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Aurobindo: Extraordinary & forex impact
Feb 8, 2011

Aurobindo Pharma has announced its 3QFY11 results. The company has reported a 30% YoY and 10% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Revenues grow by 30% YoY in 3QFY11 led by the robust performance of its formulations business.
  • EBDITA margins improve marginally by 0.3% during the quarter due to lower staff costs and other expenditure (as percentage of sales).
  • Net profits (up 10% YoY) are primarily impacted by extraordinary expenses this quarter and lesser forex gains. On excluding both these, growth in net profits stands at 33% YoY.

(Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
Net sales 9,152 11,922 30.3% 26,506 32,271 21.7%
Expenditure 6,726 8,727 29.8% 20,053 24,817 23.8%
Operating profit (EBDITA) 2,427 3,195 31.7% 6,454 7,454 15.5%
EBDITA margin (%) 26.5% 26.8%   24.3% 23.1%  
Other income 100 59 -41.3% 249 196 -21.5%
Interest (net) 127 115 -9.5% 536 437 -18.5%
Depreciation 404 434 7.4% 1,106 1,241 12.2%
Profit before tax 1,996 2,706 35.5% 5,062 5,972 18.0%
Exceptional items 22 (77) 22  (77)
Forex loss/(gain) (248) (41) (788)  (385)  
Tax 549 783 42.6% 1,458 1,897 30.2%
Profit after tax/(loss) 1,718 1,887 9.9% 4,414 4,383 -0.7%
Net profit margin (%) 18.8% 15.8%   16.7% 13.6%  
No. of shares (m)      53.8  58.2  
Diluted earnings per share (Rs)*          96.2  
Price to earnings ratio (x)          12.1  
* on trailing 12-months basis

What has driven performance in 3QFY11?
  • Aurobindo's topline during the quarter grew by a robust 30% YoY largely led by healthy performance of its formulations business, which grew by 53% YoY. Robust growth was seen across geographies including the US, Europe and the Rest of the World. Revenues from the US business logged in an impressive growth of 48% YoY led by growth in the existing products and new product launches. 128 ANDAs have been approved in the US including 30 tentative approvals. 69 products have been commercialized so far.

  • The API business' performance was lackluster as revenues grew by a mere 9% YoY. This was largely due to the poor performance of the penicillin business whose revenues fell by 5% YoY. The cephalosporins and ARV API businesses managed to grow by a decent 18% YoY and 16% YoY respectively.

    Revenue breakup
    (Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
    USA 2,211 3,282 48.4% 6,815 8,398 23.2%
    Europe 497 677 36.2% 1,517 2,282 50.4%
    ARV (anti-retroviral) 1,065 1,745 63.8% 3,596 4,927 37.0%
    Rest of the World (ROW) 426 734 72.3% 1,412 1,922 36.1%
    Total formulations 4,199 6,438 53.3% 13,340 17,529 31.4%
    SSPs 1,443 1,366 -5.3% 4,668 4,288 -8.1%
    Cephalosporins 1,899 2,232 17.5% 4,942 6,147 24.4%
    ARVs and Others 826 958 16.0% 2,360 2,756 16.8%
    Total APIs 4,168 4,556 9.3% 11,970 13,191 10.2%
    Dossier Income 907 1,204 32.7% 1,740 2,290 31.6%
    Grand total sales 9,274 12,198 31.5% 27,050 33,010 22.0%

  • Aurobindo's operating margins improved marginally by 0.3% during the quarter due to lower staff costs and other expenditure (as percentage of sales). Aurobindo's bottomline growth was tepid at 10% YoY. This was primarily due to extraordinary expenses this quarter (gains in 3QFY10) and lesser forex gains. On excluding these, growth in net profits stood at 33% YoY in tandem with the growth in operating profits.

Performance summary
At the current price of Rs 1,169, the stock is trading at a multiple of 14.2 times our estimated FY12 earnings per share. Going forward, Aurobindo Pharma's business will be driven by the increasing scale of its formulations business especially in the US and revenues from dossier licensing. The deal with Pfizer will go a long way in enhancing the performance of the company. Margins are also expected to improve with higher capacity utilization and the focus on niche products with limited competition. However, the company's high debt equity ratio and considerable FII holdings remain a cause for concern.

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