Aurobindo Pharmaceuticals (Q4 FY16): Q4 show bolsters rerating thesis

India Infoline Research Team | Mumbai | June 01, 2016 18:32 IST

Margins remain flat qoq as higher R&D offset GM expansion; PAT beats estimates on higher other income and lower tax rate.

CMP: Rs786, 1-yr Target: Rs1,030, Upside: 30.8%
 
  • Strong Q4 show with beat on revenues and PAT driven by robust US sales
  • US revenues up ~6% qoq, +24% yoy led by new launches in oral solids and injectables; Abilify to make full impact in Q1 FY17
  • Margins remain flat qoq as higher R&D offset GM expansion; PAT beats estimates on higher other income and lower tax rate 
  • Strong sequential rebound, robust US pipeline and European turnaround to drive rerating; retain BUY for 1-year target of Rs1,030  
 
Result table
(Rs cr) Q4 FY16 Q3 FY16 % qoq Q4 FY15 % yoy
Net sales 3,675 3,432 7.1 3,144 16.9
Other op. income 72 63 13.6 18 298.1
Total sales 3,747 3,496 7.2 3,162 18.5
RM + inventory changes (1,234) (1,176) 4.9 (1,037) 19.0
Purchase of stock (393) (377) 4.1 (337) 16.7
Staff (409) (401) 1.9 (373) 9.5
Other expenses (828) (718) 15.4 (759) 9.1
Operating profit 882 823 7.2 656 34.5
OPM (%) 23.5 23.5 0 bps 20.7 280 bps
Depreciation (111) (99) 11.9 (85) 31.4
Interest (25) (23) 10.6 (23) 11.1
Other income 21 7 199.7 7 205.5
PBT 767 708 8.3 556 38.0
Tax (210) (186) 12.7 (153) 36.7
Effective tax rate (%) 27.2 26.3 91 bps 27.6 (42) bps
Minority int 1 0 370.0 0 213.3
Extra ordinary items 5 13 (64.8) 1 282.4
Reported PAT 563 535 5.2 404 39.4
Source: Company, India Infoline Research
 
Strong US sales drive robust Q4
Aurobindo reported a robust set of Q4 FY16 results with beat on our revenue and PAT estimates. Q4 revenues grew 7.1% qoq and ~17% yoy driven by strong traction in US (+6.1% qoq, +24% yoy), Europe (+8% qoq) and ARV sales (+7.5% qoq). US sales were driven by new launches across oral solids and injectables business which adequately offset 3% net price erosion in oral solids segment; pricing remained stable in the injectables division. US growth would have been even better but for products like Abilify whose full launch impact would be visible in Q1 FY17. Natrol clocked US$111mn in FY16 revenues from about US$96mn at the time of acquisition while European business turnaround to post a single digit EBIDTA margin  which is likely to be sustained. Margins were flat qoq and came just below our estimate of 24% as higher gross margin (+100bps qoq) was offset by higher R&D which drove ~160bps qoq rise in other expenses. That said higher other income and lower tax rate helped PAT beat estimates. Aurobindo obtained 23 and 58 approvals in Q4 and FY16 respectively and launched 28 products in FY16.
 
Revenue breakup
Rs cr Q4 FY16 Q3 FY16 % qoq Q4 FY15 % yoy
Formulations 3,011 2,837 6.1 2,517 19.6
US 1,666 1,571 6.1 1,341 24.3
Europe 841 779 8.0 769 9.3
ROW 176 182 (3.6) 141 24.7
ARV 328 305 7.5 267 23.0
APIs 775 695 11.4 676 29.6
Betalactum 502 449 11.7 441 13.9
Non Betalactum 273 246 10.9 236 15.7
Dossier income 5 1 - 4 51.4
Total 3,747 3,496 7.2 3,162 18.5
Source: Company, India Infoline Research
 
Conference call highlights
  • US oral solids growth on account of new products despite net 3% price erosion; Aurolife: new products and govt momentum have been key for growth
  • Oral solids business down 6% qoq due to weakness in third party business but no significant impact on Aurobindo owned business
  • Auromedics (injectables): sales of US$36.3mn (+98% yoy) and FY16 at US$95.2mn (+39% yoy) on account of new 11 launches
  • Several complex products under development including hormones, oncology and four liposomal products (each requiring US$6mn R&D right from formulations to bio equivalence studies)
  • Natrol performing as expected; clocked US$111mn sales with 14-15% volume growth in FY16; expect 15% growth and slightly faster bottom-line growth
  • Sevelamer (Renvela) approval likely in current fiscal 
  • Abilify more benefit would come in Q1 FY17; Vancomycin would be mid Q3 FY17; prices have been stable in base injectables business 
  • Valcyte: double digit market share and price erosion along expected lines with Aurobindo being 4th competitor though price erosion <80%
  • Rosuvastatin (Crestor): 9 cos have tentative approvals apart from Actavis who has approval
  • 7 key products to be launched in Q1 including Celecoxib with a combined market size of US$500mn
  • Close to US$1bn in US revenues but real growth in Auromedics is yet to start plus Natrol would also drive momentum; on the oral side, price erosion of 3% offset by volume growth. Overall bullish on US growth opportunities
  • Target 30-40 launches for FY17 even as Q4 new launches had negligible impact on sales
  • FY17 launches and approvals would be more than 28 launches in FY16
  • US business pipeline: 251 ANDAs approved and 247 pending approvals
  • 4-5 quarters away from Oncology and Hormones filings; oral solids filings to be in double digits
  • FY16 capex at US$212mn including US$18mn intangible capex with net debt of US$584mn
  • R&D to be around 4-5%, capex of Rs.1,200cr in FY17 and FY18 capex of Rs.500cr
  • Mid single digit EBIDTA margin for Europe in Q4 and once full India (COGS) transfer occurs, one can expect high single digit going ahead
  • Margin should improve overall but no specific timeline
  • Major debt reduction in FY18 when capex comes down; not planning any capital raise and if at all then would be for strategic purpose and not regular funding
 
Strong US outlook bolsters case for rerating: retain BUY
Aurobindo ended FY16 on a strong note and strength in US business on back of large approvals and launches augurs well even as price erosion continues to be a industry wide concern. We largely keep estimates unchanged and retain BUY for revised 1-year target of Rs1,030, based on 19x FY18E EPS.
 
Financial summary
Y/e 31 Mar (Rs cr) FY15 FY16E FY17E FY18E
Revenues 12,121 13,896 17,399 20,156
yoy growth (%) 49.6 14.6 25.2 15.8
Operating profit 2,564 3,206 4,211 5,079
OPM (%) 21.2 23.1 24.2 25.2
Reported PAT 1,576 1,982 2,547 3,167
yoy growth (%) 34.4 25.8 28.5 24.4
EPS (Rs) 26.9 33.9 43.5 54.1
P/E (x) 58.4 23.2 18.1 14.5
P/BV (x) 8.9 6.5 4.9 3.7
EV/EBITDA (x) 19.5 15.4 11.6 9.3
Debt/Equity (x) 0.9 0.6 0.3 0.2
ROE (%) 34.9 33.5 30.8 29.0
ROCE (%) 24.1 25.9 30.1 31.6
 Source: Company, India Infoline Research

***Note: This is a NSE Chart

 

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