Ajanta Pharma has continued its tradition of rewarding shareholders. The company announced a new buyback programme with a record date of May 30, 2024. It announced a buyback last year as well. The current buyback package of ₹351 crore is on top of a ₹642 crore dividend paid in FY24, which implies a shareholder yield of 3.3 per cent for the year.

The stock itself, on the other hand, has returned 85 per cent in the last year and the high yield (dividend + buyback) is the icing on the cake. Investors can book partial profits in the stock by tendering shares in the buyback after the strong run in the last year even as outlook remains strong. The stock trades at 32 times one-year forward earnings, which is premium to five-year average of 23 times.

The current buyback offers 0.8 per cent (10.3 lakh shares) of the total outstanding shares at a price of ₹2,770 which is a 16 per cent premium to Friday’s closing price.

On strong footing

The company reported 12 per cent YoY revenue growth in FY24 and 41 per cent EPS growth YoY as EBITDA margins improved from 20 per cent in FY23, to 28 per cent in FY24.

Ajanta Pharma derives 71 per cent of its FY24 revenues from Branded generics markets of India (32 per cent), Asia (25 per cent) and Africa (14 per cent). The US market, where Ajanta Pharma markets generics, accounts for 23 per cent and Institutional sales to Africa (anti-malaria) the remaining 6 per cent.

The branded markets, led by India and Asia, have grown at 10-11 per cent YoY in FY24, while Africa was held back to low 5 per cent YoY growth as inventory de-stocking affected growth, which is expected to recover. Driven by new launches, price increases and expansion in field force for Africa and Asia, Ajanta Pharma should expect a 10-11 per cent growth from these markets in FY25 as well.

In India, Ajanta Pharma has a strong position in just three therapeutic areas — Ophthalmic, Dermatological and Cardiology (Pain being a new category), and expects to expand in the same therapeutic areas and focusing on ‘first to market’ launches. This has yielded strong payoff for the company in these markets.

Pricing restrictions in the form of NLEM (National List of Essential Medicines) hampered Ajanta Pharma last year (12 per cent of portfolio under NLEM) and will continue to restrict growth in FY25 as well. There is increasing pressure from Trade Generics on Indian Pharma Market growth, but with a growing portfolio in this space, for Ajanta Pharma this can be a lesser headwind compared to peers.

US generics tailwinds are in the form of lower price erosion and Ajanta Pharma will look to launch eight new products, which should sustain a 4-5 per cent YoY growth in FY25. Overall, Ajanta Pharma can sustain low double-digit revenue growth in FY25. The companydelivered a consistent 13 per cent CAGR in FY20-24 in revenues.

Being a predominantly branded player, Ajanta Pharma has delivered 28 per cent EBITDA margins in FY24. Along with lower logistics costs, lower API prices, lower price erosion and improved product mix aided margin recovery. With no significant change expected in these factors, the company is likely to deliver in the same range, along with 100 bps improvement in FY25 owing to operating leverage.