Ajanta Pharma branded generics strength offsets moderating US growth outlook

Investment View and Business Profile

ICICI Direct Research’s August 3, 2026 result update on Ajanta Pharma retains a BUY rating and revises the target price to Rs 3,960 per share.

The broker’s constructive view rests on sustained momentum in the high-margin branded-generics franchise, strong recent US execution, disciplined capital expenditure and the company’s record as a consistent free-cash-flow generator. Branded generics contribute about 71 per cent of sales.

At Q1 FY27, exports represented 69 per cent of formulations sales and domestic formulations represented 31 per cent. Within exports, Asia accounted for about 23 per cent, Africa 33 per cent and the US 44 per cent. Africa also includes anti-malarial tenders.

Q1 FY27 Financial Performance

Q1 FY27 reported performance was strong, with revenue rising 24.8 per cent year on year and 14.4 per cent quarter on quarter to Rs 1,626 crore.

Gross margin improved 101 basis points year on year to 79.8 per cent, supported by a favourable branded-business mix, with branded business at about 65 per cent of sales, and softer API prices. However, higher other expenditure and a Rs 31 crore foreign-exchange loss offset this gross-margin strength, resulting in an EBITDA margin decline. Management noted that higher raw-material costs arising from geopolitical issues were contained by adequate inventory.

Asia branded revenue declined 16 per cent because Middle East geopolitical issues deferred shipments. Management expects these shipments to be recovered in Q2 FY27.

FY27 Growth Outlook

Management guided to high-teen revenue growth for FY27, gross margin of 77-79 per cent and EBITDA margin of about 27 per cent.

India Business

Ajanta Pharma launched eight products in India in Q1 FY27 and expects mid-teen India growth for FY27. Trade generics contributed Rs 48 crore in the quarter, while new therapies accounted for 2 per cent of India revenue.

US and Emerging Markets

The US business launched two products in Q1 FY27, with one to two additional launches planned in Q4 FY27. Management expects only mid-single-digit US growth in FY27 as price erosion and competition moderate the recent growth rate.

Management retained high-teen growth guidance for Asia and expects Africa branded momentum to continue, while Africa tenders remain inherently lumpy. The company also plans GLP-1 launches in emerging markets, with filings expected over coming quarters.

Capital Expenditure and Free Cash Flow

Ajanta Pharma plans to use a Rs 1,000 crore domestic-business war chest to address portfolio gaps. FY27 capital expenditure guidance is about Rs 400 crore, including about Rs 300 crore for Pithampur and Rs 100 crore for maintenance.

ICICI Direct expects calibrated capital expenditure to preserve free-cash-flow momentum. Its forecasts imply free cash flow of Rs 1,115.6 crore in FY27E and Rs 1,271.0 crore in FY28E.

Broker Forecasts and Valuation

The Rs 3,960 target price is based on 32 times FY28E EPS of Rs 123.7.

Key Risks

• Unforeseen pressure on EBITDA margin.
• Risk and lumpiness in non-branded businesses.