Aurobindo Pharma - Q3FY12 Result update - Centrum

API business performance improves

Aurobindo Pharma (APL) Q3FY12 numbers were above our expectation due to marked improvement in the API business. The company's revenues grew by 8%YoY, EBIDTA margin declined by 1190bps and net profit fell from Rs1.89bn to Rs-286mn due to Rs1.45bn forex loss. The management is confident of improved performance in FY13 on the back of new launches and expected US FDA clearances of Units 6 and 3. We reiterate Buy for the scrip with a revised target price of Rs147 (based on 8x FY13 EPS).

- Revenue growth affected by lower dossier income: APL reported 8%YoY revenue growth from Rs11.92bn to Rs12.85bn. The company's formulation sales (56% of total) grew by 15%YoY from Rs6.44bn to Rs7.39bn. Its API sales (42% of total) improved 20%YoY from Rs12.20bn to Rs13.10bn. APL's dossier sales (2% of total) declined by 81% from Rs1.20bn to Rs228mn. Sale of dossiers is a very high margin business and its decline resulted in sharp fall in EBIDTA margin.

- Sharp decline in Margin by 1190bps: APL's EBIDTA margin dropped by 1190bps from 26.8% to 14.9% due to overall increase in costs from sharp reduction in dossier income. Material cost increased by 700bps from 47.9% to 54.9% of total revenues due to the change in product mix. Personnel expenses were up by 190bps from 9.1% to 11.0% due to manpower addition in European subsidiaries. Other expenses increased by 290bps from 16.3% to 19.2% due to increase in power, fuel and legal cost. There was a forex loss of Rs1.45bn (MTM losses on foreign currency borrowings) against forex gain of Rs41mn. The company's net profit dropped sharply from Rs1.89bn to Rs-286mn due to drop in margin and large forex loss.

Import alert: APL faces import alert from US FDA for its Units 6 and 3. The loss of revenues were $10mn (Rs490mn) due to the import alert. The management has informed that Unit 3 is likely to get re-inspected by US FDA in March'12 and Unit 6 in June'12. The company has engaged independent consultants for this.

- Strong product pipeline in the US: APL has filed 233 ANDAs with US FDA of which 144 have been approved and 89 are pending approval. The company has filed 157 DMFs with US FDA. It has filed 1487 dossiers for registrations in the regulated markets. APL has developed 28 oral contraceptive (OC) products for US market to be launched from FY13 onwards.

- Normalcy in Andhra Pradesh restored: The management stated that the Telangana issue had been resolved and normalcy had been achieved in the state of Andhra Pradesh. The power position in AP has also improved.

- Reiterate Buy: We have revised our FY12 and FY13 EPS estimates upwards by 52% and 5% respectively. We expect the company to benefit from the launch of new products in the US and expected clearances of Units 6 and 3 by US FDA, after re-inspection. At the CMP of Rs116, the stock trades at 19.1x FY12E EPS of Rs6.1 and 6.3x FY13E EPS of Rs18.3. We reiterate Buy with a revised target price of Rs147 (based on 8x FY13E EPS).

Source : Equity Bulls

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