Ajanta Pharma Limited (AJANTPHARM) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Ajanta Pharma Q2 FY 2026 Earnings Conference Call. [Operator Instructions] Please note that 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, and welcome to all of you. With me, I have Mr. Rajesh Agrawal, our Joint Managing Director; Mr. Arvind Agrawal, our CFO; and Mr. Rajeev Agarwal, our VP of Finance and Investor Relations. I hope the results are already with you. I'm pleased to inform you that the Board of Directors have approved the first interim dividend of INR 28 per share for the face value of INR 2 per share, totaling to INR 350 crores. We will now take you through business-wise performance for our current quarter and half year, along with the comparison of previous year for the same period. We have completed second quarter and first half of the current year on a strong note, with revenue from operations growing by 14% and margins remaining resilient despite higher expenses. We remain confident to continue this growth journey with all our business shaping up as planned. This is also reflected in our financial strength, which continued to be strong with return on capital employed at 33% and return on net worth reaching 25% as at end of September '25, reaffirming our position amongst the best in the industry. Let me now take you through the business details. Let me first take up the international business, and I will first start with the branded generic business in Asia and Africa, which contributed 40% to the total revenue. Our continued investment in both people and products in these regions reflect our strategic intent to scale this business meaningfully. This expansion reinforces our position for sustained growth in current year and beyond. Let's now first see the Asia. Ajanta's Asia's performance -- Ajanta's Asia business remains focused on Middle East, Southeast Asia and Central Asia. In current quarter, the region delivered sales of INR 310 crores, up 5% from INR 296 crores. And in half year, the sales stood at INR 614 crores, up 7% from INR 572 crores of previous year. Few orders were pushed to the second half of the year, thus affected the growth in the first half of the year. We are confident to achieve low-teens growth for the current year. We are pleased to report the launch of three new products during the quarter, taking the total tally to 13 in the first half of the year. The new launches were mostly in chronic therapies, which further strengthens our position in the high-potential markets. Let's move to Africa. Our Africa business is focused on West and East Africa. In current quarter, sales stood at INR 221 crores, a growth of 4% compared to INR 213 crores. And in the first half of the year, sales were at INR 449 crore, a growth of 1% compared to INR 443 crores in the same period last year. Africa pharma market is expected to see moderate growth in the current year as also for Ajanta with impact of high base of previous year. However, against our guidance of mid-single-digit growth, we are now confident to achieve a double-digit growth for the entire year. Despite these short-term headwinds, we continue to strengthen our presence in the region with launch of 4 new products during the quarter, taking the total tally to 6 in the first half of the year. We remain confident in the long-term growth potential and strategic relevance of our Africa business. Let us talk about our other two verticals of the international business now. U.S. Generics. U.S. Generics business contributed 26% in total revenue in the quarter. As guided, the business performance has been excellent with current quarter sales at INR 343 crores against INR 233 crores, posting an excellent growth of 48%. And in the first half of the year, sales stood at INR 653 crores against INR 460 crores, posting a growth of 42%. This growth is attributed to full benefit of 5 launches made in the second half of the previous year, few new launches in the first half of the current year and gain in market share in few existing products. We remain as a preferred partner of choice for the distributors and customers due to our superior and committed execution. Let's now see Africa Institution business. The contribution from anti-malarial business further went down to 2% from 3% in previous year. With a revenue of INR 32 crores in the current quarter and INR 71 crores in the first half, it is a degrowth of 17% for the half year. As we have mentioned earlier, this business remains unpredictable as it is dependent on the procurement by ad agencies, and we maintain a cautious outlook on this business segment. Now I invite Mr. Rajesh Agrawal, our Joint Managing Director. Thank you, and over to you.

