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Aurobindo Pharma: The formulations kicker
Nov 4, 2010

Aurobindo Pharma has announced its 2QFY11 results. The company has reported a 26% YoY and 92% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Revenues grow by 26% YoY in 2QFY11 led by the robust performance of its formulations business.
  • EBDITA margins contract by 0.6% during the quarter due to higher raw material and staff costs (as percentage of sales).
  • PAT grows by 92% YoY during the quarter largely due to forex gains of Rs 762 m (forex loss of Rs 36 m in 2QFY10). Excluding the same, net profits grow by 14% YoY.


Consolidated snapshot
(Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
Net sales 8,826 11,126 26.1% 17,354 20,349 17.3%
Expenditure 6,756 8,584 27.0% 13,327 16,089 20.7%
Operating profit (EBDITA) 2,070 2,542 22.8% 4,027 4,260 5.8%
EBDITA margin (%) 23.4% 22.8%   23.2% 20.9%  
Other income 127 106 -16.7% 149 137 -8.3%
Interest (net) 182 193 5.9% 409 322 -21.2%
Depreciation 370 407 10.1% 702 808 15.0%
Profit before tax 1,645 2,048 24.5% 3,065 3,267 6.6%
Forex loss/(gain) 36 (762)   (540) (344) -36.2%
Tax 578 830 43.6% 909 1,115 22.7%
Profit after tax/(loss) 1,032 1,980 92.0% 2,697 2,496 -7.4%
Net profit margin (%) 11.7% 17.8%   15.5% 12.3%  
No. of shares (m)       53.8 58.2  
Diluted earnings per share (Rs)*         93.3  
Price to earnings ratio (x)         13.6  
* on trailing 12-months basis

What has driven performance in 2QFY11?
  • Aurobindo’s topline during the quarter grew by a robust 26% YoY largely led by robust performance of its formulations business, which grew by 38% YoY. The ARV and Rest of the World (ROW) markets were the key contributors to growth. US also did well to log in a growth of 29% YoY. The company received 7 ANDA approvals during the quarter. 126 ANDAs have been approved in the US including 29 tentative approvals. 67 products have been commercialized so far.

  • The API business’ performance was lackluster as revenues grew by a mere 7% YoY. This was largely due to the poor performance of the penicillin and ARV businesses. While revenues of the former declined by 6% YoY, the ARV API business saw revenues fall by 1% YoY. The cephalosporins API business was the only saving grace as it grew by 25% YoY and provided some cushion to the overall growth of the API business.

    Revenue breakup
    (Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
    USA 2,294 2,955 28.8% 4,605 5,116 11.1%
    Europe 556 860 54.7% 1,020 1,605 57.4%
    ARV (anti-retroviral) 1,156 1,717 48.5% 2,531 3,182 25.7%
    Rest of the World (ROW) 446 625 40.1% 986 1,188 20.5%
    Total formulations 4,452 6,157 38.3% 9,142 11,091 21.3%
    SSPs 1,707 1,602 -6.2% 3,223 2,922 -9.3%
    Cephalosporins 1,653 2,062 24.7% 3,043 3,914 28.6%
    ARVs and Others 864 853 -1.3% 1,535 1,798 17.1%
    Total APIs 4,224 4,517 6.9% 7,801 8,634 10.7%
    Dossier Income 402 699 73.9% 833 1,086 30.4%
    Grand total sales 9,078 11,373 25.3% 17,776 20,811 17.1%

  • Aurobindo’s operating margins contracted by 0.6% during the quarter due to an increase in raw material and staff costs (as percentage of sales). Aurobindo’s bottomline grew by an impressive 92% YoY during the quarter. This was largely due to forex gains of Rs 762 m during the quarter (as against forex losses of Rs 36 m in 2QFY10). Excluding this forex loss, net profit growth was much lower at14% YoY on account of lower other income and higher tax expenses.

What to expect?
At the current price of Rs 1,268, the stock is trading at a multiple of 15.4 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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