Ajanta Pharma Ltd Management Discussions.

Economic Overview and Outlook

The global economic expansion decelerated in the second half of 2018 largely because of increased trade tensions and tariff hikes between the United States and China. After peaking at close to 4% in 2017, global growth dropped to 3.6% in FY 2018. As per the World Economic Outlook report of International Monetary Fund, released in April 2019, global economy is projected to decline further to 3.3% in 2019.

The growth in Emerging Market and Developing Economies is also expected to slow down to 4.4% in 2019 from 4.5% in 2018. Nevertheless, the Indian economy grew 7.1% in 2018 and is expected to accelerate 7.3% in 2019, retaining its position as the fastest growing economy in the world.

Pharmaceutical Sector Overview Global

The pharmaceutical industry plays a unique role in improving the lives of patients. It is also one of the worlds fastest growing industries and among the biggest contributors to the world economy.

Global spending

According to the IQVIA Institute paper published in January 2019, global spending on medicines reached USD 1.2 trillion in 2018 and is set to exceed USD 1.5 trillion by 2023. This would be a 3–6% annual growth rate over the next five years – a notable slowdown from the 6.3% seen over the past five years. The key drivers of growth will continue to be the United States and pharmerging markets with 4–7% and 5–8% compound annual growth, respectively.

Pharmerging market growth continues to derive primarily from increasing per capita use, but some markets are seeing wider uptake of newer medicines as patients ability to afford their share-of-costs improves with economic growth. Growth in developed countries will come with higher proportion of aged population.


Spending by geography

USA is expected to continue to be the worlds largest pharmaceutical market and its share in global spending is projected to increase to USD 625-655 billion in FY 2023 from USD 485 billion in FY 2018. The European share of spending will grow to USD 195-225 billion from USD 178 billion, in this period. Meanwhile, pharmerging countries will spend USD 355 billion in FY 2023 against USD 286 billion in FY 2018.

Notes: Market sizes shown in USD with actual and forecast exchange rates; growth shown in constant dollars at Q2 2018 exchange rates; Japan growth decline on constant dollar basis is due to exchange rate dynamics


As per IQVIA, in FY 2019, the Indian Pharmaceutical Market (IPM) stood at about USD 19.5 billion, growing at 10.5%, growth being contributed almost equally by volume, price and new launches. The IPM hitherto considered immune to economic downturns, seems to be defying the trend and has slowed down in tandem with the broader economy. Analysis of IPMs growth drivers indicates slowdown from 13.5% to 10% over the past three years. There are various external forces impacting the IPM at present. Growth from product introduction has also nearly halved as the regulator is more careful with new combination drugs. Frequent regulatory interventions have added to the woes. Regulations on price control, and proposed ban on FDCs, INN prescriptions as well as “One Company – One Brand” regulations, indicates increasing regulatory scrutiny in India, which in turn is expected to shape the growth of the industry.

Rest of Asia

As per a recent study by IQVIA, most Asian markets still have room to grow. Based on the analysis, it classifies the region into three groups: mature (Japan, South Korea, Taiwan); maturing (Thailand, Malaysia, China); and emerging (Philippines, India, Vietnam, Pakistan, and Indonesia). The emerging markets are clearly ripe for sustainable growth stories. For instance, as per industry estimates, Philippines is the third-largest pharmaceutical market in ASEAN, predicted to exceed USD 4 billion by 2020 – recording a compound annual growth rate of over 3.5% in five years. The Philippines disease burden is shifting from communicable to non-communicable diseases. Cardiovascular disease is the leading cause of death, and one in three deaths are caused by heart disease.


The pharmaceuticals market in Africa is expected to reach a business opportunity of USD 45 billion in 2020 (Frost & Sullivan, Dec 2016), propelled by a convergence of changing economic profiles, rapid urbanisation, increased healthcare spending and investment, and increasing incidence of chronic lifestyle diseases. The tropical climate of Africa makes the continent the largest reservoir of infectious diseases, particularly malaria, tuberculosis (TB) and acquired immune deficiency syndrome (AIDS), besides frequent outbreaks of polio, meningitis, cholera, pandemic influenza, yellow fever, measles, hepatitis, and tetanus. With the increasing adoption of Western lifestyle in Africa, there has been a paradigm shift in the burden of illness towards non-communicable diseases (NCDs), driving the demand for chronic prescription drugs. The growing middle-class is a key driving force for pharmaceuticals spending. Limited affordability of governments and the general population for healthcare and pharmaceuticals and a high reliance on donor funding will be the major market restraints.


United States alone holds over 40% of the USD 1.2 trillion global pharmaceutical market with spending of USD 485 billion in 2018. Generics continue to enjoy a formidable percentage of USAs pharmaceutical market with accounting for more than 90% of total prescriptions dispensed. Within the past 5 years, drugs worth USD 83 billion have gone off-patent and another USD 72 billion worth of small molecule drugs slated to go off-patent in the next 5 years, as per IQVIA Institute report in February 2019. Declining prices in the generics market due to rising competition from the surge in ANDA approvals and consolidation of distributors, has taken a toll on the generics market value. Though the US generic market will be challenging over the medium term, given the pricing and competition risks, Indian companies with clear visibility in terms of US pipeline, in advanced stage of making investments in complex molecule, robust supply chain setups in the US and strong internal quality processes in compliance with FDA guidelines, are bound to succeed.

