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Performance boosts sequentially
Key highlights of the result
Better than expected 3QFY2012: Aurobindo reported better than expected
top-line growth of 17.7% yoy (19% qoq) led by low margin ARV API (up 106%
yoy) and healthy formulations growth in EU and ROW markets (up 45.1% yoy),
partially aided by weak INR. The US formulations grew 14.9% qoq despite the
ban on non-betalactum plant, which is commendable. The licensing income
remained low at Rs22.8cr.
Margins improved sequentially: Despite higher contribution from the low margin
ARV tender business, the gross margins improved 60bp qoq to 44.1%. Further,
favorable currency led the EBITDA expansion by 400bp at 13.3% qoq as
exports remain unhedged.
APAT up 10.2% qoq: Aurobindo reported net loss of Rs28.5cr in 3QFY2012,
affected by USFDA issues and forex loss of Rs144.5cr on account of loan
restatement. Adjusting for the one-time expense, the APAT stood at Rs116cr,
above our estimate.
Concall takeaways: (1) The Company expects USFDA inspection by March,
2012 for Unit III and by June, 2012 for Unit VI, (2) It has guided for 25 product
launches in US out of which 11 from Unit III and 14 through Unit VII post
USFDA resolution in FY2013E, (3) AstraZeneca contract is likely to start from
October, 2012 and it expects to launch ~80 products (worth US$30-50mn) by
December, 2013, (4) Pfizer contributed Rs67cr in 3QFY2012, expected to
double in 4QFY2012, (5) Company guided to improve margins by cost saving of
US$1.5mn per quarter on Unit VI, (6) Capex guided at Rs200cr for the next 2
years, while, tax rate at 20% for FY2013, (7) Gross debt stands at Rs3,360cr,
cash at Rs225cr.
Outlook and Valuation
Aurobindo’s 3QFY2012 performance reflected strong growth traction on a
sequential basis. New launches in EU and ROW markets, gradual improvement in
US through shift of products from affected units and favorable currency led to better
than expected quarter. Despite management’s encouraging picture of strong
visibility (US$2bn sales guidance by 2015) led by new launches in US, ramp up in
filings in niche OCs and OTC segments, pick up in Pfizer and AstraZeneca sales
and sustained growth in EU and ROW, we believe that the growth would remain
under pressure until the USFDA resolution is obtained. We factor in the sequential
improvement of the company and revise our EPS to Rs13.3 (Rs11.9 earlier) and
Rs14.5 (Rs13.9 earlier) for FY2012E and FY2013E respectively.
The stock has corrected 51% in the last 1 year due to slippages in growth affected
by import alert on manufacturing plants and high forex losses. Further, high fixed
costs relating to facility up-gradation and import alert on Unit VI impacted its
operating performance. CBI raids with regards to financial misdeeds by promoter
also added to its woes. We believe that stock correction is overdone (up by 25% in
the last 3 months) and a likely rebound in growth and margins would drive growth.
Hence we maintain Hold with a price target of Rs139.
Risks to the view
Delay in USFDA resolution and slowdown in the ramp up of Pfizer sales could
impact future revenues
Key Highlights
US: The import alert of USFDA continued to affect the US sales in 3QFY2012, as it reported
flat sales on a yoy basis to Rs325.4cr. However, the performance improved sequentially due
to shift of products to other facilities. Aurobindo filed 11 ANDAs and received 6 approvals
during the quarter.
Pfizer reported revenues worth Rs67cr in 3QFY2012 (vs. Rs87cr in 3QFY2011) with Rs51cr
coming from US, Rs14.5cr from EU and Rs1.8cr from other geographies. The management
has guided that they expect a strong pick up in the Pfizer sales, launch of Lipitor in US in Jan
2013 and a recovery in the Cephalosporin in FY2013 post the USFDA resolution.
AstraZeneca contract is likely to start from Oct’2012 and it expects to launch ~80 products
(worth US$30-50mn) by Dec’2013.
USFDA resolution: The Company expects the USFDA to inspect its Cephalosporin (Unit III)
plant between February 25, 2012 and March 4, 2012, while the inspection at Unit VI is
expected to take place in June-July 2012. The management has guided for 25 product
launches in US out of which 11 from Unit III and 14 through Unit VII post USFDA resolution in
FY2013E.
Filing details: Aurobindo has a hefty pipeline of 144 ANDAs pending approvals (including 29
tentative approvals) in the US market. Out of which, 17 are in controlled substances, filed from
Unit VI (currently under import alert). Besides, it plans to file 6 OTC products in US and
expects to launch at least 2 products in 4QFY2012 and 1QFY2013. Oral contraceptive
launches are scheduled over the next 2-3 years.
