Aurobindo Pharma. Source: Company Data; PL Research

Transcription

1 Earnings in line; Strong guidance for FY17E maintained February 10, 2016 Surajit Pal Rating BUY Price Rs691 Target Price Rs943 Implied Upside 36.5% Sensex 23,759 Nifty 7,216 (Prices as on February 10, 2016) Trading data Market Cap. (Rs bn) Shares o/s (m) M Avg. Daily value (Rs m) Major shareholders Promoters 53.90% Foreign 28.78% Domestic Inst. 6.50% Public & Other 10.86% Stock Performance (%) 1M 6M 12M Absolute (18.2) (11.2) 33.9 Relative (13.4) How we differ from Consensus EPS (Rs) PL Cons. % Diff Price Performance (RIC: ARBN.BO, BB: ARBP IN) Aurobindo reported 9% growth in sales (Rs34.3bn) and 39% growth in PAT (Rs5.3bn) in, while earnings were in line, sales fell below our estimates as Nexium sales and depreciated Euro impacted revenues in. Adjusted EBITDA margin of core business was at 22%. With launch of Entecavir, Raloxifen and Abilify in October and approval of Isosulfan Blue, we expect Aurobindo is poised to achieve 16% and 13% growth in sales and 19% and 16% growth in PAT in Q4FY16E and FY16E respectively. With a large portfolio of injectables overdue (TAD of 27 ANDAs by August 2016) for approvals, we expect its sales to increase at 16% CAGR in FY16E18E once approvals in key generics are received. Management has guided for EBITDA margin in the range of 2122%, while there is peak potential of EBITDA margin at 25% in FY16E18E. Net debt decreased by US$52m to US$610m in. With increase in approvals and TADs in key drugs, there is strong visibility in earnings in FY16E and FY17E. With 36% upside to our TP Rs 943, we upgrade our recommendation to Buy from Accumulate while we maintain TP at Rs 943, at a PER of 18.5x FY18E earnings. Natrol achieves operating Profit, ARV to remain flat QoQ: Integration of Natrol sales of US$25m and consistent ARV tender business along with 33.5% growth (local currency) in US were the reasons for 12% formulation growth in. Aurobindo s growth in ARV business, US govt tender sales and turnaround in EU Actavis with operating profit helped in 22% EBITDA margin in. US pipeline remain robust: With US$23m revenues from US injectable, management expects robust approvals of injectable from Unit4 in Q4FY16E and FY17E. Aurobindo expects 33 approvals in injectable in 12 months. With revenues of US$63m in FY15E, the company has guided 50% YoY revenue growth from US injectable in FY16E. Valuation: Post correction in valuation since January 2016, the stock trades at 16.2x and 13.6x in FY17E and FY18E. We expect growth in the valuation will be triggered with approvals of key injectable in near term. Key financials (Y/e March) E 2017E 2018E Revenues (Rs m) 121, , , ,535 Growth (%) EBITDA (Rs m) 25,636 30,600 39,654 46,067 PAT (Rs m) 16,354 18,949 24,864 29,757 EPS (Rs) Growth (%) Net DPS (Rs) Result Update (Rs) 1,000 Profitability & Valuation E 2017E 2018E Feb15 Apr15 Jun15 Aug15 Oct15 Dec15 Feb16 EBITDA margin (%) RoE (%) RoCE (%) EV / sales (x) EV / EBITDA (x) PE (x) P / BV (x) Net dividend yield (%) Source: Bloomberg Source: Company Data; PL Research Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. Please refer to important disclosures and disclaimers at the end of the report

2 Key takeways from Conference call Increase in volume of Aurolife s products, increase in government orders and higher sales of injectable drive US sales of control substance business. The product rationalisations in EU Actavis continued as the company has site transferred 28 products of EU generics to the Indian plant. With termination of third party manufacturing costs, Aurobindo s EU generics were able to reduce manufacturing and SGA costs, which has led to small EBITDA in second consecutive quarter after acquisition in FY14. Management expects highsingle digit EBITDA margin from FY18E onwards. Management expects better revenues in Q4FY16E from the launch of Raloxifen (Evista), Entecavir and Abilify in and new launch of 23 injectable since January 2016 The company also expects at least four key approvals in generics in Q4FY16E. Currently, the company has 27 TAD (Target action date) by August 2016 while it has 159 pending ANDAs. The company filed four ANDAs in while it expects to file three DMFs in peptide segments in Q4FY16. With win of originators in US Appeal Court, Aurobindo expects new court verdict on patentability of Angiomax in JunJul In case, Generic applicants win favourable outcome, it will launch the drug in FY18 otherwise it will be delayed for launch in FY19E. Natrol has been performing as per expectation of management and plans to launch 77 SKUs under its OTC business of Auro Health to expand operation in FY17E. The company is developing more such value added products in US With reduction of US$52mn QoQ, Aurobindo s net debt stands at US$610m in Capex was US$40m in. The company increased its guidance for Capex in FY16E to Rs11bn from the earlier levels of Rs9.5bn. February 10,

