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Aurobindo Pharma: Strong growth continues

Mar 11, 2013

Aurobindo Pharma has announced third quarter results of financial year 2011-2012 (3QFY13). The company has reported a 22% YoY growth in sales and a net profit of Rs 910 m in 3QFY13 as against a net loss of Rs 286 m in 3QFY12. Here is our analysis of the results.

Performance summary
  • Revenues grow by a healthy 22% YoY largely on the back of healthy growth in both the formulations as well as the API businesses.
  • EBDITA margins improve by 1.6% to 16.5% during the quarter due to lower raw material and staff costs (as percentage of sales).
  • Strong performance at both the topline and EBDITA level results in a 50.5% YoY rise in profit before tax (PBT). The company reports a net profit of Rs 910 m during the quarter as against a loss of Rs 286 m in 3QFY12.

Consolidated picture
(Rs m) 3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
Net sales 12,845 15,701 22.2% 34,367 42,849 24.7%
Expenditure 10,934 13,110 19.9% 29,670 36,358 22.5%
Operating profit (EBDITA) 1,912 2,591 35.5% 4,697 6,491 38.2%
EBDITA margin (%) 14.9% 16.5%   13.7% 15.1%  
Other income 52 56 7.8% 188 145 -23.1%
Interest (net) 276 331 19.8% 676 997 47.6%
Depreciation 552 608 10.1% 1,466 1,795 22.4%
Profit before tax 1,135 1,708 50.5% 2,744 3,844 40.1%
Exceptional items - 0   (3,199) (1)  
Forex loss/(gain) 1,445 734 -49.2% 3,267 1,621 -50.4%
Tax (24) 65   (1,407) 382  
Profit after tax/(loss) (286) 910   (2,316) 1,839  
Net profit margin (%) -2.2% 5.8%   -6.7% 4.3%  
No. of shares (m)       291.1 291.1  
Diluted earnings per share (Rs)*         2.9  
* on trailing 12-months basis; excluding extraordinary items

What has driven performance in 3QFY13?
  • Aurobindo's topline during the quarter grew by a healthy 22% YoY on account of good growth in both the formulations as well as the API businesses. The formulations business grew by a robust 22.5% YoY during the quarter. In this, revenues from the US witnessed growth of 58% YoY. This was led by many notable product approvals and launches during the quarter. In terms of filings, Aurobindo has made 262 ANDA filings as at the end of December 2012 with 171 ANDAs approved including tentative approvals for 26 ANDAs.

  • The API business also did well to grow by 22% YoY. This was largely due a 36% YoY growth in penicillins. The cephalosporins segment also grew by a healthy 30% YoY during the quarter. One of the reasons why these segments have done well is because a couple of players have not really been active in the market giving Aurobindo an advantage. Further, better pricing has also bolstered sales from these segments.

    Revenue breakup
    (Rs m) 3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
    USA 3,254 5,134 57.8% 8,827 12,666 43.5%
    Europe ROW 2,043 2,233 9.3% 6,108 5,675 -7.1%
    ARV (anti-retroviral) 2,146 1,751 -18.4% 4,653 6,352 36.5%
    Total formulations 7,443 9,118 22.5% 19,588 24,693 26.1%
    SSPs 1,572 2,130 35.5% 4,641 5,766 24.2%
    Cephalosporins 1,881 2,452 30.4% 5,527 6,938 25.5%
    Non-Pen Non-Cephs 1,974 2,020 2.3% 4,749 5,990 26.1%
    Total APIs 5,427 6,602 21.7% 14,917 18,694 25.3%
    Dossier Income 228 386 69.3% 570 0.2%
    Grand total sales 13,098 16,106 23.0% 35,075 43,958 25.3%

  • Aurobindo's operating margins substantially increased by 1.6% to 16.5% during the quarter led by lower raw material and staff costs (as percentage of sales). Raw material costs fell considerably from 54.9% of sales in 3QFY12 to 49.8% in 3QFY13 on account of a better product mix. While staff costs also reduced, other expenditure increased on account of GDUFA (Generic Drug User Fee Amendments of 2012) fees of Rs 100 m and fuel surcharge adjustment in Andhra Pradesh to the tune of Rs 120 m. Overall, operating profits grew by an impressive 36% YoY.

  • Aurobindo reported net profits to the tune of Rs 910 m this quarter as against a loss of Rs 286 m in 3QFY12. Besides the strong performance at the operating level what also helped matters was lower forex loss of Rs 734 m this quarter as against a forex loss of Rs 1.4 bn in 3QFY12. This was led by the rupee appreciating by around 4% during the quarter. Excluding these forex losses during both the periods, growth in net profits stood at 41% YoY.

What to expect?
At the current price of Rs 168, the stock is trading at a multiple of 9.2 times our estimated FY15 earnings per share. With respect to Unit 6, which is under the USFDA scanner, the company is still awaiting for the US regulator to get back. Even though the management has stated of the clearance coming in within the next few months, as of now an element of uncertainty exists as to when this issue will get fully resolved. The good part is that growth for the company in the last couple of quarters has come in without both Unit 4 and Unit 6 contributing. Overall, the US pipeline is robust and will be the key growth driver going forward as was evident in the current quarter. Post the declaration of the 9mFY13 results, we advise investors to 'Hold' on to the stock.

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