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Aurobindo Pharma (ARBN.BO)
Neutral Equity Research
Inline with expectations: Margin decline more than forecast; Neutral
What surprised us
Aurobindo Pharma reported 4QFY11 revenues of Rs11.5bn (+25% yoy, in line
with GSe) and net income of Rs1.25bn (17% above GSe/8% below Bloomberg
estimates). EBIT margins compressed by 870 bp qoq (185 bp below our
estimate), which we think is due to an increase in raw material costs and
operating expenditure relating to remediation expenses and legal costs from
the FDA import alert. The EPS beat (Rs4.29 vs. GSe Rs3.68) was likely on
account of lower taxes and forex gains. Sales growth of 25% yoy was in line
with GSe and driven by US formulations (+52% yoy) and revenues from ARVs
(+33% yoy). Aurobindo announced that it created a restructuring committee to
explore and evaluate (within three months) possible growth-linked
restructuring options, including spin-off or demerger, the objective of which
would be to strengthen the growing APIs and formulations business, and with
that, enhance shareholders' value and customer satisfaction.
What to do with the stock
We maintain our Neutral rating on Aurobindo as we believe that uncertainty
regarding the FDA import alert on Unit VI could weigh on the operational
performance of the stock in the near term. We reduce our FY12E-FY13E EPS
by 5% due to lower margin assumptions and introduce FY14E EPS of
Rs30.37. Hence, we revise our 12-m Director’s cut-based TP to Rs213 (from
Rs226). Our TP implies a P/E of 10.8X on FY12E P/E vs. the sector average of
15.3X. Risks: import alert resolution (upside), lower capacity utilization
(downside).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Aurobindo Pharma (ARBN.BO)
Neutral Equity Research
Inline with expectations: Margin decline more than forecast; Neutral
What surprised us
Aurobindo Pharma reported 4QFY11 revenues of Rs11.5bn (+25% yoy, in line
with GSe) and net income of Rs1.25bn (17% above GSe/8% below Bloomberg
estimates). EBIT margins compressed by 870 bp qoq (185 bp below our
estimate), which we think is due to an increase in raw material costs and
operating expenditure relating to remediation expenses and legal costs from
the FDA import alert. The EPS beat (Rs4.29 vs. GSe Rs3.68) was likely on
account of lower taxes and forex gains. Sales growth of 25% yoy was in line
with GSe and driven by US formulations (+52% yoy) and revenues from ARVs
(+33% yoy). Aurobindo announced that it created a restructuring committee to
explore and evaluate (within three months) possible growth-linked
restructuring options, including spin-off or demerger, the objective of which
would be to strengthen the growing APIs and formulations business, and with
that, enhance shareholders' value and customer satisfaction.
What to do with the stock
We maintain our Neutral rating on Aurobindo as we believe that uncertainty
regarding the FDA import alert on Unit VI could weigh on the operational
performance of the stock in the near term. We reduce our FY12E-FY13E EPS
by 5% due to lower margin assumptions and introduce FY14E EPS of
Rs30.37. Hence, we revise our 12-m Director’s cut-based TP to Rs213 (from
Rs226). Our TP implies a P/E of 10.8X on FY12E P/E vs. the sector average of
15.3X. Risks: import alert resolution (upside), lower capacity utilization
(downside).
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