Ajanta Pharma Ltd

NSE:AJANTPHARM

Earnings Call Analysis

Ajanta Pharma's Strong Growth Persists with Promising Outlook

Ajanta Pharma reports robust financial growth, with Q2 revenue rising 15% to INR 1,187 crores. The company boasts a 14% H1 increase, driven by a 19% surge in Branded Generics. Gross margins improved to 77%, with EBITDA margins expected to hover around 28% for FY 2025. Guidance signals low-teens growth, with U.S. Generics anticipated at mid-single digits, while African operations anticipate mid-teens. PAT exhibited an 11% growth in Q2 and 15% in H1. The firm has strategically added 200 medical representatives to boost market presence, emphasizing a strong commitment to sustainable growth.

Strong Revenue Growth Amidst Turbulent Times

Ajanta Pharma reported robust revenue growth in Q2 FY 2025, achieving INR 1,187 crores, a 15% increase from INR 1,028 crores in the previous year. For the first half of FY 2025, the revenue reached INR 2,332 crores, reflecting a growth of 14% compared to INR 2,049 crores last year. This growth aligns with the company's guidance of low-teens revenue growth for the year, driven primarily by a mid-teens growth in the Branded Generics segment and steady earnings from international markets.

Branded Generics Lead the Charge

The Branded Generics business continues to be the bedrock of Ajanta's growth, contributing 76% of total sales in Q2, amounting to INR 894 crores - a substantial 20% increase. The domination of this segment highlights its resilience and indicates the company's strategic execution in expanding its product offerings across India, Asia, and Africa. The management has targeted a mid-teens revenue growth for the Branded Generics segment, reaffirming its potential as a lasting growth driver.

International Expansion Gaining Momentum

Ajanta's international business showcased significant momentum, especially in Asia and Africa. Sales in Asia grew by 28% to INR 296 crores in Q2, while the African market reported an impressive 35% growth, achieving INR 213 crores. The management indicated that the growth in Africa might taper down in H2 FY 2025, yet remains optimistic about continuing the overall mid-teens growth trend. In the U.S. Generics market, sales experienced a slight dip of 2% in Q2, falling to INR 232 crores, but the management maintains a mid-single-digit growth expectation for the year.

Profitability Remains Robust

The gross margin improved to 77% in H1 FY 2025, reflecting a 200 basis point increase year-on-year, attributed largely to the higher contribution from the Branded Generics business. While some fluctuation in margins is expected due to changes in product mix, the company anticipates margins to remain in the same historical range, with an anticipated EBITDA margin of 28% (+/- 1%) for FY 2025.

Healthy Cash Flows and Shareholder Returns

Ajanta Pharma demonstrated an impressive cash conversion ratio of 121% for H1 FY 2025, resulting in a free cash flow of INR 322 crores. The strong cash flow generation has enabled the company to declare an interim dividend of INR 28 per share, totaling INR 350 crores, marking a commitment to returning value to shareholders. This payout represents 90% of the cash generated from operations, aligning with the company's prudent capital allocation strategy.

Cost Management Remains Key

Despite increasing operational costs, Ajanta effectively controlled expenses, with personnel costs increasing by 17% in Q2 to INR 261 crores, and a 25% increase recorded for H1. R&D expenses maintained at around 5% of total revenue highlights the company's commitment to ongoing innovation. The company anticipates operational expenses to remain manageable, counterbalancing any inflationary pressures.

Guidance Reaffirmed and Future Outlook

Looking ahead, Ajanta Pharma maintains its guidance for overall revenue growth in the mid-teens for FY 2025, with expectations of continued strength in the Branded Generics and international segments. The U.S. markets are expected to yield low to mid-single-digit growth as the company plans to launch additional products in the latter half of the fiscal year. The gradual yet steady trajectory presents a promising growth story amidst evolving market dynamics.

Earnings Call Transcript 2025-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to Ajanta Pharma Q2 FY 2025 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.

[Yogesh Agrawal, executive]

Thank you. Good evening, and welcome to all of you. With me, I have Mr. Rajesh Agrawal, Joint Managing Director; Mr. Arvind Agrawal, CFO; Mr. Rajeev Agrawal, AVP Finance and Investor Relations.

I hope the results are already there with you. So let me begin with the interim dividend. I am 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 INR 350 crore. With this, the total payout in the current financial year becomes INR 701 crores, which is 90% of the cash flow from operations of the H1 FY 2025. This is in line with our commitment of prudent capital allocation.

We will now take you through business-wise performance for the Q2 and H1 along with the comparison of the previous year same period.

Let's begin. We have completed first half of FY 2025 on a satisfactory note with notable achievements on sales, PAT and EBITDA. Branded Generic business, it saw a healthy growth of 19% on the back of our strategic approach and focused execution. It is a result of our consistent efforts allowing us to strengthen our position as a leading player in the pharmaceutical industry.

