grew at 19%. PAT growth was decent at 25%. The best part of this quarter was the PAT margins. Margins have improved to 27% compared to 24%. This is a very positive step.

Expenses:

The table below lists the major expenses for Ajanta for Q3 FY17 in comparison with Q3 FY16.

Expense Type Q3 FY17 (Crores) % of Revenue Q3 FY16

(Crores)

 % of Revenue
Raw Materials 107 20% 115 24%
Employee Cost 77 15% 65 14%
Other Expenses 171 32% 133 28%

Raw material expenses have come down to 20% of revenue. Ajanta has consistently brought down its raw material costs. It is a good omen for a company that manufactures specialized products (even though it is a generics company. If Ajanta was a pure generics company then its major cost would have been raw material expenses). Its employee cost saw a marginal increase. There was a noticeable increase in other expenses. The other expenses are higher due to spending in the subsidiaries as well as R&D spending as seen above.

Taxes:

The effective tax rate for Ajanta was 20.9% compared to 25.4%. The company has consistently brought down its tax numbers. But aren’t corporate taxes supposed to be around the 30% range!

Q3 FY17 (%) Q3 FY16 (%)
Tax Rate 20.9% 25.4%

Finance Cost:

Ajanta is more or less a debt free company. In Q3 FY17 the company paid 1 crore as finance cost which is same as in Q3 FY16. Compared to other generics manufacturers, Ajanta has this upper hand. Since its finance cost are negligible, its EBIT gets mirrored at PBT level.

Summary:

  • Revenue growth was disappointing at 12%. Ajanta is showing signs of fatigue. It is already showing traits of a large cap!
  • Asia sales were down 30% and Africa sales were just ok. There was nothing great in the export numbers.
  • Like Q2 FY17, Cardiology and Dermatology sales numbers in India brought some cheer to the sales.
  • On the same lines as Q2 FY17, the biggest surprise was the sales numbers from US. After showing a sudden spurt in sales at 70 crores in Q2 FY17, this quarter Ajanta saw sales of 63 crores. A consistence Q-o-Q performance by Ajanta. It is a very good sign.
  • As expected and noted in Q2 FY17 analysis, Q3 FY17 was a very silent quarter. April 2017 will see the Dahej plant up and running. CAPEX requirement for Assam may impact the free cash flow for FY17.
  • PAT growth at 27% is no way near to Ajanta’s standards.
  • All in all this was an uneventful quarter. Ajanta kept chugging along. Not that I complain 😉 !

References:

[1] Ajanta Pharma Q3 Results and Investor Presentation for Q3 FY17

Disclaimer:

I am not a SEBI registered research analyst. The information provided above is my subjective view based on what I have read on different websites, annual reports, and quarterly reports of various companies which I assume to be accurate. The above information should not be treated as an offer/advise to purchase a specific stock/investment instrument. Since these are my subjective opinions, I could be wrong in my understanding or presentation of information. I do not claim that the above information is complete or can be relied upon as such. I cannot be held responsible for any loss or damage caused due to any inadvertent error in the above information. I will not be liable for investment decisions made by readers of this article based on the above information. I am not an investment advisor. I may or may not have position in the above company. Please consult your investment advisor for all your investment needs.