Aurobindo, 1Q FY 2014
Aurobindo, 1Q FY 2014
Aurobindo Pharma
Performance Highlights
Y/E march (` cr) Net sales Other income Operating profit Interest Adj. Net profit Profit/(loss) 1QFY14 1700 20 292 25 170 4QFY13 1553 32 222 33 110 % chg (qoq) 9.4 (37.9) 31.4 (23.3) 54.8 1QFY13 1197 19 123 33 79 % chg (yoy) 41.9 3.6 137.6 (23.3) 115.6
BUY
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Pharmaceutical 5,397 3,185 1.2 205/102 321,484 1 18,947 5,612 ARBN.BO ARBP@IN
`181 `271
12 months
For 1QFY2014, Aurobindo Pharmaceuticals (APL) posted better-than-expected results on the sales and OPM fronts, while the adj. net profit came in below expectation. For the quarter, the company posted net sales of `1,700cr vs our expectation of `1,660cr, registering a growth of 41.9% yoy. On the operating front, the margin improved by 691bp, to end the period at 17.2%, higher than our expectation of 16.2%. The adj. net profit come in at `170cr vs our expectation of `182cr and `79cr in 1QFY2013. On back of improvement on the financial front and clearance of facilities by the USFDA, the company marinated a sales guidance of 20.0%, with more upsides possible, and hinted at OPM in 2HFY2014 to be better than 1HFY2014. We have a Buy recommendation on the stock. Sales higher than expected: Net sales grew strongly by 41.9% yoy to `1,700cr, led by a robust growth in formulations (68.0% yoy growth). The growth in formulations was driven by the US market, which posted a yoy growth of 90.3%. Other key markets like EU and ROW along with antiretroviral (ARV) in the formulation segment posted a sales growth of 52.6% and 36.8% yoy respectively. Gross margin came in at 47.6% (vs 45.9% in 1QFY2013) on back of favourable product mix, which along with operating leverage led the OPM to come in at 17.2% vs10.3% in the corresponding quarter of the previous year. This led the company to post an Adj. net profit of `170cr vs `79cr in 1QFY2013. Outlook and valuation: The commencement of operations at the Hyderabad SEZ and incremental contribution from the Pfizer deal would boost APLs earnings and provide better growth visibility going forward. We estimate net sales to log a 14.9% CAGR to `7,637cr over FY201315E on the back of supply agreements in the US and ARV formulation contracts. Even after factoring in lower profitability and growth going forward, the stock trades at an attractive valuation. Hence, we maintain our Buy recommendation on the stock with a price target of `271. Key financials (Consolidated)
Y/E March (` cr) Net sales % chg Net profit % chg Recurring profit % chg EPS (`) Recurring EPS EBITDA margin (%) P/E (x) RoE (%) RoCE (%) P/BV (x) EV/Sales (x) EV/EBITDA (x) FY2012 4,551 10.3 198 (62.4) 141 (57.4) 6.8 4.9 11.7 37.2 8.3 8.4 2.2 1.8 15.2 FY2013 5,783 27.1 432 118.2 376 165.7 14.8 12.9 14.1 14.0 17.5 9.9 2.0 1.4 9.9 FY2014E 6,641 14.8 560 29.7 504 34.2 19.3 17.3 15.9 10.4 19.5 12.3 1.6 1.2 7.5 FY2015E 7,637 15.0 657 17.2 601 19.1 22.6 20.6 15.9 8.8 18.9 13.1 1.4 1.0 6.3
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 54.8 17.4 18.3 9.5
3m (5.8) (7.3)
1QFY2014 1,700 20 1,719 808 47.6 292 17.2 25 72 214 24 190 171 19 170 5.9
4QFY2013 1,553 32 1,576 748 48.2 222 14.3 33 69 152 45 107 1 (1) 107 110 3.8
% chg (qoq) 9.4 (37.9) 9.1 8.1 31.4 4.2 41.1 (45.7) 77.6 (82.6) 54.8
1QFY2013 1,197 19 1,217 550 45.9 123 10.3 33 59 50 (27) 77 206 (0) (129) 79 2.7
FY2013 5,783 101 5,884 2,792 48.3 817 14.1 131 249 538 83 455 163 (2)
FY2012 4,551 102 4,652 2,031 44.6 533 11.7 103 201 332 (89) 420 545 (1) (124) 198 6.8
% chg (yoy) 27.1 (0.8) 26.5 37.5 53.2 27.8 24.0 62.1 8.2 118.3 118.3
115.6
Revenue up at 41.9% yoy; higher than expectation: For the quarter, the company posted net sales of `1,700cr vs our expectation of `1,660cr, registering a growth of 41.9% yoy. The growth was driven by the formulation segment, which grew 68.0% yoy, driven by the US market, which posted a yoy growth of 90.3%. Other key markets like EU& ROW along with ARV in the formulation segment posted sales growth of 52.6% and 36.8% yoy respectively. The API segment on the other hand posted a growth of 10.2% yoy during the period, led by the SSP segment which grew 24.1% yoy. As of end of June 2013, the company has 281 approved abbreviated new drug applications (ANDAs) and 191 approvals.