Thank you, and good afternoon to all of you. I will now take you through the India business performance. We have completed current quarter and half year on a strong note for our India business. We are already seeing the positive signs from our new initiatives taken in the previous year, which has also contributed to the growth in current year. Coming to the performance, we continue to outpace the Indian pharmaceutical market by 32% as per IQVIA MAT September 2025, with Ajanta delivering an impressive growth of 10% compared to IPM's 8%. We continue to exceed volume growth by 2x to IPM and new launches by 39%. This positive trend is evident across most therapeutic segments in which we operate, where our growth has consistently outpaced segment growth. We remain confident of sustaining this momentum in the coming year. In current year, India business contributed 32% to the company's total revenue, supported by the launch of 10 new products including one first time in the country. During current quarter, sales stood at INR 432 crores compared to INR 386 crores in the same quarter of the previous year, registering a growth of 12%. In first half of year, sales stood at INR 841 crores compared to INR 739 crores in previous year, registering a healthy growth of 14%. Our India business also includes revenue from trade generics segment, which contributed INR 53 crores in Q2 against INR 46 crores, a growth of 14% and in first half, INR 92 crores against [ INR 87 crores, ] a growth of 5%. In the covered market, we are fifth largest in IPM and amongst top 10 in all our therapeutic segments as per IQVIA MAT September 2025. Cardiology contributed 37%; followed by Ophthalmology, 30%; Dermatology, 23%; and remaining 10% coming from Pain in India branded sales. The new therapies of Gynecology and Nephrology are taking good shape and are expected to contribute meaningfully to the revenue in the coming years. I now invite Arvind Agrawal, CFO, to take you through the financial performance. Thank you, and over to you, Arvind.

Thank you, and good afternoon to all. On this call, our discussion includes certain forward-looking statements, which are projections or estimates about future events. These estimates reflect management's current expectations about future performance of the company. These estimates involve a number of risks and uncertainties that could cause our actual results to differ materially from what is expressed or implied. Ajanta does not undertake any obligation to publicly update any forward-looking statement, whether because of new confirmations, future events or otherwise. We will look at the consolidated financials and provide year-on-year comparisons. The key financial highlights for second quarter and first half of current year are as follows. Total revenue in second quarter stood at INR 1,354 crores against INR 1,187 crores, and in half year, revenue stood at INR 2,656 crores against INR 2,332 crores, posting healthy growth of 14% in both current quarter and first half of the year. Our gross margin stood at 77% for the quarter and 78% for the half year. Full year 2026 margin is expected to be around 78% plus/minus 1%. Personnel cost was at INR 317 crores against INR 261 crores, an increase of 21% in the quarter and INR 620 crores against INR 545 crores, an increase of 14% in first half over the previous year. Higher increase is mainly on for MR addition in second half of the previous year. Other expenses for the current quarter stood at INR 392 crores compared to INR 353 crores in the corresponding quarter of the previous year, reflecting an increase of 11%. For the first half of the current financial year, other expenses were INR 765 crores against INR 616 crores in the same period last year, an increase of 24%. We continue to make strategic investments in our products and people across our brand and generic portfolio. And we expect our other expenses to remain in line with the trends seen in the first half of the year. Our R&D spend, which is part of personnel and other expenses was at 5% of total revenue and is expected to be at similar levels. In current quarter, expenses were at INR 63 crores against INR 57 crores. And in half year, expenses was INR 119 crores against INR 108 crores. EBITDA for the current quarter stood at INR 328 crores compared to INR 311 crores in the corresponding quarter last year, reflecting a growth of 5%. For the first half of the year, EBITDA was INR 679 crores against INR 642 crores in the same period last year, registering a growth of 6%. EBITDA margin for the quarter was 24% and 26% for the first half. Excluding the impact of mark-to-market foreign exchange losses, EBITDA margin were in line with our guidance of 27% plus/minus 1% for both the quarter and the first half. Mark-to-market ForEx loss in other expenses stood at INR 41 crores in current quarter and INR 66 crores in half year, whereas there was ForEx gain in other income of INR 40 crores in current quarter and INR 49 crores in the half year. Hence, excluding ForEx loss impact, EBITDA margin in third quarter stood at 27% in first half, it was at 28%. We remain confident of the sustained EBITDA margin of 27% plus/minus 1% for the rest of the two quarters. During the quarter, PAT was at INR 260 crores against INR 216 crores, a growth of 20%. And in half year, PAT was INR 516 crores against INR 462 crores, a growth of 12%. In current quarter and half year, first half margins stood at 19%. Income tax stood at 23% for the first half of the current year and is expected to remain in variance during the year. We incurred CapEx of INR 145 crores in first half of the current year and is expected to be in line with our guidance of INR 300 crores for the whole year. Trade receivables increased to 101 days from 94 days, primarily due to the discontinuation of factoring and the adoption of working capital loans to benefit from lower interest costs. This change remained neutral to the P&L as we hold matching investment for a similar amount, giving similar return to the interest outlook. On the other hand, inventory levels showed a significant improvement, standing at 56 days compared to 72 days in the previous year, reflecting the results of our sustained efforts to enhance the efficiency of our working capital cycle. With these highlights, I open the floor for the question and answer. Thank you.

