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Aurobindo Pharma: Forex loss lower profits - Views on News from Equitymaster

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Aurobindo Pharma: Forex loss lower profits
Sep 16, 2013

Aurobindo Pharma has announced first quarter results of financial year 2012-2013 (1QFY14). The company has reported a 41% YoY growth in sales and a net profit of Rs 175 m in 1QFY14 as against a loss of Rs 1.3 bn in 1QFY13. Here is our analysis of the results.

Performance summary
  • Revenues grow by a healthy 41% YoY in 1QFY14 largely on the back of healthy growth in the formulations business.
  • EBDITA margins improve by 6.4% to 17.9% during the quarter due a reduction in all costs (as percentage of sales).
  • While the growth in PBT is stupendous, net profits at Rs 175 m are much lower on account of the forex loss of Rs 1.7 bn. This impacted the company in 1QFY13 as well as it reported a net loss in that quarter to the tune of Rs 1.3 bn.

Financial performance snapshot
(Rs m) 1QFY13 1QFY14 Change
Net sales 12,144 17,156 41.3%
Expenditure 10,747 14,079 31.0%
Operating profit (EBDITA) 1,398 3,077 120.2%
EBDITA margin (%) 11.5% 17.9%  
Other income 22 39 76.6%
Interest (net) 331 254 -23.3%
Depreciation 588 719 22.2%
Profit before tax 500 2,143 328.5%
Forex loss/(gain) 2,065 1,724 -16.5%
Tax (274) 245  
Profit after tax/(loss)  (1,290) 175  
Net profit margin (%) -10.6% 1.0%  
No. of shares (m) 291.1 291.1  
Diluted earnings per share (Rs)*   19.5  
P/E ratio (x)*   9.0  

What has driven performance in 1QFY14?
  • Aurobindo's topline during the quarter grew by a healthy 41% YoY on account of a robust growth in its formulations business. The formulations business grew by an impressive 68% YoY during the quarter. In this, revenues from the US witnessed growth of 90% YoY. This was led by new product launches and increasing market share of the existing basket of products including injectable products. The company had begun re-introducing its cephalosporin products from Unit 6 and these generated sales of around US$ 3 m. Unit 4, which is a general liquid injectable facility, had commenced commercial operations during the end of 4QFY13. Accordingly, the company commercialized three products and one more product is also being lined up for launch. In terms of filings, Aurobindo made 281 ANDA filings as at the end of June 2013 with 191 ANDAs approved including tentative approvals for 29 ANDAs.

  • The API business grew by a lukewarm 10% YoY during the quarter. In this, the penicillins segment grew by a healthy 24% YoY, while the cephalosporins segment saw sales fall by 3% YoY.

    Revenue breakup
    (Rs m) 1QFY13 1QFY14 Change
    USA 3,283 6,248 90.3%
    Europe ROW 1,861 2,839 52.6%
    ARV (anti-retroviral) 1,402 1,918 36.8%
    Total formulations 6,546 11,005 68.1%
    SSPs 1,791 2,222 24.1%
    Cephalosporins 2,230 2,163 -3.0%
    Non-Belatactum 1,850 2,084 12.6%
    Total APIs 5,871 6,469 10.2%
    Dossier Income 68 30 -55.9%
    Grand total sales 12,485 17,504 40.2%

  • Aurobindo's operating margins substantially increased by 6.4% to 17.9% during the quarter led by a decline in all costs (as percentage of sales). Raw material costs fell considerably from 53.5% of sales in 1QFY13 to 52% in 1QFY14 on account of a better product mix. While staff costs also reduced, other expenditure fell from 22.5% of sales in 1QFY13 to 19.1% of sales in 1QFY14. Overall, operating profits grew by an impressive 120% YoY during the quarter.

  • Strong performance at both the topline and EBDITA level, higher other income and reduction in interest costs resulted in the impressive 329% YoY rise in profit before tax (PBT) in 1QFY14. Net profits for the quarter at Rs 175 m were much lesser than PBT on account of forex losses to the tune of Rs 1.7 bn. This has impacted the company in 1QFY13 as well as it reported a net loss in that quarter to the tune of Rs 1.3 bn.
What to expect?
At the current price of Rs 175, the stock is trading at a multiple of 9.7 times our estimated FY15 earnings per share. Going forward, Aurobindo Pharma's business will be driven by the increasing scale of its formulations business, especially in the US as the pace of product launches picks up. The company has begun re-introducing its cephalosporin products from Unit 6 in the US market in a phased manner. This is a positive as a result of which sales from the US should receive an additional boost. Margins are also expected to improve with higher capacity utilization and the focus on niche products with limited competition. We, thus, recommend that investors Hold on to the stock.

We would like to remind our subscribers that for the purpose of risk minimisation, one should avoid having more than 5% exposure on any one stock from the overall equity portfolio. Please do visit our asset allocation section for further details.

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