OPM expands to 17.2% for the quarter: On the operating front, the margin improved by 691bp, to end the period at 17.2%, higher than our expectation of 16.2%. Improvement in OPM is on the back of improvement in gross margins, which expanded by 162bp yoy and higher sales growth. The Management expects 2HFY2014 to be better than 1HFY2014 in terms of OPM.
Net profit lower than estimate: For the quarter, the company posted an Adj. net profit of `170cr, lower than our expectation of `182cr. This was mainly on back of higher interest expenses during the quarter.
(%)
(` cr)
100 80 60 40 20 0
1QFY2013
2QFY2013
3QFY2013
4QFY2013
1QFY2014
Management takeaways
The company has maintained its sales guidance of 20% for FY2014, which could be surpassed. The company plans to consolidate all injectiable assets (Unit IV, Auromedics + acquired 60% stake in Celon) in a wholly owned subsidiary and expects to have ~100 ANDA filings from it over the next 3-4 years, and could have ~15 such filings by FY2014 end. The Management has guided at US$33mn of revenue from injectibles business for FY2014 and US$45-50mn for FY2015. The Management has guided for 16-20 new launches in the US in FY2014. The company expects to repay US$50-70mn of debt by year-end, following which D/E to be around 1 or less than 1. R&D expenses to be 4% of sales in FY2014. The tax rate is expected to be around 20% in FY2014. Capex for FY2014 is expected to be `280-290cr.
Recommendation rationale
Supply agreements to drive growth: APL has increased its filing (ANDAs and dossiers) dramatically from 313 in FY2008 to 1,647 in FY2013, as it proposes to scale up from SSP and Cephs to NPNC products. Further, the companys transformation from being a pure API supplier to becoming a formidable formulations player has increased its cost efficiencies, as 90% of its formulation is now backward integrated. Thus, to leverage on its cost efficiency and strong product filings, APL has entered into long-term supply agreements with Pfizer (March 2009) and AstraZeneca (September 2010), which provides significant revenue visibility going ahead. APL is also in discussion with other MNCs for more supply agreements.
US and ARV formulation segments the key drivers for base business: APLs business, excluding the supply agreements, would primarily be driven by the US and ARV segments on the formulation front. The company has been an aggressive filer in the US market, with 281 ANDAs filed until 1QFY2014. Amongst peers, APL has emerged as one of the top ANDA filers. The company has aggressively filed ANDAs in the last few years and is now geared to reap benefits, even though most of the filings are for highly competitive products. APL expects to file 1520 ANDAs every year going forward. Going ahead, with US$70bn going off-patent in the US over the next three years, we believe APL is well placed to tap this opportunity. APL is one of the largest generic suppliers under ARV contracts, with a 35% market share. The company enjoys high market share as it is fully integrated in all its products apart from having a larger product basket.
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Company background
Aurobindo Pharma manufactures generic pharmaceuticals and active pharmaceutical ingredients. The companys manufacturing facilities are approved by several leading regulatory agencies like the USFDA, UK MHRA, WHO, Health Canada, MCC South Africa and ANVISA Brazil among others. The companys robust product portfolio is spread over six major therapeutic/product areas encompassing antibiotics, anti-retrovirals, cvs, cns, gastroenterologicals, and anti-allergics.
Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.) 1.1 3.4 6.4 0.6 2.2 8.5 1.3 5.7 4.0 1.2 3.9 4.3 1.0 2.8 5.9 0.7 2.3 6.9 1.7 101 94 74 169 1.9 107 92 118 139 1.7 98 115 237 158 1.8 98 129 78 159 2.0 101 133 80 159 2.1 104 137 80 159 12.1 15 29.6 12.7 16 24.6 8.4 10 8.3 9.9 12 17.5 12.3 15 19.5 13.1 16 18.9 13.9 74.6 0.9 9.8 2.4 1.5 20.6 12.9 71.4 1.1 9.9 2.3 0.9 16.7 9.0 58.4 1.0 5.1 2.5 1.0 7.6 9.8 77.9 1.0 8.0 3.2 1.3 14.0 11.7 75.0 1.1 9.8 2.9 1.1 17.2 11.9 75.0 1.2 10.7 2.9 0.8 17.2 20.2 16.3 25.6 1.0 65.7 19.3 18.1 25.2 2.0 84.0 6.8 6.8 2.6 1.0 80.4 10.1 14.9 18.6 0.5 89.5 19.2 19.2 28.8 0.5 108.1 22.6 22.6 33.2 0.5 130.1 11.1 7.1 2.8 0.6 2.1 11.5 1.7 10.0 7.2 2.2 1.1 1.7 9.7 1.6 26.6 68.6 2.2 0.5 1.8 15.5 1.5 12.1 9.7 2.0 0.3 1.5 10.3 1.4 9.4 6.3 1.7 0.3 1.2 7.8 1.3 8.0 5.4 1.4 0.3 1.1 6.6 1.1 FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E
10
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
Aurobindo Pharma No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.
Ratings (Returns):
11