[Operator Instructions] Our first question comes from the line of Tushar Manudhane from Motilal Oswal.

Sir, just on domestic valuation side, number of new-to-market launches has been pretty less for first half FY '26. So if you could just share your comments for the remaining second half as well as FY '27.

I think they have been very selective and strategic in nature. We have fulfilled the gaps wherever we have felt that there is a need for a new product launch. And this trend will continue even for the second half of the year. I don't expect to cross it or to launch brands where we are not very confident of the future growth potential of those segments or those brands. So we are quite happy with the number of launches we have done.

Got it. Sir, on the U.S. side, we have been pretty strong for the first half that we might sustain for FY '26. If you could just further sort of extend the thought process for FY '27 considering the R&D spend which you are doing now?

No, as you have seen, beginning of the year also, we had given the guidance that U.S. will see a healthy growth, and that is what is playing out. And I also shared the reasons for that, because we had launched finding 5 new products in the previous year second half and 3 new products got launched in the first half. So we were able to get a good market share for all these products, and they were able to do a good execution of that. So I think the current quarter performance is what you can take it as going forward for the next 2 quarters also. We should be able to sustain this kind of run rate for the current quarter. I think FY '27 and '28, probably let's talk a little later in the year. But we believe that U.S. going forward also should perform well, it should go maybe in high teens growth for sure next year.

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

Just wanted some understanding of the nature of the ForEx loss. You mentioned that it's the translation loss. Where does that arise from?

See, we do hedging of our outstanding or export sales. So that hedging, because the Europe moved very sharply during the first half. So because of that, the mark-to-market losses have been booked there. But on the other side, we also have gains because of the outstanding, which we have, the company export data. So practically, it is nullifying. Only the thing is that because of the accounting norm, the losses booked in the expenses, whereas the income goes into other income, because of that, that's clarification of EBITDA is there. Otherwise, there, we are absolutely protected.

Understood. And for the full year, do you maintain the earlier margin guidance adjusted for the ForEx losses?

Yes, please. Absolutely.

[Operator Instructions] The next question comes from the line of Abdulkader Puranwala from ICICI Securities.

Congratulations on good set of numbers. Sir, just wanted to understand, first, on your EBITDA margin guidance, while we are maintaining status quo for as compared to, say, the first half where we have seen 28% kind of an EBITDA margin. And the outlook for all the segments, at least from a top line growth is robust. Sir, just wanted to understand why is there a cautious view on margins when the top line growth is going to improve for it as well.

See, what is happening is that the top line growth is very robust, and you rightly said, very true. But we are also simultaneously investing on people and products. That is something which is very, very important. And I think we are still talking about a 27% plus/minus 1%. So we are very confident that in spite of all the expenses or investment which we are doing in the market, in Branded Generic markets, et cetera, we are still going to get the same EBITDA margin, which we are getting now.

Got it, sir. And sir, just one more on the working capital increase. So if I go through your cash flow, then in the first half, the cash flows from operations have been little weaker as compared to where we were historically. So I just wanted to have a recall on the trade receivable commentary, what you made in your opening remarks. Can you please elaborate on that? How is that impacting your overall cycle, please?

