Q3FY24 Review: Aurobindo Pharma: Near-term uncertainties led by Eugia Unit-3

13 Feb 2024 , 12:57 PM

Aurobindo’s Q3 Ebitda, adjusted for one-time claw back tax in EU, was 7% ahead of analysts of IIFL Capital Services estimates driven by launch of Revlimid and 100-150bps higher margins for the base business (ex-Revlimid). US base business (ex-Revlimid) grew 4-4.5% QoQ in Q3 led by strong growth in OSD. Although Aurobindo’s medium-term growth levers are in place with ramp-up expected in Revlimid, 40 new launches targeted p.a. in the US, and commercialisation of Pen-G API/China plant by Q1/Q2FY25, there are near-term uncertainties owing to the recent ‘483 and production stoppages on the Eugia Unit-3 plant which will impact revenues by USD20m in Q4FY24. While analysts of IIFL Capital Services remain positive on Aurobindo, they expect the stock to consolidate till incremental clarity emerges on Unit-3 given it accounts for ~50% of company’s pending injectable filings and ~40% of Eugia’s revenue. Analysts of IIFL Capital Services upgrade FY25/26 EPS by 2-4% led by higher margins and expect 14% core EPS (ex-Revlimid) Cagr over FY24-27. Maintain ADD (TP Rs1280, pegged at ~19.5x FY26 core EPS). 

Mgmt expects to maintain Eugia’s quarterly revenue run-rate at USD150m (incl. Revlimid), barring the USD20m revenue impact expected in Q4FY24 owing to production stoppages. Aurobindo expects to restart non-aseptic production lines by end of Feb’24 and then aseptic lines by end of Mar’24. Unit-3 contributes 40% to Eugia’s revenue, implying US sales contribution of USD140-150m (9-10% of overall US sales). Barring any regulatory setbacks in Unit-3, analysts of IIFL Secirotoes expect Aurobindo’s base US business to clock 6.5% Cagr & Revlimid to contribute USD46/120/140m over FY24-26ii. 

Growth levers in place with Pen-G API/China plant revenue expected to start by Q1/Q2FY25. 40-50% of Aurobindo’s Pen-G API capacities of 15K TPA will be consumed internally and analysts of IIFL Capital Services expect Aurobindo’s external Pen-G API sales to be USD75/150m in FY25/26 assuming price of USD20/kg. Aurobindo’s EU business Ebitda margins were 10-11% earlier and have improved by 200-300bps now. With China & Vizag plant supplies to EU market, mgmt expects EU margins to improve to mid-teens going forward. 

Biosimilars to aid overall margin improvement from FY27/28, given biosimilars’ GMs of 85% (vs FY24ii consol. GMs of 56%). Aurobindo is targeting bXolair filing and bProlia filing in the regulated markets in 2025 and then potential commercialization in 2026. Mgmt expects bXolair to be a meaningful product, with USD120-180m revenue in the US by FY28 (given limited competition) and another USD20m from the RoW markets.