Ajanta Pharma Stock Sees RED ALERT! Major Downgrade Issued, Target Price Slashed.

Choice's research has issued a significant downgrade for Ajanta Pharma Limited, moving its rating to 'REDUCE' and drastically lowering the target price from INR 2,995 to INR 2,450. The firm cited concerns regarding margin contraction and the company's pipeline.

Ajanta Pharma reported revenue growth of 14.1% year-on-year and 3.9% quarter-on-quarter, reaching INR 13.5 billion, which met estimates. However, Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) saw a decline of 6.7% quarter-on-quarter to INR 3.3 billion, falling short of estimates. The EBITDA margin contracted by 276 basis points sequentially to 24.2%. Excluding a one-off forex loss, the adjusted EBITDA margin stood at 27%.

Profit After Tax (PAT) increased by 20.2% year-on-year to INR 2.6 billion. The company's management remains focused on expanding its field force and strengthening its market presence, expecting revenue growth in high single to low double digits. However, Choice forecasts EBITDA margins to stabilize around 27% through FY26-27, as reinvestments are expected to offset operating leverage benefits.

Key concerns highlighted by Choice include the absence of expected margin expansion and a comparative disadvantage in high-value pipeline assets, such as those related to GLP-1s and complex generics, when positioned against industry peers. The research firm has revised its Earnings Per Share (EPS) estimates for FY26E and FY27E and reduced the valuation multiple from 30x to 25x.

Impact: This downgrade is likely to put downward pressure on Ajanta Pharma's stock price. Investors may react negatively to the reduced target price and the 'REDUCE' rating, potentially leading to sell-offs. The concerns about future margin stability and pipeline competitiveness could affect the company's long-term growth prospects and investor confidence.

Glossary: EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization. A measure of a company's operating performance. PAT: Profit After Tax. The profit remaining after all expenses and taxes have been deducted. Forex Loss: A loss incurred due to fluctuations in foreign currency exchange rates. EPS: Earnings Per Share. The portion of a company's profit allocated to each outstanding share of common stock. GLP-1s: Glucagon-like peptide-1 receptor agonists. A class of drugs often used for diabetes and weight management, representing a high-value market segment. Complex Generics: Generic drugs that are difficult to develop or manufacture, often offering higher profit margins.

Rating: 7