I'll tell you. See, last year, we do -- did factoring for our receivables in U.S. This factoring were done in Q3 at that time. Somehow, we found that the interest cost for working capital is much better. We will get the advantage. So we switched over from factoring to working capital. So you will see the borrowing in the balance sheet now, and you will also see the receivables increase. So it is just the effect of factoring going out and they're coming in back. So that's where the trade receivables have gone up.

Our next question comes from the line of Bharat Celly from Equirus.

So sir I just wanted to understand on the expense part, we have been investing in new products as well as the building of the MR team for the new divisions. So how do you see the ramp-up as well as how long it will take for us to start seeing benefit on the EBITDA side as well as margins side, then thinking when MRs start contributing positively?

I think, let's say about 1, 1.5 to 2 years because to optimize the productivity of the new teams, especially in the new segments, it will take some time. But the MRs that we have added in the existing segments and the divisions that we have launched in the Cardiology last year and Dermatology, we are quite confident that they will start to yield results faster, because we already have a good presence in those segments. So it's very hard to pinpoint and say exactly by which quarter and which year, but the efforts are on with full throttle to get them up to the productivity level that we are already at the corporate level.

So when we talk from the margin perspective, so is it possible for us to go back to the margins like 30% following next 2 years? Or will largely, the investments will remain around 27%, 28% from the long term perspective?

I think probably if you compare Ajanta's margins, our margins with the rest of pharma companies, we probably are not in the top 3 or top 5 companies who have this kind of margins. So I think the correct way to look at would be to see what is the growth we are posting on the top line and the bottom line. That would be the correct measure instead of focusing purely on the expansion of the margin, because there is always the forward-looking expenses, which comes in. So the fuel expansion will keep continuing in some shape or form in some quantity. There will always be some forward-looking expenses which will come in. So I think guiding towards that kind of expansion of 30% or plus probably will not be the right metrics to look. I think the correct metrics will be to see what is the growth we are posting year-over-year on the top line and the bottom line.

Surely, sir. Just I was wondering whether our aspiration is to go towards higher margin or we'll be more interesting towards the growth. So that's what I was trying to understand.

No, we are of course driving for the growth. And that's how you've seen we've added people in the field, whether it was India or international market, our -- and that is reflecting in our P&L. Currently, our employee expenses have grown by 21%. So there is an addition of the people all around, even our other expenses have gone up. So the growth does remain of the -- and increasing in the market share, it remains a very prime importance, and that will always continue to be there. At the same time, we are also looking at what is the growth we are putting on the bottom line as well. So both put together, I think we are comfortable and we are happy with the growth which we are posting.

Surely. And how many MRs on the personas we are looking to add in the next 18 to 24 months? Is there any ballpark which we can refer to?

In the domestic, we don't have any particular ballpark or a number set. We will decide as we go along based on the need and the growth in the existing divisions. So -- but however, we can, I mean, broadly going by the past trend, maybe we can look at about a couple of hundred in the next 1.5 to 2 years.

On the exposed side?

And for the [indiscernible] market for the whole year. Yes. For the exposed side for the whole year, we are looking at about 10% to 12% increase in the field size for the current year. And next year, it should be in the range of about 7% to 8%.

[Operator Instructions] The next question comes from the line of [ Abhishek Jain ] from AlfAccurate.

Congrats for decent set of numbers. Sir, as you mentioned that other expenses have gone up because of the addition of the MRs in India. Just wanted to understand how much MRs, number of MRs in India and plus Asia and Africa at this point of time include in Q2 FY '26?

About -- we now currently have total 5,680 people in both India and emerging markets put together, as on today.

Okay. And how is the bifurcation sir, India versus Africa. Asia and Africa.

Yes, India is 3,600 people. And Asia, Africa, it is 2,080 people.

Okay, got it. And sir, what was the INR versus euro and INR versus USD in this quarter realization?

I didn't get your point.

Sir, what was the realization, INR versus euro and INR versus USD in this quarter?