One of the achievements during the first half was our cash conversion ratio of 121% which was possible through our concentrated efforts of improving working capital cycle. This will certainly help us to improve our returns on investment going forward. We are confident of sustaining this momentum and driving continued growth in coming quarters. Our excellence in terms of strategy and operational execution will enable us to deliver long-term value to our shareholders.

Moving on to the business details. During the quarter, revenue from operations was INR 1,187 crores, a healthy growth of 15% from our total business comprising of 3 verticals: Branded Generics, U.S. Generics and Institution business in Africa. During the quarter, 76% of the total sales came from the Branded Generics, which is spread across India, Asia and Africa. The sales stood at INR 894 crores, posting 20% healthy growth during the quarter. This business exhibits assurance, sustainability and potential for the long-term growth.

Let me now take up the international business, and I will first start with Branded Generics business in Asia and Africa, which contributed 44% to the total revenue.

Let's start with Asia. In Asia, our presence spans across Middle East, Southeast Asia and Central Asia, encompassing around 10 countries. In Q2, sales was [ INR 296 crores ] (sic) against INR 230 crores, a growth of 28%. And in H1 sales stands at INR 572 crores against INR 484 crores, a growth of 18%. During the quarter, we launched 6 new products taking total tally to 13 in the first half in the region.

Let's move to Africa. In Africa, the business is spread across over 20 countries. In Q2, sales was INR 213 crore against INR 157 crore, a healthy growth of 35%. And in H1, sales was INR 443 crore against INR 316 crore, a growth of 14%. We launched 1 new product during the quarter, taking total tally to 3 in first half in the region. The growth was a little elevated in H1, but will be lower in H2, as we expect the growth for the current financial year to remain in line with our guidance given of mid- to high-teens.

Let us talk about other 2 verticals of international business now. U.S. Generics. U.S. Generics contributed 20% to the total revenue. In Q2, sale was INR 232 crores against INR 237 crores, posting a small dip of 2%. And in H1, sales was at INR 460 crore against INR 451 crore, a growth of 2%. The growth is in line to our guidance of mid-single digits as most of our launches in FY 2025 will happen in the last quarter of the year. Our superior execution continues to keep us as a preferred partner of choice for the distributors.

In H1 FY 2025, we have filed 4 ANDAs, received 4 final approvals and launched 2 ANDAs. We have 46 products available on the shelf and 22 ANDAs awaiting approval with U.S. FDA.

Let's now move to the U.S. Institution business. This business contributed 4% in the total revenue, which comprised of antimalarial product. In Q2, sales was INR 43 crore against INR 37 crore, posting a growth of 16%. And in first half, sales was INR 85 crore against INR 102 crore, posting the growth of 17%. As informed earlier, this business remains unpredictable due to reliance on procurement agencies schedule and funds.

Now I invite Mr. Rajesh Agrawal, Joint MD, to take you through India business. Thank you, and over to you.

[Rajesh Agrawal, executive]

Thank you. Good evening to all of you. I'm delighted to share key highlights of India business. Our performance has been excellent on the back of increased volumes and new product launches. India business contributed 32% in total revenue. In quarter 2, sales was at INR 386 crores as against INR 355 crore, a growth of 9%. And in H1, sale was at INR 739 crore against INR 674 crore, a growth of 10%. India business includes revenue from Trade Generic, which contributed INR 46 crore against INR 45 crore in quarter 2 and INR 87 crore against INR 81 crore in H1 in same period of FY 2024.

During the first half, we have launched 11 new products, out of which 4 were first time in the country. We continue to outpace IPM by 190 basis points with Ajanta growing at 9.6%, surpassing IPM growth of 7.7% as per IQVIA MAT September 2024. This trend extends to most of the therapeutic segments we are in, where our growth was consistently has outpaced the segment growth. In Cardiology, our growth for Q2 as per IQVIA was 16% against IPM growth of 12%. Though on a MAT basis, we still lag due to price impact in one of our major products.

In the covered market, we continued to be fourth largest in IPM and among top 10 in all our therapeutic segments. As per IQVIA MAT September 2024, our faster growth is contributed mainly by volumes, which was about 1.5x to the IPM. Cardiology contributed 38%, followed Ophthalmology 30%, Dermatology 23% with remaining 9% coming from Pain Management in the India Branded sales. We have added about 200 medical representatives during quarter 2, taking the total tally to 3,200-plus. This addition was in line with our strategy of increased focus and expanding product basket in the existing therapies.

I now invite Arvind Agrawal, CFO, to take you through the financial performance. Thank you, and over to you, Arvind ji.

[Arvind Agrawal, executive]

Thank you, Sir. Thank you. Good evening, and warm welcome to the second earnings call of FY 2025. On this call, our discussions include 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 confirmation, future events or otherwise.

