Q1FY24 Review: Aurobindo Pharma: Healthy outlook on margins

16 Aug 2023 , 12:20 PM

Aurobindo’s Q1 revenue grew 10% YoY, 2% ahead of analysts of IIFL Capital Services estimates, driven by robust 9% cc QoQ growth in the US business and 9% cc YoY growth in the EU business. While GMs in Q1 (down 100bps QoQ) was impacted by product/geographic mix and lower PLI incentives, mgmt has reiterated its Ebitda margin guidance (exRevlimid) of 18%+ for FY24 (vs 16.8% in Q1), driven by a stable pricing environment in US, >20% growth expected in Eugia’s global revenue led by Injectables, and 5-8% cc growth in the EU business. Analysts of IIFL Capital Services believe Revlimid launch on 1st Oct would propel overall Ebitda margins to ~20% in H2FY24. They upgrade FY24-26 Ebitda by 7-8%, on raising their base business margin estimates by 100- 120bps for the next 3 years. Commercialisation of Pen-G API project and the China plant to also serve as growth catalysts in FY25. Analysts of IIFL Capital Services maintain ADD. Their TP of Rs980 (11% upside) is pegged at 18.5x 2YF base biz EPS and Rs20 per share value for the Revlimid opportunity. 

Base business volume-led growth in both US & EU: 

Aurobindo’s US sales grew QoQ from USD370mn to USD402mn, on the back of volume-led growth in the base portfolio as prices were stable sequentially, which led to USD30/8mn incremental QoQ sales in the Orals/Injectables business. With prices likely to remain stable over the next 2-3 quarters, mgmt expects robust growth in US and we have factored in 11/6/6% cc growth in US sales for FY24/25/26. Oral solids were also a key driver of the 9% cc growth in EU business in Q1 and they expect 7% cc Cagr in EU sales over FY23-26. 

Targeting >20% growth in Eugia revenue (ex-Revlimid) for FY24: 

In Q1, Eugia’s global sales rose from USD100-110mn quarterly run-rate to USD122mn, driven by USD10m incremental sales in the US business led by injectables. Ex-Revlimid, mgmt expects Eugia’s global sales to rise from USD410mn in FY23 to >USD500m in FY24, driven by 15-20 new injectable launches in the US. Additionally, analysts of IIFL Capital Services expect US Revlimid launch to contribute USD45/120/140mn revenue to Aurobindo over FY24-26.

Robust outlook on margins for FY24: 

Aurobindo’s GMs were impacted by higher sales of Betalactam APIs, strong growth in EU and lower PLI incentives (Rs400mn in Q1 vs Rs630mn in Q4). However, as per mgmt, Puerto Rico plant closure and higher PLI incentives from Q2 will add 50bps of margins each. In line with mgmt guidance, analysts of IIFL Capital Services have built in base business Ebitda margins of ~18% in FY24.