#ajanta pharma products
Ajanta Pharma: The small big dream
Rajesh Agrawal (left), Ajanta Pharma’s joint managing director, with brother Yogesh, who is also managing director of the company, at their Kandivli facility
o date, yesteryear bollywood superstar Jeetendra has appeared in only one television commercial to endorse a product. That was in the 1990s, for a popular over-the-counter (OTC) energiser capsule for men called 30-Plus . Jeetendra was in his late 40s then, but looked much younger. Though 30-Plus sold like hot cakes, revenues from its sales didn t justify the exorbitant marketing cost that its maker, a then little-known company called Ajanta Pharma, incurred. (It sold 30-Plus to Dabur for an undisclosed sum in 2011.)
But even before it sold its bestseller, the Mumbai-based listed company set up in 1973 by three brothers, Mannalal, Purushottam and Madhusudan Agrawal had been incurring huge losses for many years. In June 2000, it was trading at just Rs 24 per share on the Bombay Stock Exchange with negligible interest from investors. In 2001-2002, it reported a consolidated loss of Rs 1 crore and by the following year, it was reeling under a debt burden of Rs 130 crore. Ajanta Pharma needed a shot of its own medicine, an energiser like 30-Plus. It found its antidote in the new generation of Agrawals: Mannalal s sons, Yogesh and Rajesh.
When I joined Ajanta (in 2000), and realised what was going on, I wanted to run away. I thought to myself, Why did I return from the US? I could have had a job there, says Rajesh, 39, Ajanta s joint managing director, who has a management degree from Bentley College, Massachusetts. It was tough in the beginning, especially the situation with creditors and debtors.
Together, Rajesh and his older brother Yogesh, 43, who is managing director, changed Ajanta s trajectory by focusing on the specialty generic drug market and putting an end to the company s legacy businesses, which included OTC drug sales and supplying drugs to government health agencies in India and other countries.
This was a risky move, but it has paid off. Ajanta Pharma closed FY15 with a consolidated net sales of Rs 1,481 crore and a net profit of Rs 310 crore (this is a compound annual growth rate, or CAGR, of 57 percent for four years since 2011). In terms of net sales, it recorded a CAGR of 31 percent for the same period. This growth has come on a low base, but the signs are encouraging. Its market value currently stands at around Rs 13,500 crore; this is a 65-fold growth in 15 years.
Ajanta Pharma is a very small player in a market full of giants such as Sun Pharma, which reported a turnover of Rs 27,280 crore and net profits of Rs 4,780 crore in FY15. (These figures have been adjusted to reflect the earnings of Ranbaxy Laboratories, which Sun Pharma acquired in March 2015.) Yogesh and Rajesh knew they did not have the financial or operational muscle to compete with the big boys in the $31 billion Indian pharmaceutical market, some of whom have single generic drug brands that are worth more than Ajanta s entire operating profit. Instead, they focussed on launching first-of-its-kind generic drugs.
The way the brothers have channelled the company s resources has caught the attention of analysts and investors. The small size of the company presents an excellent opportunity for investment as they are poised for rapid growth, says Raamdeo Agrawal, managing director and co-founder of Motilal Oswal Financial Services. His company, through investment products like mutual funds, invested in Ajanta Pharma around three years ago and, according to Agrawal, is sitting on at least a ten-fold return on investment. Motilal Oswal continues to invest in Ajanta which, as of June 30, was trading at Rs 1,554 on the Sensex.
By 2014-15, Ajanta s return on equity stood at an impressive 43 percent, while return on capital employed was at 52 percent. It reported one of the highest earnings before interest, tax, depreciation and amortisation (EBITDA) margins among its listed peers in the pharmaceutical sector at 34 percent. The company has managed to achieve all this with a small presence in the US market, which is the golden goose. A third of its sales comes from India, and the rest from emerging countries in Asia and Africa. Its products are sold in 35 countries, including Iraq, Nigeria, Cameroon and the Philippines. The Agrawals brought about this turnaround by changing their strategy and focusing only on specialty generic drugs, identifying the right segments, products and markets, and taking a risk to borrow further so that they could invest in research and development (R D).