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India Equity Research Reports, IPO and Stock News
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S h o c k e r ! ! !
Aurobindo’s Q2FY12 numbers were way below our expectations. Net
sales declined ~4% to | 1075 crore, way below our expectation of | 1290
crore due to a decline in all major revenue streams. EBITDA fell sharply
by ~55% to | 114.63 crore on account of a decline in sales and higher
proportion of low margin APIs. The company reported a loss of | 80.2
crore against our expectation of a profit of | 73 crore on account of forex
losses to the tune of | 185 crore. These numbers have blurred the
visibility and we believe it is time to revisit our earlier estimates. Hence,
we are revising our strategy by sharply cutting our growth estimates for
FY12 and FY13. We have now built a base case and bear case scenario as
we still expect some more downside pressure on the stock.
ƒ Telangana issue seems to be blowing out of proportion…
The ongoing Telangana agitation was the major factor over and
above issues such as subdued European demand, USFDA embargo
on Unit VI and dried approval pipeline in the US. The agitation badly
affected the logistics in the entire region and most of the company’s
plants are located in the same region.
V a l u a t i o n
We are contemplating a revised strategy on account of fresh concerns
about the performance, going ahead, over an above pending USFDA
issues. (i) The debts as on September 30, 2011 were ~| 3045 crore. With
shrinking profitability, FY12E debt/EBITDA now stands at an alarming
level of ~4.5x. We expect normalcy in business to return only in FY13. (ii)
Further depreciation of the rupee will stretch the balance sheet. (iii) The
Telangana issue has now become a new matter of concern for the
company, (iv) We have built valuation scenarios on our revised estimates.
The best case target price is | 141, based on 7x FY13E EV/EBITDA.
Similarly, our bear case target price is | 79, based on 5x FY13E
EV/EBITDA. We believe it is time to be lightweight on the stock amid
global issues and internal concerns. We have changed our methodology
from PE to EV/EBITDA on account of high leverage. We advise investors
to hold the stock for a revised target price of | 141. Fresh buy can only be
considered in a Bear case scenario at | 79.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
S h o c k e r ! ! !
Aurobindo’s Q2FY12 numbers were way below our expectations. Net
sales declined ~4% to | 1075 crore, way below our expectation of | 1290
crore due to a decline in all major revenue streams. EBITDA fell sharply
by ~55% to | 114.63 crore on account of a decline in sales and higher
proportion of low margin APIs. The company reported a loss of | 80.2
crore against our expectation of a profit of | 73 crore on account of forex
losses to the tune of | 185 crore. These numbers have blurred the
visibility and we believe it is time to revisit our earlier estimates. Hence,
we are revising our strategy by sharply cutting our growth estimates for
FY12 and FY13. We have now built a base case and bear case scenario as
we still expect some more downside pressure on the stock.
ƒ Telangana issue seems to be blowing out of proportion…
The ongoing Telangana agitation was the major factor over and
above issues such as subdued European demand, USFDA embargo
on Unit VI and dried approval pipeline in the US. The agitation badly
affected the logistics in the entire region and most of the company’s
plants are located in the same region.
V a l u a t i o n
We are contemplating a revised strategy on account of fresh concerns
about the performance, going ahead, over an above pending USFDA
issues. (i) The debts as on September 30, 2011 were ~| 3045 crore. With
shrinking profitability, FY12E debt/EBITDA now stands at an alarming
level of ~4.5x. We expect normalcy in business to return only in FY13. (ii)
Further depreciation of the rupee will stretch the balance sheet. (iii) The
Telangana issue has now become a new matter of concern for the
company, (iv) We have built valuation scenarios on our revised estimates.
The best case target price is | 141, based on 7x FY13E EV/EBITDA.
Similarly, our bear case target price is | 79, based on 5x FY13E
EV/EBITDA. We believe it is time to be lightweight on the stock amid
global issues and internal concerns. We have changed our methodology
from PE to EV/EBITDA on account of high leverage. We advise investors
to hold the stock for a revised target price of | 141. Fresh buy can only be
considered in a Bear case scenario at | 79.
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