Ajanta’s Q4 FY22 sales grew 15% to Rs8.7bn. Its India and Africa branded divisions and Asia reported stellar growth. More price erosion and keener competition, however, led to muted US business. Its gross margin slid 531bps to 72.5% y/y due to higher raw material prices and a one-time impact (1.5% of sales due to flu-related products written back, and 1.5% more due to price erosion in the US). Adjusting for this, the gross margin contracted 280bps y/y to 75%. Higher other expenses squeezed the EBITDA margin 1053bps to 23.7%. PAT fell 5.1% to Rs1.5bn. With launches, continuing momentum in India, other branded markets and a pick-up in the US, Ajanta would deliver 12% revenue/PAT growth each over FY22-24. 

Ajanta’s core therapies outstrip IPM growth. Its healthy 12% India sales growth is primarily attributable to better traction in its chronic and sub-chronic therapies. Launches were 16 in FY22 (including four FtF). We believe the launches, efficient MR productivity and price hikes in Apr’22 would drive a 15% revenue CAGR in its India business over FY22-24.

Muted US business. On higher price erosion (18%) and fewer-than-expected launches (on lower filings), its US sales declined 3% to Rs1.7bn. It plans to file 10-12 products in FY23. We anticipate a 14% CAGR over FY22-24 supported by the launches.

Margins to be stable. With more price erosion in the US, higher raw material prices and other expenses normalising to pre-Covid levels, the FY22 EBITDA margin declined 674bps to 27.8%. FY23 margins are expected to remain at 28% and expand gradually with the improving branded generic business.