EU/RoW: The EU/RoW market reported growth of 45.1% yoy to Rs204.8cr during the quarter
on account of new product launches. Strong growth in UK and healthy performance in new
geographies like South Africa, Australia, Canada and Spain boosted the growth.
ARV: The ARV formulations segment grew 19.5% yoy in 3QFY2012, which we believe is
not sustainable as the management plans to cut back on the ARV business with focus on
improving margins.
Dossier licensing income: The licensing income declined in 3QFY2012 by 81.1% yoy to
Rs22.8cr. The managements expects the lumpiness in the dossier income to continue.
API business: The API sales grew 20.3% largely supported by the bulk ARV sales, which
derived an astounding 106.1% yoy growth during the quarter. The SSP (Semi Synthetic
Penicillin, up 15.1% yoy) and Cephalosporin (down 13.2% yoy) remained a drag.
Outlook and Valuation
Aurobindo’s 3QFY2012 performance reflected strong growth traction on a sequential basis.
New launches in EU and ROW markets, gradual improvement in US through shift of
products from affected units and favorable currency led to better than expected quarter.
Despite management’s encouraging picture of strong visibility (US$2bn sales guidance by
2015) led by new launches in US, ramp up in filings in niche OCs and OTC segments, pick
up in Pfizer and AstraZeneca sales and sustained growth in EU and ROW, we believe that
the growth would remain under pressure until the USFDA resolution is obtained. We factor
in the sequential improvement of the company and revise our EPS to Rs13.3 (Rs11.9
earlier) and Rs14.5 (Rs13.9 earlier) for FY2012E and FY2013E respectively.
The stock has corrected 51% in the last 1 year due to slippages in growth affected by import
alert on manufacturing plants and high forex losses. Further, high fixed costs relating to
facility up-gradation and import alert on Unit VI impacted its operating performance. CBI
raids with regards to financial misdeeds by promoter also added to its woes. We believe that
stock correction is overdone (up by 25% in the last 3 months) and a likely rebound in growth
and margins would drive growth. Hence we maintain Hold with a price target of Rs139.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Performance boosts sequentially
Key highlights of the result
Better than expected 3QFY2012: Aurobindo reported better than expected
top-line growth of 17.7% yoy (19% qoq) led by low margin ARV API (up 106%
yoy) and healthy formulations growth in EU and ROW markets (up 45.1% yoy),
partially aided by weak INR. The US formulations grew 14.9% qoq despite the
ban on non-betalactum plant, which is commendable. The licensing income
remained low at Rs22.8cr.
Margins improved sequentially: Despite higher contribution from the low margin
ARV tender business, the gross margins improved 60bp qoq to 44.1%. Further,
favorable currency led the EBITDA expansion by 400bp at 13.3% qoq as
exports remain unhedged.
APAT up 10.2% qoq: Aurobindo reported net loss of Rs28.5cr in 3QFY2012,
affected by USFDA issues and forex loss of Rs144.5cr on account of loan
restatement. Adjusting for the one-time expense, the APAT stood at Rs116cr,
above our estimate.
Concall takeaways: (1) The Company expects USFDA inspection by March,
2012 for Unit III and by June, 2012 for Unit VI, (2) It has guided for 25 product
launches in US out of which 11 from Unit III and 14 through Unit VII post
USFDA resolution in FY2013E, (3) AstraZeneca contract is likely to start from
October, 2012 and it expects to launch ~80 products (worth US$30-50mn) by
December, 2013, (4) Pfizer contributed Rs67cr in 3QFY2012, expected to
double in 4QFY2012, (5) Company guided to improve margins by cost saving of
US$1.5mn per quarter on Unit VI, (6) Capex guided at Rs200cr for the next 2
years, while, tax rate at 20% for FY2013, (7) Gross debt stands at Rs3,360cr,
cash at Rs225cr.
Outlook and Valuation
Aurobindo’s 3QFY2012 performance reflected strong growth traction on a
sequential basis. New launches in EU and ROW markets, gradual improvement in
US through shift of products from affected units and favorable currency led to better
than expected quarter. Despite management’s encouraging picture of strong
visibility (US$2bn sales guidance by 2015) led by new launches in US, ramp up in
filings in niche OCs and OTC segments, pick up in Pfizer and AstraZeneca sales
and sustained growth in EU and ROW, we believe that the growth would remain
under pressure until the USFDA resolution is obtained. We factor in the sequential
improvement of the company and revise our EPS to Rs13.3 (Rs11.9 earlier) and
Rs14.5 (Rs13.9 earlier) for FY2012E and FY2013E respectively.
