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Aurobindo Pharma: Forex loss takes toll
Nov 18, 2013

Aurobindo Pharma has announced second quarter results of financial year 2012-2013 (2QFY14). The company has reported a 28% YoY and 5% YoY growth in sales and net profits respectively during the quarter. Here is our analysis of the results.

Performance summary
  • Revenues grow by a healthy 28% YoY in 2QFY14 largely on the back of healthy growth in the formulations business.
  • EBDITA margins improve by 6.2% to 22.9% during the quarter due a reduction in all costs (as percentage of sales).
  • While the growth in PBT is stupendous at 109% YoY, net profit growth is considerably restricted to 5% YoY on account of the forex loss of Rs 683 m during the quarter as against a gain of Rs 1.2 bn in 2QFY13.


Consolidated snapshot
(Rs m) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
Net sales 15,004 19,139 27.6% 27,149 36,294 33.7%
Expenditure 12,502 14,755 18.0% 23,248 28,834 24.0%
Operating profit (EBDITA) 2,503 4,384 75.1% 3,900 7,461 91.3%
EBDITA margin (%) 16.7% 22.9%   14.4% 20.6%  
Other income 66 51 -22.5% 88 90 2.5%
Interest (net) 335 246 -26.6% 666 500 -25.0%
Depreciation 598 766 28.1% 1,187 1,485 25.2%
Profit before tax 1,635 3,423 109.3% 2,136 5,566 160.6%
Forex loss/(gain) (1,177) 683   888 2,407 171.1%
Tax 591 401 -32.2% 317 646 103.5%
Exceptional item - -   (1) -  
Minority interest - -   5 22 337.3%
Profit after tax/(loss) 2,221 2,339 5.3% 934 2,536 171.4%
Net profit margin (%) 14.8% 12.2%   3.4% 7.0%  
No. of shares (m)       291.1 291.1  
Diluted earnings per share (Rs)*         23.9  
P/E ratio (x)*         11.7  
* on trailing 12-months basis; excluding forex gains or losses

What has driven performance in 2QFY14?
  • Aurobindo's topline during the quarter grew by a healthy 28% YoY on account of a robust growth in its formulations business. The formulations business grew by an impressive 36% YoY during the quarter. In this, revenues from the US witnessed growth of 72% 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$ 4 m during the quarter. In terms of filings, Aurobindo made 294 ANDA filings as at the end of September 2013 with 184 ANDAs approved including tentative approvals for 27 ANDAs.

  • The API business grew by a lukewarm 15% YoY during the quarter. In this, the penicillins segment grew by a healthy 32% YoY, while the cephalosporins segment saw sales fall by 8% YoY on account of pricing. The non-betalactum sales grew by 27% YoY on account of deliveries to advanced market customers in Europe, Japan, and the US.

    Revenue breakup
    (Rs m) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
    USA 4,249 7,308 72.0% 7,532 13,555 80.0%
    Europe & ROW 2,257 2,644 17.1% 4,118 5,483 33.1%
    ARV (anti-retroviral) 2,522 2,331 -7.6% 3,925 4,250 8.3%
    Total formulations 9,028 12,283 36.1% 15,575 23,288 49.5%
    SSPs 1,846 2,429 31.6% 3,636 4,651 27.9%
    Cephalosporins 2,255 2,067 -8.3% 4,486 4,230 -5.7%
    Non-Belatactum 2,120 2,684 26.6% 3,970 4,769 20.1%
    Total APIs 6,221 7,180 15.4% 12,092 13,650 12.9%
    Dossier Income 117 63 -46.2% 185 92 -50.3%
    Grand total sales 15,366 19,526 27.1% 27,852 37,030 33.0%

  • Aurobindo's operating margins substantially increased by 6.2% to 22.9% during the quarter led by a decline in all costs (as percentage of sales). Raw material costs fell considerably from 50.4% of sales in 2QFY13 to 48% in 2QFY14 on account of a better product mix. While staff costs also reduced, other expenditure fell from 21.8% of sales in 2QFY13 to 18.8% of sales in 2QFY14. Overall, operating profits grew by an impressive 75% YoY during the quarter.

  • Strong performance at both the topline and EBDITA level and reduction in interest costs resulted in the impressive 109% YoY rise in profit before tax (PBT) in 2QFY14. However, net profit growth for the quarter was considerably restricted to 5% YoY on account of forex losses to the tune of Rs 683 m as against a gain of Rs 1.2 bn in 2QFY13. Most of the company's debt is in foreign currency. Thus, the losses were on account of restatement of debt on the balance sheet as the rupee had considerably depreciated against the dollar.
What to expect?
At the current price of Rs 280, the stock is trading at a multiple of 13.9 times our estimated FY16 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 already begun re-introducing its cephalosporin products from Unit 6 in the US market in a phased manner and the positive impact of this on sales was already evident during the first half of the fiscal. Margins are also expected to improve with higher capacity utilization and the focus on niche products with limited competition.

However, while the growth prospects look good, the stock price of the company has considerably run up in recent times making it expensive. Also, large part of the debt being in foreign currency, the volatility in the rupee has been impacting the company's net profits. Thus, at current price levels, our view is that investors ‘Sell' the stock.

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