We will look at the consolidated financials and provide year-on-year comparisons. The key financial highlights for quarter 2 and H1 of FY 2025 are as follows: Total revenue in Q2 stood at INR 1,187 crores against INR 1,028 crores, posting growth of 15%. In H1, the revenue was INR 2,332 crores against INR 2,049 crores, posting growth of 14%. These growths were in line with our guidance of overall revenue growth in low-teens in FY 2025 on the back of mid-teens growth in Branded Generics, mid-single digit in U.S.A. and the growth in African Institution business.

Our gross margin stood at 77% in H1, an improvement of 200 basis points from FY 2024. This was the result of higher contribution from Branded Generics business in overall revenue. We expect it to remain in the similar range with quarterly movement of 50 to 100 basis points due to a change in product mix. Personnel cost in Q2 was at INR 261 crore, an increase of 17%. And in H1, it was INR 545 crores, an increase of 25% due to a onetime charge of over INR 30 crore for change in gratuity policy in Q1.

Increase in medical representatives in India will see the costs slightly going up in coming quarters. R&D expenses was at 5% of total revenue. In Q2, expenses was INR 57 crores against INR 50 crores -- and in H1, it stood at INR 108 crores against INR 105 crores. We expect the expenses to be around 5% of revenue for the fiscal. Other expenses in Q2 stood at INR 353 crore against INR 259 crores and in H1, it was INR 615 crore against INR 534 crore previous year same period.

It may be noted that the other expenses includes ForEx loss notional towards mark-to-market of hedges of INR 26 crore in Q2 and INR 18 crore in H1 of FY 2025. As informed in previous call, the increase in expenses were in line with our guidance due to increased SG&A expenses. The expenses in H2 are expected to be in line with H1. We achieved EBITDA margin of 26% in Q2 and 28% in H1. EBITDA stood at INR 311 crores against INR 291 crores, a growth of 7% in Q2 and INR 642 crores against INR 572 crores, a growth of 12% in H1 over previous year. If we ignore the notional ForEx loss in other expenses, EBITDA for Q2 becomes 28%. We expect the EBITDA to be around this range plus/minus 1% for a whole of FY 2025.

Other income was at INR 19 crores in Q2 and INR 46 crores in H1 of FY 2025. It includes ForEx gain of INR 12 crores in both Q2 and H1. Income tax stood at 25% during Q2 and H1. We expect the same to be around 24% for the FY 2025. In Q2, PAT was INR 216 crores against INR 195 crores, a growth of 11%. And in H1, it was INR 462 crores against INR 403 crores, a growth of 15%. PAT stood at 18% and 20%, respectively, for Q2 and H1 of revenue from operations.

We incurred CapEx of INR 130 crores in H1 FY 2025. CapEx, including maintenance CapEx, for the FY 2025 is estimated to be around INR 200 crores. There was improvement during H1 FY 2025 in working capital days from FY 2024. Inventories stood at 67 days against 73 days and trade receivable at 81 days against 109 days. Payable stood at 74 days against 85 days. This is the result of our consistent efforts in improving working capital cycle.

In H1 FY 2025, we have generated a healthy cash flow from operations of INR 776 crores with cash conversion ratio of 121% and free cash flow of INR 322 crores with 70% PAT conversion. ROCE and RONW continue to improve and be comparable to the best in the industry. ROCE stands at 34% and RONW at 26% at the end of September 2024.

With these highlights, I open the floor for the question-and-answer. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Sudarshan Padmanabhan from JM Financial PMS.

[Sudarshan Padmanabhan, analyst]

Congrats on great set of numbers. Sir, my question is to understand a little bit more on the other cost. So even if I remove this INR 25 crore FX, I mean I understand that you did say that there is going to be an increase of SG&A, the amount seems to be on the higher side. So if you can explain whether the entire amount, the increase that we see between the first and the second quarter, excluding the FX, is largely only the SG&A cost or is there anything else?

Second is, if I'm looking at the SG&A cost as well as the sales and the launches, we are heartening to see that we are growing much faster than the IPM, that's for sure, and the new launches is also something that excites us. In terms of volume, I mean, when I looked at it, while the industry itself is growing less than 1% and we are growing at around 1.2% and new launches is about 3%, can you drive some color with respect to the investments that we are doing into MR expansion and probably the SG&A? How do you see the volume growth for yourselves, say, in the next few quarters and few years?

[Rajesh Agrawal, executive]

Okay. We'll answer the second part first. On the domestic business, as you have correctly pointed out, the industry volume growth versus Ajanta, we are growing at 1.5x the industry volume growth. The number of additions in the medical representatives that we have done have been very strategic with a view to optimize the coverages in the existing specialties more so.

So we have added strength a little bit to the dermatology segment where we have been doing exceptionally well for the last 3 years compared to the segment growth. We are also strengthening our pain management and also the cardiovascular. So this is what we have done. We are -- I think we should be able to continue to perform better than the IPM in the volume growth even in the coming few quarters. And on the first part of your question...