The stock has corrected 51% in the last 1 year due to slippages in growth affected
by import alert on manufacturing plants and high forex losses. Further, high fixed
costs relating to facility up-gradation and import alert on Unit VI impacted its
operating performance. CBI raids with regards to financial misdeeds by promoter
also added to its woes. We believe that stock correction is overdone (up by 25% in
the last 3 months) and a likely rebound in growth and margins would drive growth.
Hence we maintain Hold with a price target of Rs139.
Risks to the view
Delay in USFDA resolution and slowdown in the ramp up of Pfizer sales could
impact future revenues
Key Highlights
US: The import alert of USFDA continued to affect the US sales in 3QFY2012, as it reported
flat sales on a yoy basis to Rs325.4cr. However, the performance improved sequentially due
to shift of products to other facilities. Aurobindo filed 11 ANDAs and received 6 approvals
during the quarter.
Pfizer reported revenues worth Rs67cr in 3QFY2012 (vs. Rs87cr in 3QFY2011) with Rs51cr
coming from US, Rs14.5cr from EU and Rs1.8cr from other geographies. The management
has guided that they expect a strong pick up in the Pfizer sales, launch of Lipitor in US in Jan
2013 and a recovery in the Cephalosporin in FY2013 post the USFDA resolution.
AstraZeneca contract is likely to start from Oct’2012 and it expects to launch ~80 products
(worth US$30-50mn) by Dec’2013.
USFDA resolution: The Company expects the USFDA to inspect its Cephalosporin (Unit III)
plant between February 25, 2012 and March 4, 2012, while the inspection at Unit VI is
expected to take place in June-July 2012. The management has guided for 25 product
launches in US out of which 11 from Unit III and 14 through Unit VII post USFDA resolution in
FY2013E.
Filing details: Aurobindo has a hefty pipeline of 144 ANDAs pending approvals (including 29
tentative approvals) in the US market. Out of which, 17 are in controlled substances, filed from
Unit VI (currently under import alert). Besides, it plans to file 6 OTC products in US and
expects to launch at least 2 products in 4QFY2012 and 1QFY2013. Oral contraceptive
launches are scheduled over the next 2-3 years.
EU/RoW: The EU/RoW market reported growth of 45.1% yoy to Rs204.8cr during the quarter
on account of new product launches. Strong growth in UK and healthy performance in new
geographies like South Africa, Australia, Canada and Spain boosted the growth.
ARV: The ARV formulations segment grew 19.5% yoy in 3QFY2012, which we believe is
not sustainable as the management plans to cut back on the ARV business with focus on
improving margins.
Dossier licensing income: The licensing income declined in 3QFY2012 by 81.1% yoy to
Rs22.8cr. The managements expects the lumpiness in the dossier income to continue.
API business: The API sales grew 20.3% largely supported by the bulk ARV sales, which
derived an astounding 106.1% yoy growth during the quarter. The SSP (Semi Synthetic
Penicillin, up 15.1% yoy) and Cephalosporin (down 13.2% yoy) remained a drag.
Outlook and Valuation
Aurobindo’s 3QFY2012 performance reflected strong growth traction on a sequential basis.
New launches in EU and ROW markets, gradual improvement in US through shift of
products from affected units and favorable currency led to better than expected quarter.
Despite management’s encouraging picture of strong visibility (US$2bn sales guidance by
2015) led by new launches in US, ramp up in filings in niche OCs and OTC segments, pick
up in Pfizer and AstraZeneca sales and sustained growth in EU and ROW, we believe that
the growth would remain under pressure until the USFDA resolution is obtained. We factor
in the sequential improvement of the company and revise our EPS to Rs13.3 (Rs11.9
earlier) and Rs14.5 (Rs13.9 earlier) for FY2012E and FY2013E respectively.
The stock has corrected 51% in the last 1 year due to slippages in growth affected by import
alert on manufacturing plants and high forex losses. Further, high fixed costs relating to
facility up-gradation and import alert on Unit VI impacted its operating performance. CBI
raids with regards to financial misdeeds by promoter also added to its woes. We believe that
stock correction is overdone (up by 25% in the last 3 months) and a likely rebound in growth
and margins would drive growth. Hence we maintain Hold with a price target of Rs139.
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