Aurobindo Pharma : Poised for strong growth: Centrum

Poised for strong growth
Aurobindo Pharma’s (APL) revenues for Q4FY13 were in line with our
expectation. However, EBIDTA margin and net profit were below our
expectations. The company reported a growth of 32%YoY in
revenues, 350bps in EBIDTA margin and 2%YoY in net profit. Sales
growth in US formulation business was 62%YoY and in EU & RoW it
was 45%YoY. API-SSP reported 14%YoY growth whereas APIcephalosporin
reported 26%YoY growth. APL has a strong pipeline
of products for the US market. The management has given a
guidance of above 20% sales growth for FY14. We have a Buy rating
for the scrip and revised target price of Rs254 from Rs245 (based on
10x Sept’14 EPS of Rs25.4).
 Excellent sales growth: APL reported 32%YoY growth in revenues from Rs11.91bn to
Rs15.70bn in Q4FY13. US formulation revenues (30% of total) grew by 62%YoY from
Rs3.01bn to Rs4.86bn. Its EU & RoW formulation business (16% of total) grew by
45%YoY from Rs1.72bn to Rs2.49bn. The API-SSP business (12% of revenues) grew by
14%YoY from Rs1.65bn to Rs1.89bn. APL’s API-cephalosporin business (15% of total)
grew by 26%YoY from Rs1.93bn to Rs2.44bn. API-ARV & others (15% of total) grew by
11%YoY from Rs2.12bn to Rs2.35bn.
 Margin improves: APL’s margin for Q4FY13 improved by 350bps from 11.8% to 15.3%
due to overall decline in costs. The company’s material cost declined by 270bps from
53.9% to 51.2% of net sales due to higher sales of formulations in the US market.
Personnel cost dropped by 50bps from 11.7% to 11.2% due to strong sales growth.
Other expenses declined by 30bps from 22.6% to 22.3%.

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 Strong growth in US: APL’s three manufacturing facilities, Unit IV (injecatbles), Unit VI
(cephalosporins) and Unit XII (SSP) have been cleared by US FDA after re-inspection.
These three units are likely to contribute for the full year in FY14 and are expected to
generate additional revenues for the company.
 Rich product pipeline for US: APL has filed 269 ANDAs with US FDA of which 181
have been approved. The company has launched 23 new products in the US in FY13.
These products are likely to generate revenues for the full year in FY14. APL has plans
to launch 16-20 products in the US market in FY14 of which three would be controlled
substances.
 Good growth in API segment: The company’s API business (42% of revenues) grew
by 17%YoY from Rs5.70bn to Rs6.67bn in Q4FY13. APL has benefited from the
shortage of SSP and cephalosporin APIs in the domestic market.
 Valuations: We expect APL to benefit from good growth in the domestic, US and RoW
markets. The strong product pipeline in the US will deliver consistent growth. At the
CMP of Rs187, the stock trades at 8.9x FY14E EPS of Rs21.1 and 6.3x FY15E EPS of
Rs29.6. We have revised our FY14 and FY15 estimates downwards by 31% and 18%
respectively. We have a Buy rating for the scrip with a revised target price of Rs254
(based on 10x Sept’14 EPS of Rs25.4) with an upside of 35.6% over the CMP.