[Arvind Agrawal, executive]

Yes. Sudarshan, I think as far as SG&A expenses are concerned, I think you must be remembering that in the first quarter also, I said that there are a lot of expenses, which have not been done and they will come in the second quarter. So if you take full half year, that is something which is the most reasonable amount which you should consider for the expenses side because as against INR 534 crores last year, we have spent about INR 616 crores. Out of this INR 616 crores, if you remove that INR 26 crores, which is exceptional, then we are talking about INR 590 crores, which is a very normal growth, which is there.

[Sudarshan Padmanabhan, analyst]

Sure. So that should be the number that we should be looking at from a reasonably longer term, not necessarily taking every quarter...

[Arvind Agrawal, executive]

Yes, yes.

[Sudarshan Padmanabhan, analyst]

Sir, one strategy question from my side before I join in the queue. I think you have done an exceptional in terms of investing in SG&A in terms of the MR productivity on the businesses, I mean, the subsegments that we are strong in, and that's typically your cardiac, opthal, derma and pain. We see a very strong cash generation, I mean, particularly in the first half.

How do you see yourself building your domestic franchisee? Would it be more verticals to the 4 lines that you're talking about or is there more deepening in the sense subsegments of the same cardiac and ophthalmology that you're talking about? If you can elaborate how you plan to deploy the cash organically, inorganically and develop the domestic side?

[Rajesh Agrawal, executive]

It will be a mix of both the way we have planned, we will definitely add more medical representatives to the current specialties in which we are present. At the same time, we are also exploring GTM, go-to-market, strategies to penetrate into some of the other newer specialties. So as there is more visibility, we should be able to make up our mind, take the decisions and decide whether we want to enter those specialties. So that -- all of that will take another 6 months for us to take a call on that. So it will be a mix of both.

[Operator]

The next question is from the line of Foram Parekh from BOB Capital.

[Foram Parekh, analyst]

My first question is on the India business. So I see that the growth is up 16%. So I just want to understand how sustainable is this 16% growth? Do I understand we would continue to surpass IPM growth, but would it be in this high -- in this mid-teens or can we expect a lower double-digit run rate going forward?

[Arvind Agrawal, executive]

I think, Foram, 16% which growth you are talking about because India business for the quarter has grown only 9%, no?

[Foram Parekh, analyst]

Okay, as per the...

[Rajesh Agrawal, executive]

Actually, one of the specialties is what you're referring to. So...

[Arvind Agrawal, executive]

You are talking about cardio only?

[Foram Parekh, analyst]

Okay, so 16% growth is of the cardio business?

[Arvind Agrawal, executive]

Yes. Yes.

[Foram Parekh, analyst]

Okay. So overall, we should expect 9% to 10% kind of run going forward?

[Arvind Agrawal, executive]

Absolutely. Absolutely.

[Rajesh Agrawal, executive]

That's correct.

[Foram Parekh, analyst]

Okay. Got that. And second question is on the Asia side. If you could just explain what is going right? I mean what is strengthening our growth in the Asia region?

[Yogesh Agrawal, executive]

It's an increase in the market share on the existing products, and there have been new product launches which we have done. And also, we've added the people, as you would have seen from our field increase in the last 2, 3 years. So a combination of all this 3, it is resulting into the healthy growth numbers for the Asia.

[Foram Parekh, analyst]

Okay. So we can expect the same run rate going forward as well?

[Yogesh Agrawal, executive]

Yes. So I think for the quarter with the growth we have posted around INR 300 crores odd sales. So I think it has to be fair to take that kind of run rate going forward for the next quarter.

[Operator]

The next question is from the line of Ankush Mahajan from Axis Securities.

[Ankush Mahajan, analyst]

Congrats, sir, for the good set of numbers. Sir, my question is related to the U.S. business. Now the U.S. run rate is $222, $230 from the last 2 quarters. So I'm just trying to understand, sir, if you throw some more light, what is your strategy [indiscernible] for the next 2, 3 years, how -- what kind of a run rate that we can look and what are the new launches that we can expect in the U.S. market?

[Yogesh Agrawal, executive]

So we've had limited launches so far in the first half. And I think based on the price erosions and the new businesses which we acquired, this is the guidance we had given at the beginning of the year itself that U.S. for the current year will be a mid-single-digit kind of growth, which we will be looking at.

And things are going pretty much on the similar line. So I think we launched only 2 products in the first half. But in the next half, as I said, we will be looking to launch around 4 products. So our growth rates will be slightly skewed towards the Q3 and Q4. And I think next year onwards, hopefully, we have more approvals and we will be able to launch more products. So the growth rates for the next year onwards, I think, it could be higher than what we are currently projecting for the current year.

[Ankush Mahajan, analyst]

So sir, what kind of run rate we can expect in upcoming quarters?

[Yogesh Agrawal, executive]

It can be slightly higher than what it is right now.

[Operator]

The next question is from the line of Abdulkader Puranwala from ICICI Securities.

