The companies prequalified by the World Health Organization for the institutional anti-malaria business from the Global Fund are the same as in the previous tender process.
With the Global Fund expected to award a tender for institutional anti-malaria medicines in the near term, we tried to analyse the probable impact on Ajanta Pharma’s (AJP) business in the event of intensification in competition. The companies prequalified by the World Health Organization (WHO) for the institutional anti-malaria business from the Global Fund are the same as in the previous tender process. However, we note that the reduction in the Global Fund business to Ipca Laboratories (IPCA) due to US FDA regulatory restrictions has provided business opportunities for other players, including AJP. In addition, increased allocation by the Global Fund in 2015-17 drove strong growth for AJP.
Our scenario analysis indicates that the probable downside in AJP’s business if competition intensifies due to the re-entry of IPCA in the institutional anti- malaria business would be to the tune of `400-450m, which amounts to 6% of its Africa sales and 3% of overall sales. Although the amount committed by donors has remained stable, the incremental business is subject to allocation by the Global Fund. On overall basis, we expect AJP to deliver a CAGR of 14% in revenue and 11% in learnings over FY17-20. We value AJP at 25x FY19E EPS of `64.2, maintaining our price target to `1,605 and also our Buy rating.
Tender award by the Global Fund holds immense significance in the insti-AM segment. Although the amount committed for 2017-19 is stable compared to that in 2014-16, the business for pharma companies will be dependent on how the Global Fund allocates the funds.
AJP has been one of the strong contenders for the insti-AM business over the passive years. The company’s Africa business (includes insti-AM and branded generics) exhibited a 27% CAGR over FY13-17, led by increased allocation by the Global Fund, reduced business to IPCA, and robust growth in branded generics. However, we expect growth in the Africa business to moderate in FY18 due to lower allocation by the Global Fund and reduced industry growth in branded generics. Growth in insti-AM for FY19 would depend on the quantum of tender awarded by the Global Fund and the way the competitive landscape pans out.