Company Overview

Ajanta Pharma is a specialty pharmaceutical formulation company engaged in the development, manufacture and marketing of quality finished dosages. The Company has a well-diversified and de-risked business model with branded generics in India, Asia and Africa, generics in USA and Institutional business in Africa, comprising a wide range of products, in more than 30 countries.

The competitive edge Ajanta Pharma has built over the years, in terms of customised products for every market where it operates, continues to provide it the impetus for growth. In spite of sharp decline in its institutional business, it has been able to recoup part of this loss in other markets, thereby posting a much lower de-growth in total revenue for FY 2019.

Operational Highlights for FY 2019

• Consolidated Turnover at Rs. 2,055 cr.

• Consolidated Profit after Tax at Rs. 387 cr.

• R&D spend at 9% of revenue

Performance Highlights India

Ajanta Pharmas India business continued to perform well steered by strong focus on high growth speciality segments. Total sales from India business stood at Rs. 690 cr. against Rs. 629 cr. in the previous year.

As per IMS MAT March 2019, the Company outgrew Indian Pharmaceutical Market (IPM) recording 16% growth compared to 11% for the industry. Within the specialty segments that the Company operates in, all segments recorded higher than industry growth. Company has also improved its ranking in IPM to 31 against 32 last year.

March 2019 March 2018
Ophthalmology 3 3
Dermatology 13 14
Cardiology 15 16
Pain Management 41 43
Ajanta 31 32

Source : IMS MAT March 2019

The Company continues to strengthen product portfolio through new launches, many of them being first-to-market products, offering significant patient benefits. Apart from new launches, many of the Companys existing products continue to grow their market share.


Total sales from international business for FY 2019 stood at Rs. 1,324 cr. against Rs. 1,434 cr. in the previous year, a decline of 8%. This decline was primarily due to shrinking of institutional business in Africa, which saw a decline of 49% for the year. In Asia and Africa, branded generics business continued to remain robust in individual markets, though it was soft for company due to streamlining of inventory levels in these countries. The performance in US had been excellent for the year with growth of 46% for FY 2019, led by new product launches and gain in market share in existing products.

Financial Review

FY 2019 (Rs. in cr.) % to Income from operations FY 2018 (Rs. in cr.) % to Income from operations
Income from Operations 2,055 2,131


EBITDA 566 28% 648
PBT 514 25% 623 29%
PAT 387 19% 469 22%

Operational and Financial Performance

It was a year of challenges, with revenue and profitability both getting impacted by an expected tapering of lumpy institutional business and bringing efficiency through streamlining of inventory levels. The focus was clearly on looking beyond the short-term challenges being faced and prepare the organisation for tomorrows growth opportunities.

Profit and Loss Statement Revenue from operations

Revenue from operations stood at Rs. 2,055 cr. in FY 2019 against Rs. 2,131 cr. in FY 2018, a decline of 4% over previous year. The institutional business in Africa saw a major decline, as expected, which was partially compensated by growth in other markets.

Material costs

Material costs remained at 19% in FY 2019, almost at the same level of previous year. It was indeed a great achievement, given that the overall raw material prices had inched up during the year.

Employee expenses

Personnel expenses inched up by about 300 basis points from 18% last year to 21% in this year. Total cost stood at Rs. 431 cr. for FY 2019 as against Rs. 376 cr. in FY 2018. The increase was on account of full year impact of team members added at different times during FY 2018, some addition of teams at new plant locations of Dahej and Guwahati, as also the annual increments provided for the year.

Other expenses

Other expenses stood at Rs. 675 cr. in FY 2019 as against Rs. 690 cr. in FY 2018. We were able to further improve efficiency in the operations with manufacturing, marketing, distribution, R&D and administrative expenses being monitored closely in the face of challenges. R&D cost remained at 9% of total operating income in FY 2019, though in absolute amount, it has seen slight reduction to Rs. 176 cr. in FY 2019 from Rs. 185 cr. in FY 2018. Effective steps are being taken to economise on all costs, without impacting the business objectives.

Operating Profit Margin

EBITDA stood at Rs. 566 cr. in FY 2019, being 28% of operating income as against Rs. 648 cr. in the previous year, being 31% of operating income. As discussed earlier, higher employee cost, plant overheads of 2 new manufacturing facilities and lower revenue had impacted the margins.

Net Profit Margin

Net margins stood at 19% in FY 2019 against 22% in FY 2018. In absolute value, the net profit was at Rs. 387 cr. as against Rs. 469 cr., de-growth of 17% over previous year, again for the reasons mentioned above.

Return on Net Worth

Return on Net Worth saw a sharp decline to 18% in FY 2019 against 26% for FY 2018. The impact is mainly on account of continued investment in new manufacturing and R&D facilities, which are at various stages of implementation. The Company has undertaken major investments during last 4 years to proactively meet the infrastructure needs for future growth. It will improve returns once operations get stabilised at these new facilities.