[Abdulkader Puranwala, analyst]

My first question was pertaining to the second half of fiscal '25 in terms of revenues. So this quarter, we saw good growth in Asia and Africa. But I think in your opening remarks, you mentioned that Africa will closely move to that mid-teen kind of growth while India growth is also now expected anywhere between 9% to 10%. So I mean could you help us understand how should your second half of fiscal '25 look like? And second -- yes, so that will be my first question.

[Yogesh Agrawal, executive]

So as we have guided for the Branded Generics business for the whole year, we had given the guidance of doing into the mid-teens. So we feel that we are on course to deliver that kind of numbers for the Branded Generics business. The percentage of growth in different territories can go up and down, let's say, right now, Asia is slightly higher, which may taper down, Africa may continue at a higher level.

So I think combination of India, Africa and Asia for the whole year, I think we feel comfortable in giving the guidance of the mid-teens. Whereas for the U.S., as I said, it could be in the low single digit to mid-single digit for the U.S. business and institution is very unpredictable. So we don't give the guidance for the institution business.

[Abdulkader Puranwala, analyst]

Got it, sir. And my second question is pertaining to the freight cost. I mean, any improvement what you have seen into the kind of surge we are witnessing previously or any broad comments there would be helpful?

[Arvind Agrawal, executive]

No. Actually, the freight cost remains almost at the same level as we mentioned, it has been elevated because of the Red Sea problem. So as we mentioned, the annual burden was about INR 30 crores, so in the half year also, there is some impact of that, which is definitely there.

[Operator]

The next question is from the line of Kunal Randeria from Axis Capital.

[Kunal Randeria, analyst]

Sir, on the Asia branded business, has the non-Philippines, non-Iraq contributed a lot more than normal?

[Rajesh Agrawal, executive]

Non-Iraq, yes...

[Yogesh Agrawal, executive]

No, we don't give breakup of the specialty. It's the combination on all of that. It doesn't really matter. We look at Asia as one territory and which is what we share. So yes, unfortunately, we'll not be able to give you the breakup of the Asia business.

[Kunal Randeria, analyst]

Sure, not a problem. Not a problem. Okay. Sir, second question, again, is the fact that you have distributed INR 350 crores as dividend, I should assume that there is no inorganic activity on the horizon?

[Rajesh Agrawal, executive]

So inorganic activity, as of now, clearly, we don't have anything. So -- but we can't rule it out for the future.

[Arvind Agrawal, executive]

And anyway, Kunal, one thing which I've mentioned last time also and now also I can repeat, that the M&A activity will not be dependent on this because I will have the flexibility of borrowing at any point of time, if there is some good proposal, which is there in hand. So at the moment, there is nothing so we are distributing because that's the better way to utilize the capital. But at any point of time, that is not going to be dependent on whether the cash is available or not available.

[Kunal Randeria, analyst]

Right. Right. And just one more clarification. You mentioned that you added sales reps in the Derma division, right?

[Yogesh Agrawal, executive]

Yes. Derma, also in -- yes, go ahead.

[Kunal Randeria, analyst]

So my question is maybe if you're going to add 200, 300 every year, would it be largely derm-specific or it's just across the board?

[Rajesh Agrawal, executive]

No, it will be across the board. We are also looking at some incremental additions in Cardiovascular, also in Pain Management. So it will be across the specialties.

[Kunal Randeria, analyst]

Right. And this 200, 300 adding would it be annual kind of an event or is it just for this year?

[Rajesh Agrawal, executive]

So as of now, we have added those many for the first 6 months. Again, as I said earlier, the strategies are still being chopped out. And there is no such particular number that we have in mind that those are the number of medical representatives will add every year. So as and when opportunity presents itself, we will be adding. We are hopeful that in the next 6 months, we'll add some more in the current year itself, not frozen yet as to how many.

[Kunal Randeria, analyst]

Got it. And just one more, if I can squeeze in. In the last 2 or 3 years, you've added sales force in Asia and Africa. So are you still adding in those geographies or is it done for now?

[Yogesh Agrawal, executive]

Not significant now. There will be minor incremental additions. The bulk of the additions which we have done, I think that's not holds true. There could be incremental, maybe 2%, 3%, 5% at some most addition, not negative, not be a sizable one.

[Operator]

The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.

[Tushar Manudhane, analyst]

Sir, on the gross margin side, maybe if I would have missed the comments, like sequentially, the proportion of branded generics is largely stable, but still the gross margin has improved by at least 130 bps, so if you could help us clarify that?

[Arvind Agrawal, executive]

It depends on the product mix, actually. So even within the business also in the Branded Generics business, there are different segments, et cetera. So it all varies from that point of view.

[Tushar Manudhane, analyst]

Okay. So similar gross margin can be expected for the coming quarters as well, right?

[Arvind Agrawal, executive]

Depending on -- so that's why I said, variation can be there of 50 to 100 basis points, depending on the product mix, which is there on the business mix, which is there.

