Aurobindo Pharma Result Update: Improved quarterly performance - Better Visibility - Karvy Stock Broking

(ARBP IN; BUY; Mkt Cap: US$695mn; CMP: Rs118; TP: Rs138; 17% Upside)

Revenues for the quarter grew by 7.7% to Rs 12.8 bn due to better traction in formulations space, primarily in ARV and EU+ RoW space. US revenues continues to grow q-o-q. With visibility of US inspection at both its facilities and possible approval we believe the stock will witness improved revenue traction going ahead. We upgrade our rating from HOLD to BUY on the stock.

- Quarter Details: Revenues grew by 7.7 % to Rs. 12.8 bn on back of strong growth in revenues reported in the ARV (+19.5% y-o-y to Rs.2.1 bn) and RoW + EU business (+45.2% y-o-y to Rs.2.0 bn) for the quarter. EBITDAM was reported at 14.9% for the quarter aided primarily by lower other expenses. The Company's net loss stood at Rs. 286 mn providing for MTM forex loss of Rs 1,445 mn.

- Road Ahead: Aurobindo is expected to launch 25 products in the US market over the next 1 year with 12 products coming in from approval of Unit III facility. Pfizer supplies are expected to ramp up going ahead. Supplies to AZN are expected to kick in end FY13. Pip + Tazo is expected to ramp up to US$3-4 mn per month from June-2012 onwards. The company has filed for 17 products in the controlled substances space with market size of US$2.5-3 bn. The OC approvals will start kicking in from FY14 onwards. The company has inducted a new sales and marketing team for the US market.

- Outlook & Valuation: We upgrade our revenue estimates for FY12 by 5.6% to Rs.47.4 bn while we maintain our estimates for FY13E. We upgrade our EBDITAM from 12.7% to 14.3% for FY12E and from 14.4% to 14.7% for FY13E due to lower other expenses. We upgrade our EPS estimate by 2.8% in FY13E to Rs.13.8. We value Aurobindo's business (ex-dossier licensing income EPS of Rs.11.3 at 12x at Rs.136 ) and add Rs.2.5 for Dossier income. We upgrade our rating from HOLD to "BUY".

Risks: Delay in clearance at its Unit III facility will further lead to downside to our estimates. Corporate governance issues persist which may remain an overhang.

Source : Equity Bulls

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