BALANCE SHEET Non-current assets

We have added another Rs. 361 cr. in property plant and equipment, in line with our plans to build world-class infrastructure for meeting the future growth requirement. The non-current assets have gone up to Rs. 1,515 cr. in FY 2019 from Rs. 1,225 cr. in FY 2018.

Current assets

Current Assets came down to Rs. 1,181 cr. in FY 2019 from Rs. 1,224 cr. in FY 2018 mainly because of redemption of investments, which were utilised for buy back of equity. Current Ratio for FY 2019 stood at 3.1 against 3.5 in FY 2018.

Trade Receivable remained almost at the same level of last year in terms of absolute number at Rs. 459 cr., though in terms of number of days to sales, it saw a marginal increase to 83 days in FY 2019 from 81 days in FY 2018.

Inventories saw a sharp increase to Rs. 436 cr. in FY 2019 from Rs. 351 cr. in FY 2018 on the back of growing US operations, which has a longer working capital cycle. In terms of number of days to sales, it has gone up to 79 days in FY 2019 from 62 days in FY 2018.

Shareholders funds

Shareholders funds increased to Rs. 2,245 cr. in FY 2019 from Rs. 2,041 cr. in FY 2018. Earnings per share stood at Rs. 44 in FY 2019 as against Rs. 53 in FY 2018. During the year, Company returned Rs. 100 cr. of shareholders fund to its shareholders through share buyback and another Rs. 80 cr. towards dividend.

Non-current liabilities

Increase in deferred tax has taken non-current liabilities to Rs. 73 cr. in FY 2019 from Rs. 61 cr. in FY 2018.

Current liabilities

A small working capital borrowing in US subsidiary for better financial discipline resulted in higher current liability at Rs. 378 cr. in FY 2019 against Rs. 346 cr. in FY 2018.

Human Assets

Ajanta Pharma has a diverse talent pool of over 6,900 Ajantaites, coming from 28 nationalities. The Company acknowledges the pivotal role of Ajantaites in driving continued success. Human Resource Development aims to make Ajanta a preferred place to work. This is being achieved through various initiatives including skill development, personality enhancement, passionate leisure pursuits and employee engagement through internal communications to foster happiness at work.

Talent management at Ajanta means having most skilled and engaged Ajantaites delivering their best in their current roles while getting ready for higher responsibilities. Ajantaites are among our indispensable assets for continued success.

Risk Management

Ajanta Pharma has built a strong culture of managing risks in a structured manner. Risk management committee comprising Managing Director and Joint Managing Director along with senior management, review key internal financial controls and their effectiveness in the form of a risk matrix, inherent risks associated with each function, risk assessment and classification of these risks into different categories. The work of risk management committee is reviewed by audit committee and board periodically.

During the year, various key risks were identified, evaluated and mitigated through a defined process. Some of the key risks are:

Competition Risk

Competition is an integral part of all industries and pharmaceutical is no exception. Different markets / businesses have different intensities of competitions and Company has a robust framework to identify its competitive advantages like early-to-market, niche new product launches through identifying unmet medical needs etc.

Regulatory Risk

Pharmaceutical is among one of the highly regulated industries across the world. And rightly so as it deals with evolving human life. These regulation impact development, manufacturing, approval, marketing and distribution of products, while throwing new compliance challenges. A strong quality assurance mechanism and compliance monitoring network at Ajanta ensures strict compliance at every level. Regular training for its employees to update them on new developments is an integral part of this process.

Global Economic Volatility Risk

Ajanta has presence in more than 30 countries and each of these markets present different economic and political risk. A widespread global presence, with no overdependence on any one region or country, considerably insulates the Company from any uneventful developments in any particular market.

Foreign Exchange Risk

The Company earns a major part of its revenue in foreign exchange, thus exposing it to the volatility in the exchange rates. This can have an adverse effect on its earnings. The Company follows a conservative and disciplined hedging policy which ensures protecting the desired exchange rate for sustaining the profitability.

Internal Controls and Adequacy

Ajanta Pharma has institutionalised a robust and comprehensive internal control mechanism across all the major processes. It is integral to the principle of governance and freedom is allowed to be exercised within a system of checks and balances. All operations are governed through automated internal business controls, centralised global process framework and integrated key support functions. Internal Controls safeguards companys assets against loss from unauthorised use and ensures reliability of financial reporting. It is also designed for effectiveness and efficiency of operations, compliance or regulations backed by strong audit framework at all the locations. Audit Committee of the Board reviews reports submitted by the independent internal auditors and monitors follow-up and corrective actions.

Cautionary Statement

Statements in the Management Discussion and Analysis describing the Companys objective, projections, estimates, expectations may be forward-looking statements. Actual resultsmaydiffermaterially from those expressed or implied due to various risks and uncertainties. Important factors that could make a difference to the Companys operations include economic and political condition in India and in the countries in which the Company operates, volatility in currency rates, changes in government regulations and policies, tax laws, statutes and other incidental factors. The Company does not undertake to update these statements.