[Tushar Manudhane, analyst]

Understood. And sir, earlier participants in one of the comments you highlighted that, I mean, as far as the Asia business goes, it would be like INR 300 crores quarterly run rate for the next 2 quarters, is that the guidance sort of to take for Asia business?

[Arvind Agrawal, executive]

Yes, we can consider that way. That's what MD indicated just now.

[Tushar Manudhane, analyst]

Got it. So Africa business, given that the base is sort of low in second half of FY '25 and India business is also growing reasonably well. We have already done 20% in Branded Generics for first half, so is mid-teens sort of a growth for full '25 like sort of too conservative?

[Yogesh Agrawal, executive]

No, I think that's a realistic growth which you can expect. I think Africa, the current base, I think it will taper down for the next quarter. Asia will sustain. But I think overall basis, when you put everything together, India, Asia and Africa, I think mid-teens is a realistic number, which we feel is doable.

[Tushar Manudhane, analyst]

Got it. And sir, lastly, I just finished on the EBITDA margin guidance for full year '25, if you could repeat that?

[Yogesh Agrawal, executive]

So EBITDA margin guidance for the whole year from the beginning, we have said 28%, plus/minus 1% can be there depending on the market conditions and the product mix. So we still hold it true for that. I think for the whole year, 28%, plus/minus 0.5% or 1%, that is the variation which can occur. So I think that is a realistic thing which you can consider.

[Operator]

[Operator Instructions] The next question is from the line of Rashmi S. from Dolat Capital.

[Rashmi Sancheti, analyst]

Again, on this Africa branded business, the quarterly sales had actually declined quarter-on-quarter, is it something related to seasonality or the supplies were higher in quarter 1 and that's why it's not adjusted in quarter 2? And you also mentioned that in the second half, it would taper down. So if you can just explain where the strategy, is it something the seasonality effect or more to do with the supply stand?

[Yogesh Agrawal, executive]

So in the Q4 of the last year, our sales was slightly on a lower side, which was about INR 113 crores. At that time, we had mentioned that because of some supply disruption at that time, I think it was some strikes [indiscernible] or something was there. So that's why some of the sales got pushed out into the Q1 of this year.

So the Q1 was slightly having the effect of the Q4 pushed out into the Q1. And if you see from that Q2 and Q1 are quite comparable. So for the whole year, I think we should be in an early position. I think quarter-to-quarter, year-over-year -- quarter-over-quarter, the can have variations for the different reasons. They are not like sequentially. So the best way will be to see the year-on-year growth. I think that kind of averages out the [indiscernible].

[Rashmi Sancheti, analyst]

So roughly in second half, we should see the same kind of INR 400 crores plus sort of sales like INR 230 crores, INR 220 crores of sales for quarter run rate it should be the stable sales to assume?

[Yogesh Agrawal, executive]

No, no. For the next quarter, run rate will be slightly lower than this. Yes, yes.

[Rashmi Sancheti, analyst]

Okay. Got it. Got it. And that is the reason you are guiding for the mid-teens sort of growth even in Africa branded business?

[Yogesh Agrawal, executive]

Correct.

[Rashmi Sancheti, analyst]

Okay. And one bookkeeping question on the interest expenses. Interest expenses have gone up significantly in the quarter 2. We don't have any debt, but your interest includes right to lease assets in that component. So anything to do with that? What is the number that we should look for the whole year because the number is pretty high Y-o-Y basis also and on quarter-on-quarter basis also?

[Arvind Agrawal, executive]

Rashmi, I think you are right. So that is a little bit of elevated thing. It may remain a little higher than this because what is the -- for the quarter, what is the amount which is there, you can consider that for the next 2 quarters.

[Rashmi Sancheti, analyst]

The amount which is there in the quarter 2 you said, right?

[Arvind Agrawal, executive]

Yes. Quarter 2.

[Operator]

The next question is from the line of [ Pankaj ] from EMS.

[Unknown Analyst]

First on the working capital, the company has done a fabulous job [Technical Difficulty].

[Operator]

Sorry to interrupt you, but we are unable to hear you.

[Unknown Analyst]

Yes. So on the working capital, all of you have done a great job on receivable days and inventory, is it the optimum level? And what has led to such sharp improvement on receivable days? It's really heartening to see. If you can just help us share your thoughts on the same?

And the second point is that from a whole business perspective, India business, Africa, Asia, all are doing well. But as of the other optionality for growth we are creating so that the way we saw in some of the other listed companies like, for example, Torrent, over a period of time, different acquisitions help them become a very large company. What are the other optionalities from a growth perspective, if you take a 3-, 5-year view is the company working on? These are my 2 questions.

[Yogesh Agrawal, executive]

Yes. So let me take the second question first. So we are looking at multiple growth drivers. One is we have a very strong and rich product pipeline under approval in various countries as well as under the development in the R&D, which we launched in the existing market.