3 Exhibit 1: Result Overview (Rs m) Y/e March YoY gr. (%) 9MFY16 9MFY15 YoY gr. (%) Net Sales 34,321 31, ,801 99,759 88, Raw Material 15,536 15, ,690 45,304 41, % of Net Sales Personnel Cost 4,010 3, ,759 11,420 10, % of Net Sales Others 7,179 6, ,129 21,537 18, % of Net Sales Total Expenditure 26,725 25, ,579 78,261 70, EBITDA 7,596 5, ,222 21,498 18, Margin (%) Depreciation ,814 2, EBIT 6,601 5, ,295 18,685 16, Other Income ,211 1, Interest (76.8) 820 1,382 1, PBT 7,206 5, ,125 19,514 16, ExtraOrd. Inc./Exps. (3) (20) (15) (25) (41) Total Taxes 1,860 1, ,622 5,347 4, ETR (%) Reported PAT 5,350 3, ,518 14,192 11, February 10,

4 Exhibit 2: Major Sources of revenues (Rs m) Y/e March YoY gr. (%) 9MFY16 9MFY15 YoY gr. (%) Formulations 28,368 25, ,806 80,622 70, % of Net Sales USA 15,706 11, ,775 44,776 34, % of Net Sales Europe & ROW 9,608 9,947 (3.4) 9,323 27,131 28,541 (4.9) % of Net Sales ARV 3,054 3,338 (8.5) 2,708 8,715 6, % of Net Sales Natrol 600 NA 600 NA % of Net Sales API 6,952 6, ,911 21,093 20, % of Net Sales SSPs 4,493 2, ,981 8,639 6, % of Net Sales Cephalosporins 2,472 NA 2,294 4,908 6,940 (29.3) % of Net Sales ARV & Others (NPNC) 2,459 2, ,636 7,546 6, % of Net Sales Dossier Income (47.6) Gross Sales 35,331 32, , ,748 90, February 10,

5 Exhibit 3: Formulation sales, growth Sales (Rs m) 30,000 25,000 20,000 15,000 10,000 5, Exhibit 4: US generic sales (US$ m), growth Sales (US$ m) Exhibit 5: EU & ROW sales, growth Sales (Rs m) 12,000 10,000 8,000 6,000 4,000 2, February 10,

6 Exhibit 6: API sales, growth Sales (Rs m) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, Exhibit 7: Overall sales, growth Sales (Rs m) 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, Exhibit 8: EBITDA, margin EBITDA (Rs m) Margin (%) (RHS) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, February 10,

7 Income Statement (Rs m) Net Revenue 121, , , ,535 Raw Material Expenses 55,056 60,449 72,963 77,911 Gross Profit 66,149 76,158 94, ,624 Employee Cost 13,023 15,505 17,114 18,812 Other Expenses 27,490 30,054 37,233 40,745 EBITDA 25,636 30,600 39,654 46,067 Depr. & Amortization 3,326 3,796 4,561 5,416 Net Interest Other Income 808 1,131 1,142 1,153 Profit before Tax 22,275 27,034 35,478 41,288 Total Tax 5,966 8,110 10,643 11,561 Profit after Tax 16,309 18,924 24,834 29,727 ExOd items / Min. Int. (596) (750) (788) (827) Adj. PAT 16,354 18,949 24,864 29,757 Avg. Shares O/S (m) EPS (Rs.) Cash Flow Abstract (Rs m) C/F from Operations 12,368 18,612 21,686 19,739 C/F from Investing (14,085) (11,300) (10,000) (10,000) C/F from Financing 932 (4,866) (10,034) (7,992) Inc. / Dec. in Cash (785) 2,446 1,653 1,747 Opening Cash 5,275 4,506 6,952 8,604 Closing Cash 4,506 6,952 8,604 10,351 FCFF (3,361) 6,797 12,303 19,270 FCFE 3,610 12,935 7,055 8,108 Key Financial Metrics Growth Revenue (%) EBITDA (%) PAT (%) EPS (%) Profitability EBITDA Margin (%) PAT Margin (%) RoCE (%) RoE (%) Balance Sheet Net Debt : Equity Net Wrkng Cap. (days) Valuation PER (x) P / B (x) EV / EBITDA (x) EV / Sales (x) Earnings Quality Eff. Tax Rate Other Inc / PBT Eff. Depr. Rate (%) FCFE / PAT Balance Sheet Abstract (Rs m) Shareholder's Funds 51,559 66,394 87, ,252 Total Debt 44,754 50,892 45,644 34,482 Other Liabilities 2,316 1,750 1, Total Liabilities 98, , , ,890 Net Fixed Assets 41,253 49,629 55,198 59,682 Goodwill Investments Net Current Assets 52,323 58,835 66,810 74,461 Cash & Equivalents 4,691 6,952 8,604 10,351 Other Current Assets 78,100 84,791 94, ,243 Current Liabilities 30,468 32,907 36,078 38,133 Other Assets 4,855 10,375 11,845 13,549 Total Assets 98, , , ,890 Quarterly Financials (Rs m) Y/e March Net Revenue 31,440 32,637 32,801 34,321 EBITDA 6,380 6,680 7,222 7,596 % of revenue Depr. & Amortization Net Interest Other Income Profit before Tax 5,568 6,182 6,125 7,206 Total Tax 1,534 1,865 1,622 1,860 Profit after Tax 4,038 4,324 4,518 5,350 Adj. PAT 4,038 4,324 4,518 5,350 Key Operating Metrics (Rs m) US Formulations 48,317 61,896 85,449 94,905 EU & ROW 37,630 36,788 40,064 43,913 ARV formulations 9,639 11,557 12,860 14,093 APIs 27,062 27,983 30,576 32,715. February 10,

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