Annual Report Analysis - Aurobindo Pharma :: Edelweiss PDF link

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Aurobindo Pharma’s (APL) FY14 annual report analysis highlights robust profitability and return ratios with PBT increased to INR15.3bn from INR3.7bn in FY13. However, growth in operating cash flow (after interest) was subdued at INR5.8bn in FY14 from INR1.1bn in FY13 due to heavy investment in working capital despite robust profitability. Higher working capital investments coupled with acquisition advance paid led to APL’s debt increased by INR3.3bn despite robust profitability; however, the company’s D/E improved from 1.3x to 1.0x. During FY14, purchases and sales from/to related parties increased 41% and 228%, respectively. Profitability of subsidiaries (excluding US) deteriorated as losses widened from INR663mn in FY13 to INR1,039mn in FY14. The company made additional investment of INR1.9bn in existing subsidiaries, of which INR1.6bn was infused in Helix Healthcare (Helix).  Total exposure to Helix stood at INR6.3bn, of which INR1.8bn has been impaired.

What’s on track?

APL’s FY14 revenue and profitability catapulted 38% and 300%, respectively, coupled with expansion in RoCE and RoE, which stood at 27.2% and 36.9%, respectively  (FY13: RoCE-11.2%, RoE-11.9%).

Profitability of US subsidiaries improved from INR293mn (1.9%) in FY13 to INR1,345mn (5%) in FY14.

The company’s D/E ratio declined from 1.3x in FY13 to 1.0x in FY14 led by increase in net worth.

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What needs tracking?

Operating cash flow (after interest) stood lower at INR5.8bn versus PBT of INR15.3bn due to increase in trade receivables by INR11bn.

Trade receivables rose to 119 days (FY13: 100 days). Cash conversion cycle remained high at 204 days versus 195 days in FY13. Inventory days stood at 198 (FY13: 192).

APL invested INR1.9bn in existing subsidiaries, of which 84% (INR 1.6bn) was invested in Helix. Total equity investment in Helix is INR5,572mn against which impairment provision of INR1,800mn (INR 840mn in FY14) has been recognised so far. Loan of INR736mn is also outstanding from Helix.

APL through its subsidiary Helix, acquired certain commercial western European operations of Actavis for almost nil consideration. However, as at March 2014, APL deposited Euro49mn (INR4,008mn) in an escrow account towards this acquisition and subsequently (in Q1FY15) received equivalent amount of working capital (mainly inventories and receivables) on closure of the transaction.

Related party transactions include purchases (FY13: INR2.2bn; FY14: INR3.1bn) and sales (FY13: INR280mn; FY14: INR918mn) from related parties, which catapulted 41% and 228%, respectively, in FY14. Related party purchases (goods) and sales accounted for 7.4% (FY13:6.1%) and 1.1% (FY13: 0.5%) of overall raw material cost and sales respectively

Export incentive receivable increased 11.5% YoY to INR2.2bn, representing 6% of net worth. Receivable balance is more than past 3 years’ export incentive income.

LINK
https://www.edelweiss.in/research/Annual-Report-Analysis--Aurobindo-Pharma/27137.html