Growth across segments Aurobindo Pharma :: Centrum

Growth across segments
Aurobindo Pharma’s (APL) results for Q2FY13 were better than our
expectations. The company reported 40%YoY growth in revenues, 600bps
improvement in EBIDTA margin and net profit of Rs2.23bn against net loss of
Rs803mn. The formulations business (59% of revenues) grew by 53%YoY
whereas the API business (40% revenues) grew by 27%YoY. The company’s
interest cost increased by 62%YoY due to the increase in working capital. APL
reported forex gain of Rs1,177mn against forex loss of Rs1,854mn. We have a
Buy rating for the scrip with a target price of Rs245 (based on 8x FY14E EPS).

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Excellent sales growth: APL reported 40%YoY growth in revenues from Rs10.75bn to
Rs15.00bn due to excellent growth in the formulation business and benefit of rupee
depreciation against the dollar. The formulation business (59% of revenues) grew by
53%YoY. Formulation exports to US and (EU & RoW) grew by 50% and 82%YoY
respectively. The company’s ARV formulation exports grew by 37%YoY. APL’s API
business grew by 27%YoY from Rs4.90bn to Rs6.22bn. Dossier income declined by
24%YoY from Rs153mn to Rs117mn.
Sharp improvement in margin: APL’s EBIDTA margin improved by 600bps YoY (and
520bps QoQ) from 10.7% to 16.7% due to the decline in material and personnel costs.
Material cost declined by 530bps from 55.7% to 50.4% of revenues due to higher
formulation sales. Personnel cost declined by 120bps from 12.3% to 11.1% due to strong
sales growth. Other expenses grew by 50bps YoY from 21.3% to 21.8% due to an
increase in power and fuel cost and legal & professional fees for remedial measures of its
manufacturing units.


Unit VI likely to get inspected: APL’s manufacturing unit VI which is under import alert
from US FDA was inspected in Q2FY13. We expect the unit to contribute significantly
after clearance from US FDA. APL’s Unit III and Unit XII have also been inspected by US
FDA and are likely to get approvals soon.
Strong product pipeline: APL has a strong product pipeline for regulated markets. The
company has filed 265 ANDAs with US FDA, of which 162 are approved. The company
has over 170 DMFs filed in regulated markets. APL has filed 1,316 dossiers in Europe. All
these are likely to contribute significantly in future.
Valuations: We expect APL to benefit from higher supply of generic formulations for
regulated markets. We expect margin improvement due to reduced exposure to ARV
formulations and new product introductions in the US market. We have revised our FY13
and FY14 EPS estimate upwards by 25% and 56% respectively. At the CMP of Rs178, the
stock trades at 11.1x FY13E EPS of Rs16.0 and 5.8x FY14E EPS of Rs30.6. We have a Buy
rating for the scrip with a target price of Rs245 (based on 8x FY14E EPS of Rs30.5) with a
37.4% upside over the CMP.