Broker’s call: Ajanta Pharma (Add)

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Target: ₹2,556

CMP: ₹2,329.35

Over the last five years, Ajanta Pharma’s ROE has improved by about 400-500bps led by buybacks. Combined, the company has concluded buyback of ₹1,100 crore during this period.

First-to-market products remain a key driver of India growth. Nearly 50 per cent of the 300+ products that Ajanta has, are FTM. This is one of the key drivers of Ajanta’s outperformance vs IPM. During the year, Ajanta launched 15 new products, including four first-to-market.

In FY24, focused execution with strategic approach helped Ajanta Pharma to improve efficiency helping to save about 300bp in API procurements and about Rs1bn in logistics costs during the year. The company generated free cash flow of ₹637 crore in FY24, translating to 55 per cent of EBITDA. In FY25, it expects the US business to grow at a much slower pace in the wake of fewer launches which are towards the end of the financial year.

US subsidiary has performed well with healthy double digit CAGR in revenue and PAT. The PAT margin has seen reversion to previous levels. The India business continues to outpace the IPM by 180bp in FY24.

We retain Add rating on the stock with a target price of ₹2,556. Key risk: Slowdown in branded generics market.