Number two, we are also looking into branching out into some other more therapeutic segments, and they are very actively at advanced stage. They will be taken up for the execution in maybe quarters and next coming years. In different territory, it may be executed at a different point in time. So that will be the second growth driver.

As you would have seen that we have started last 2, 3 years, we've done a very big ramp-up in the field side in the international market. And as Joint MD has mentioned, for the first half, we have addition of 200, there'll be some more addition during the year, so that will be another growth driver which is there.

And fourth is we are actively looking at entering into the new markets also. So it'll be premature for me to comment which countries and all, but there is some action, which is there, our BD team is actually working very actively there. So there will be a number of initiatives which are there to help sustain the growth momentum.

And in terms of acquisition, it is very difficult for anyone to time it. So we'll see what opportunities we get and where we are in that at that point in time. So if that happens, then that would be another addition for the growth driver. So I think we have multiple growth drivers in place, we should be able to help continuing the growth in the future.

[Unknown Analyst]

Okay. Okay. Great. That's good to hear. On the working capital, if you can help us understand what has led to such improvement? And is it more sustainable in nature from a [ cash in hand ] perspective?

[Arvind Agrawal, executive]

Yes. I think as you must have seen, the Branded Generics business has gone up substantially. And whereas USA is not growing much. So -- and Branded Generics the number of days is very, very low compared to U.S. So that's why you are seeing this improvement, which is coming in there.

[Yogesh Agrawal, executive]

And there has been some improvement in the collections from the U.S. business. So I think a combination of these.

[Unknown Analyst]

That's good. So probably from an overall receivable and inventory days can we assume barring some deviations, this probably could be sustainable now because we won't be growing U.S. as aggressively as we were thinking earlier? So this must be more a presentation of the steady-state nature of the business?

[Arvind Agrawal, executive]

Absolutely correct. Agreed.

[Unknown Analyst]

So the cash flow generation could be quite strong as you move ahead as well?

[Arvind Agrawal, executive]

Yes.

[Operator]

[Operator Instructions] The next question is from the line of Vishal Manchanda from Systematix.

[Vishal Manchanda, analyst]

In India, in the Cardiac and the Pain segment, can you share the growth of the covered market and Ajanta Pharma's growth?

[Rajesh Agrawal, executive]

So the covered market -- you wanted for Q2 or MAT?

[Vishal Manchanda, analyst]

Q2.

[Rajesh Agrawal, executive]

For Q2, we have substantially outpaced the covered market growth in the Cardiac. We are at 16%, whereas versus the covered market is at 8%. So as I said, this -- now in Q2, the MET XL impact, the price reduction that has happened in the year before last has also almost gone away except for a month maybe. So the growth rates have bounced back. And similarly, in Ophthalmology, we are growing substantially faster than the covered market growth. And so is the case in Derma and Pain, all the 4 segments.

[Vishal Manchanda, analyst]

Okay. Okay. And would -- is new product launch the larger driver for the growth?

[Rajesh Agrawal, executive]

No, it's almost as par with the industry, maybe slightly better. For the industry, the growth being contributed by new brand launches is 2.7%, whereas for Ajanta it is 3.1%. So it is better than the industry, but almost in the same range. It's mostly the volumes.

[Vishal Manchanda, analyst]

Okay. And just one final one. In your core markets within the emerging markets, by how much would you be outpacing the market growth?

[Rajesh Agrawal, executive]

In the emerging markets, in the sense, Asia, we have done well. I think -- so market-wise, as we said, we don't share the breakup of individual markets. But in the region-wise, you have seen the figures already in Asia and the Branded Generics as well as in Africa, Branded Generics, we have done substantially better than our own last year performances as well as compared to the industry growth rates.

[Operator]

The next question is from the line of [ Chandragupta ], an individual investor.

[Unknown Attendee]

Sir, my question is about this Jan Aushadhi Generic stores that government is very aggressively pushing for. So how do you view the challenge from Jan Aushadhi and what strategy do you have to counter it?

[Rajesh Agrawal, executive]

Yes. Yes, you are right, the government is very active on the Jan Aushadhi front, and they would like to increase the number of stores, outlets of Jan Aushadhi. The way we look at it is, that is in a way, complementing or serving the underserved market. And there is no competitive strategy or there's no competition against Jan Aushadhi in itself.

So in that sense, it's bringing in a lot of unused or kind of underserved market into the pharma market. So that's all that is there, honestly. But if you look at the overall retail against, let's say, lakhs and lakhs of current chemists, Jan Aushadhi is still less than 15,000 stores. So in that sense, it's not the most significant challenge as such for the industry.

[Unknown Attendee]

So they are not gaining market share at the cost of branded products, is that what you are saying?

[Rajesh Agrawal, executive]

Hard to say that because, as I said, the composition of the entire retail market, again, 7 to 8 lakh chemists versus 15,000 Jan Aushadhi stores, so we don't have a quantification from any third-party agency. But my guess is that's not the biggest issue, they are not gaining as much as one may think on a larger scale.

