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Aurobindo Pharma: Enters the billion dollar club - Views on News from Equitymaster

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Aurobindo Pharma: Enters the billion dollar club

May 10, 2011

Aurobindo Pharma has declared its 4QFY11 results. The company has reported a 24.8% YoY growth in net sales and a 2.8% growth in profit after tax. Excluding extraordinary though, profit growth has come in at 26% YoY. Here is our analysis of the results.

Performance summary
  • Net sales increase by 24.8% YoY in 4QFY11 led by the growth in formulation business
  • Operating margins (EBITDA) remained flat at 18.6% with increase in raw material and employee cost (as a % of sales) offsetting the decrease in other expenditure (as a % of sales)
  • Profit after tax grows by mere 2.8% YoY due to higher forex gains reported in same quarter last year.

Financial performance: A snapshot
(Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
Net sales 9,248 11,544 24.8% 35,754 43,815 22.5%
Expenditure 7,532 9,401 24.8% 27,523 34,217 24.3%
Operating profit (EBDITA) 1,716 2,143 24.9% 8,232 9,598 16.6%
EBDITA margin (%) 18.6% 18.6%   23.0% 21.9%  
Other income 203 56 -72.3% 389 252 -35.3%
Interest (net) 143 188 32.0% 678 625 -7.8%
Depreciation 388 474 22.2% 1,493 1,715 14.8%
Profit before tax 1,389 1,537 10.7% 6,450 7,510 16.4%
Exceptional items (22) (27)   22 (103)  
Forex loss/(gain) (305) (90)   (1,073) (475)  
Tax 456 354 -22.4% 1914 2251  
Minority interest (2) (5)   -3 -4  
Profit after tax/(loss) 1,218 1,252 2.8% 5,634 5,635 0.0%
Net profit margin (%) 13.2% 10.8%   15.8% 12.9%  
No. of shares (m)       278.6 291.1  
Diluted earnings per share
(Rs) before extraordinary items
      17.8 17.6  
Price to earnings ratio (x)         10.5  

What has driven performance in FY11?
  • The company's net sales have gone up by 24.8% YoY during 4QFY11. Formulations, which now constitute 54% of sales, grew by an impressive 29% YoY for the quarter. Of the different geographies, US grew the most by increasing its formulations sale by 51% YoY while formulations sale in Europe decreased by 18%. The other geographies however, recorded a tepid growth.

    Segmental snapshot
    Net Sales Break-up 4QFY10 4QFY11 Change FY10 FY11 Change
    Formulations 5,181 6,702 29.4% 18,521 24,231 30.8%
    API's 4,045 4,830 19.4% 16,015 18,021 12.5%
    Dossier Income 237 267 12.7% 1,977 2,556 29.3%
    Total 9,463 11,799 24.7% 36,513 44,808 22.7%

  • Operating margins (EBITDA) remained flat at 18.6% during 4QFY11. The raw material cost increased 2.2% point from 50.6% to 52.4% (as a % of net sales). This rise was offset by the decrease in the other expenditure (as a % of net sales). We expect the company's operating margins to reach the range of 20-22% in the near to medium term with increase in capacity utilization. .

  • Profit after tax grew by mere 2.8% YoY due to the higher base in 4QFY10. The higher base was due to the onetime forex gain in the FCCB conversion. If we adjust this onetime forex gain in 4QFY10, the profit growth in 4QFY11 is 26%.

  • To support the future growth from its formulations business from the US, the company has been aggressive in the ANDA filings. The ANDA fillings now stand at 209, up from about 172 in FY10. Also, the management is confident in getting the continuous income from its dossier segment and have guided for Rs 1,500 m in FY12 in that segment.

What to expect?
The current price of Aurobindo is Rs 192 after 5 for 1 stock split in Feb 2011. Going forward, the company'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 and Astra Zeneca will go a long way in enhancing the performance of the company. Margins are also expected to improve with higher capacity utilization. The company's debt equity ratio is high but showing signs of reduction. With that in mind, we maintain the positive view on Aurobindo Pharma.

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