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Aurobindo Pharma: All round growth

Nov 30, 2012

Aurobindo Pharma has announced second quarter results of financial year 2011-2012 (2QFY13). The company has reported a 40% YoY growth in sales and a net profit of Rs 2 bn as against a net loss of Rs 802 m. Here is our analysis of the results.

Performance summary
  • Revenues grow by a healthy 40% YoY largely on the back of healthy growth in both the formulations as well as the API businesses.
  • EBDITA margins jumped 6% to 16.7% during the quarter due to lower raw material and staff costs (as percentage of sales).
  • Strong performance at both the topline and EBDITA level result in a stupendous rise in profit before tax (PBT). The company reports a net profit of Rs 2 bn during the quarter as against a loss of Rs 802 m in 2QFY12.

Consolidated snapshot
(Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
Net sales 10,753 15,004 39.5% 21,522 27,149 26.1%
Expenditure 9,607 12,502 30.1% 18,736 23,248 24.1%
Operating profit (EBDITA) 1,146 2,503 118.3% 2,786 3,900 40.0%
EBDITA margin (%) 10.7% 16.7%   12.9% 14.4%  
Other income 63 66 5.3% 136 88 -35.0%
Interest (net) 210 335 59.6% 399 666 66.9%
Depreciation 462 598 29.4% 914 1,187 29.9%
Profit before tax 537 1,635 204.7% 1,608 2,136 32.8%
Exceptional items - (1)   (3,199) (1)  
Forex loss/(gain) 1,854 (1,177)   1,822 888 -51.3%
Tax (516) 591 -214.7% (1,383) 317  
Profit after tax/(loss) (802) 2,220   (2,030) 929  
Net profit margin (%) -7.5% 14.8%   -9.4% 3.4%  
No. of shares (m)       291.1 291.1  
Diluted earnings per share (Rs)*         (1.3)  
*On trailing 12 months earnings

What has driven performance in 2QFY13?
  • Aurobindo's topline during the quarter grew by an impressive 39.5% YoY on account of healthy growth in both the formulations as well as the API businesses. The formulations business grew by a very robust 52.5% YoY during the quarter. In this, revenues from the US witnessed growth of 50% YoY. This was led by many notable product approvals and launches during the quarter. In terms of filings, Aurobindo has made 268 ANDA filings as at the end of October 2012 with 164 approvals including tentative approvals for 26 ANDAs.

  • The API business also did well to grow by 27% YoY. This was largely due a 32% YoY growth in cephalosporins. The penicillins segment also grew by a healthy 23% 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.

    Segment-wise performance
    (Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
    USA 2,833 4,249 50.0% 5,573 7,532 35.2%
    Europe & ROW 1,240 2,257 82.0% 2,610 4,118 57.8%
    ARV (anti-retroviral) 1,846 2,522 36.6% 3,962 3,925 -0.9%
    Total formulations 5,919 9,028 52.5% 12,145 15,575 28.2%
    SSPs 1,502 1,846 22.9% 3,069 3,636 18.5%
    Cephalosporins 1,704 2,255 32.3% 3,647 4,486 23.0%
    Non-Pen Non-Cephs 1,695 2,120 25.1% 2,775 3,970 43.1%
    Total APIs 4,901 6,221 26.9% 9,491 12,092 27.4%
    Dossier Income 153 117 -23.5% 342 185 -45.9%
    Grand total sales 10,973 15,366 40.0% 21,978 27,852 26.7%

  • Aurobindo's operating margins substantially increased by 6% to 16.7% during the quarter led by lower raw material and staff costs (as percentage of sales). Raw material costs fell considerably from 55.7% of sales in 2QFY12 to 50.4% in 2QFY13 on account of a better product mix. While staff costs also reduced, other expenditure increased slightly on account of certain one-time expenses during the quarter. Thus, overall, operating profits grew by an impressive 118% YoY.

  • Aurobindo reported net profits to the tune of Rs 2 bn this quarter as against a loss of Rs 802 m in 2QFY12. Besides the strong performance at the operating level what also helped matters was the forex gain during the quarter of Rs 1.2 bn as against a forex loss of Rs 1.8 bn in 2QFY12.

What to expect?
At the current price of Rs 189, the stock is trading at a multiple of 9.1 times our estimated FY15 earnings per share. With respect to its plants under the USFDA scanner, Aurobindo's Unit 4 has been inspected by the FDA with no single observations and is awaiting the inspection report post which the company can begin getting product approvals from this plant. Unit 6 has also been inspected the FDA with a few observations to which Aurobindo has responded and awaiting for the US regulator to get back. Hence, as of now an element of uncertainty exists as to when this issue will get fully resolved. Having said that, 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 FY12 and 1HFY13 numbers and after factoring in our estimates for FY15, our target price for the company from an FY15 perspective stands at Rs 250 meaning that we have a 'Hold' view on the stock.

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