How Ajanta Pharma Plans To Beat Its Africa Business Slump

Its institutional, or tender, business in Africa—under which it makes drugs on contract for governments and other institutions—is expected to either remain flat or decline by about 10 percent in the next financial year, a spokesperson for the specialty pharmaceutical maker told BloombergQuint through email. “Other businesses will grow and that will provide the momentum.”

The drugmaker was a mega wealth creator with its shares rising nearly 20,000 percent—or 200 times—in the decade through October 2016. But the stock has since lost nearly half its and has declined 16 percent so far this year partly due to a slowdown in its Africa business.

Ajanta Pharma’s relentless growth trajectory in the 10 years through March 2017 is likely to pause between FY17 and FY19 due to the impact of goods and service tax, slowing tender business with the re-entry of IPCA Laboratories Ltd. in Africa and currency headwinds in emerging markets, Equiris Securities said in a note.

The brokerage said in a report it sees weakness due to flat fund allocation from Global Fund and other agencies for malarial treatment drugs. IPCA Laboratories’ re-entry as a supplier of anti-malarial drugs in Africa, will reduce chances of increased business, it said.

Weak December Quarter

The company’s Africa institutional and branded businesses fell by 47 percent and 25 percent in the December-ended quarter, respectively, while its Asia business declined 25 percent. While business in Asia and U.S. grew in the nine months through December 2018, the institutional and branded business in Africa fell by over half and 6 percent, respectively.

Sales of the maker of the erectile dysfunction drug Kamagra dropped 17 percent in the December quarter while profit fell 55 percent year-on-year. Operating margin declined by nearly a third year-on-year to 22.1 percent due to increased raw material prices and change in product mix. The company spokesperson said that it’s premature to give any guidance for FY20 but expects growth momentum to stabilise.

Edelweiss said that the company maintained its guidance of flat revenue growth and margin of 26-27 percent in FY19.

India Business

The decline in sales was countered by a 9 percent growth in domestic business. Ajanta Pharma operates in India in four key therapies—cardiology, ophthalmology, pain management and dermatology.

While Ajanta Pharma managed to grow faster than its Indian peers, its dermatology segment continues to trail due to a decline in its key molecule, Melacare. The company said that it has stemmed this decline.

“Our growth in dermatology segment at 9 percent (according to IMS MAT, a drug sales tracking agency) is slower than industry average of 14 percent,” said the spokesperson. “We’re expecting this to match the industry growth rate in the coming quarters.”

Fledgling U.S. Business

Ajanta Pharma’s U.S. business registered weak growth in December quarter due to price erosion and poor traction for new launches. The spokesperson said that they’ve started seeing traction from U.S. business. "We plan to file 10-12 abbreviated new drug applications annually, in addition to six-seven drug launches.”

Over half of the analysts tracking Ajanta Pharma have a ‘Buy’ rating on the company’s stock, with nine percent recommending ‘Sell’ and the others maintaining ‘Hold’. The Bloomberg consensus target highlights a 16 percent return potential on the stock. Shares of Ajanta Pharma have declined 16 percent this year.