Aurobindo’s revenue in Q2FY19 grew by 7.1% yoy to Rs4,751.4cr. This was due to the improvement in the US, growth markets, ARV and non Betalactum business. The US and ARV business have shown strong improvement sequentially. EBITDA declined by 11.7% yoy to Rs986.3cr in Q2FY19 vs. Rs1,116.9cr in Q2FY18. EBITDA margins in Q2FY19 stood at 20.8% vs. 16.7% in Q1FY19 and 25.2% in Q2FY18. Reported PAT declined by 21.7% yoy to Rs611.4cr in Q2FY19 vs. Rs781.2cr in Q2FY18. During the quarter, company acquired certain R&D assets from Advent Pharmaceuticals pty Ltd., Australia. Advent Pharma is in the business of R&D of complex specialty generics. Company has booked exceptional item of Rs26.8cr for Q2FY19 representing acquisition related costs. Adjusted for this, PAT in Q2FY19 stood at Rs638.3cr, showing yoy decline of 18.3%. We had expected revenue/EBITDA/PAT of Rs4691cr/Rs988cr/Rs606cr in Q2FY19 hence the result is above our expectations..
Gross margins during Q2FY19 grew by 188bps qoq but declined by 314bps yoy to 57%. The qoq improvement indicates lower margin pressure, while the yoy comparison is not suitable due to the high base and favorable product mix in Q2FY18.
US sales grew 6.1% yoy to Rs2,226.8cr in Q2FY19 vs. Rs2,098.9cr in Q2FY18. On constant currency basis, sales declined by 2.6% yoy. US accounted for 46.9% of total revenues. The US sales growth can be attributed to the launch of Ertapenem injection towards end of Q1FY19.
EU formulations revenue in Q2FY19 grew 3.9% yoy to Rs1,156.5cr, this business accounted for 24.3% of revenues. In Euro terms, sales declined by 3.6% yoy.
Company has transferred manufacturing of 97 products from Europe to India by end of H1FY19.
ARV business revenue increased by 17.6% yoy to Rs244cr in Q2FY19 vs. Rs207.5cr in Q2FY18.
Revenue in growth markets formulations business grew 26.3% yoy to R307.5cr in Q2FY19.
API business grew 5.8% yoy to R816.6cr.
Research & Development (R&D) spend in Q2FY19 stood at Rs216.8cr, 4.6% of revenues. Company has filed total 25 ANDAs in Q2FY19 and received 13 final and two tentative USFDA approvals.
Gross debt stood at Rs5,545cr in Q2FY19 vs. Rs4,483cr in Q4FY18.
Net debt stood at Rs3,767cr in Q2FY19 vs. Rs3,221cr in Q4FY18. Net debt-to-equity ratio in Q2FY19 stood comfortable at 0.3x.
The qoq growth in the US business has been due to new product launch and high volumes of the existing products while yoy decline is due to the high base in the last year.
Company expects the filling momentum (~40 fillings /year) to continue over next 3 years and has filed first nasal and second dermatological ANDA.
Due to the EIR at unit 4, approval momentum in the injectables will pick-up. Company expects important product approvals in January 2019. Vancomycin (filed in mid Oct 2018) and bag line are expected to grow the injectable business over next two years.
Injectable business revenue during Q2FY19 was $50mn vs. $36mn in Q1FY19, company expects 30% yoy growth in injectables.
The new injectable products launched are expected to bring $90-100mn revenue over next four quarters but company expects this business to contract once competition picks up.
Company has new goal date in January 2019 for gToprol-XL.
Company expects to accrue full quarter benefit of Valsartan in Q3FY19E however expects this not to be a sustainable opportunity.
Intangible under development have grown by Rs70cr due to acquisition of 7 ANDAs under development.
Advent pharma has some assets ready for clinical trials and company expects product filling in 2021 and approval in 2022. Company will focus on the US market with DPI (Dry Powder Inhalation) fillings.
On biosimilar front, company expects to file first product in 2021 and approval in 2012.
In Europe, for the last three quarters, growth has been 14-15% due to good opportunity and company expects European business to grow faster than the industry. Apotex deal is expected to close in Q4FY19E.
EBITDA in Europe is in double digits and pipeline has some day one launches. Company will continue to rationalize the low margin products and bring manufacturing to India.
Aurobindo has 6 DMFs in peptides and has submitted Pneumococcal studies to DCGI.
OTC business revenue in Q2FY19 at $11.2mn, FY19E full year revenue expected at $45-50mm. Natrol Q2FY19 revenue was $32.3mnm Aurobindo expects double digit growth over next two quarters.
ARV tender is expected to open next month and supplies will start in April 2019.
Aurobindo expects to reduce debt by $100-150mn in 2020, but depends upon the new acquisition opportunities.
China impact is is single digits in COGS.
Financing cost (2.6%) increased during the quarter due to the increase in the LIBOR rate.
Aurobindo Pharma Ltd ended at Rs. 798.30, down by 15 points or 1.84% from its previous closing of Rs. 813.30 on the BSE.
The scrip opened at Rs. 818.90 and touched a high and low of Rs. 823.60 and Rs. 792.15 respectively. A total of 30,56,661 (NSE+BSE) shares were traded on the counter. The stock traded below its 50 DMA.
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