[Unknown Attendee]

Okay. Okay. One final thing. How much is our NLEM portfolio now currently?

[Rajesh Agrawal, executive]

12% is the coverage. So our -- 12% of our sales is covered under NLEM price restrictions.

[Unknown Attendee]

Okay. 12% of the total revenue you mean, right?

[Arvind Agrawal, executive]

No, 12% of India business of that...

[Unknown Attendee]

Okay, in India okay.

[Operator]

[Operator Instructions] The next question is from the line of Foram Parekh from BOB Capital.

[Foram Parekh, analyst]

Sir, I just wanted to ask which 3, 4 growth drivers you alluded to one of the participants, may we assume that EBITDA margin going forward maybe in 1, 2 years down the line we can surpass 30% like other domestic-focused companies like Torrent?

[Yogesh Agrawal, executive]

So far, normally, we don't give the guidance for the future years. We restrict our guidance to the current year, which is in the operation. Having said that, it's all going well. We have said in the past also. There is a possibility to expand the EBITDA margin. As you rightly said, if all those things play out and the cost structures are put in control, there is definitely a possibility to expand the EBITDA margin. So how much and all, I think once we finalize the business plan for the next year, that is the time where we are in better position to share the guidance there for the next year.

[Foram Parekh, analyst]

Okay. And also, my second question is on the trade generics side. So could you please elaborate like how is the segment shaping out and what -- I mean at what percentage is the segment growing? And what are the drivers for the growth?

[Rajesh Agrawal, executive]

Primarily, segment is recording a fair bit of growth. Again, we don't have the industry -- pharma industry does not have a detailed breakup of it, it's not so closely tracked by any of the third-party independent agencies. So that's a restriction or a constraint there, let's just say that. But as we understand on a broader level, the growth rates are pretty healthy. And what is driving the growth is the same usual margin expansion that is there for the trade and the channel. That is the only growth driver for, of course, many companies are much more active in the trade generics to populate. So that is another factor that is playing out.

[Foram Parekh, analyst]

Okay. And what would be our contribution to the trade generic portfolio?

[Rajesh Agrawal, executive]

Our contribution is -- in terms of percentage, it will be domestic 11%.

[Foram Parekh, analyst]

Okay. And do we envisage to take it somewhere further or it would be hovering around the same level?

[Rajesh Agrawal, executive]

I think more or less, it should be around the same level because we are also posting good growth on the pharma business side. And with generic -- trade generic also growing and pharma business also growing. I think to answer your question, overall, at a composition level, it should be around 10% to 12%. So I don't see that mix changing significantly in the next 1 or 2 years.

[Operator]

The next question is from the line of Shrikant Akolkar from Nuvama.

[Shrikant Akolkar, analyst]

Just 2 questions. Question number 1 is on the domestic side. We had discussed some time back about the gaps in the portfolio. So where we are in the [indiscernible] some other therapies. That is question number one. And question number 2 will be, if you can comment on the emerging market MR productivity?

[Rajesh Agrawal, executive]

So on the domestic, you wanted to know on the near specialty -- you were not very audible. Can you come again, Shrikant?

[Shrikant Akolkar, analyst]

Yes, sure. So there was a discussion that there are portfolio gaps in our therapies...

[Rajesh Agrawal, executive]

Correct.

[Shrikant Akolkar, analyst]

Yes. So where we are in entering in new therapies?

[Rajesh Agrawal, executive]

So as I said, the evaluation, we are at an advanced stage of deciding as to how and what will be the go-to-market strategy. So we are at an advanced stage for the new specialties. In the current specialties, we are addressing the gap areas wherever we don't have the coverage or if we already have the coverage, but the segments are very large, it can definitely have newer brands with new innovative products coming in. So that is how we are trying to play it out.

[Shrikant Akolkar, analyst]

Just slightly pressing here, if you can share, if possible, of course, the therapies that we are thinking about entering at some point of time?

[Rajesh Agrawal, executive]

It will be too early. I would rather talk about it once we have made up on plans. It will be too early and it would not be a right thing to do at this stage.

[Shrikant Akolkar, analyst]

Understood. And on the MR productivity trend in the emerging market?

[Yogesh Agrawal, executive]

So the productivity is around 7.5 lakhs approximately.

[Operator]

[Operator Instructions] As there are no further questions, I would now like to hand the conference over to Mr. Yogesh Agrawal for closing comments.

[Yogesh Agrawal, executive]

Thank you, everyone, for joining this call. I wish everyone a very, very Happy Diwali. In case if there are any further questions that remain unanswered today, please reach out to our Investor Relations. Thank you. Happy Diwali to all to you, again.

[Rajesh Agrawal, executive]

Thank you.

[Operator]

On behalf of Ajanta Pharma, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.