Aurobindo Pharma - Poised for strong growth - Centrum

Aurobindo Pharma's (APL) revenues for Q4FY13 were in line with our expectation. However, EBIDTA margin and net profit were below our expectations. The company reported a growth of 32%YoY in revenues, 350bps in EBIDTA margin and 2%YoY in net profit. Sales growth in US formulation business was 62%YoY and in EU & RoW it was 45%YoY. API-SSP reported 14%YoY growth whereas API-cephalosporin reported 26%YoY growth. APL has a strong pipeline of products for the US market. The management has given a guidance of above 20% sales growth for FY14. We have a Buy rating for the scrip and revised target price of Rs254 from Rs245 (based on 10x Sept'14 EPS of Rs25.4).

- Excellent sales growth: APL reported 32%YoY growth in revenues from Rs11.91bn to Rs15.70bn in Q4FY13. US formulation revenues (30% of total) grew by 62%YoY from Rs3.01bn to Rs4.86bn. Its EU & RoW formulation business (16% of total) grew by 45%YoY from Rs1.72bn to Rs2.49bn. The API-SSP business (12% of revenues) grew by 14%YoY from Rs1.65bn to Rs1.89bn. APL's API-cephalosporin business (15% of total) grew by 26%YoY from Rs1.93bn to Rs2.44bn. API-ARV & others (15% of total) grew by 11%YoY from Rs2.12bn to Rs2.35bn.

- Margin improves: APL's margin for Q4FY13 improved by 350bps from 11.8% to 15.3% due to overall decline in costs. The company's material cost declined by 270bps from 53.9% to 51.2% of net sales due to higher sales of formulations in the US market. Personnel cost dropped by 50bps from 11.7% to 11.2% due to strong sales growth. Other expenses declined by 30bps from 22.6% to 22.3%.

- Strong growth in US: APL's three manufacturing facilities, Unit IV (injecatbles), Unit VI (cephalosporins) and Unit XII (SSP) have been cleared by US FDA after re-inspection. These three units are likely to contribute for the full year in FY14 and are expected to generate additional revenues for the company.

- Rich product pipeline for US: APL has filed 269 ANDAs with US FDA of which 181 have been approved. The company has launched 23 new products in the US in FY13. These products are likely to generate revenues for the full year in FY14. APL has plans to launch 16-20 products in the US market in FY14 of which three would be controlled substances.

- Good growth in API segment: The company's API business (42% of revenues) grew by 17%YoY from Rs5.70bn to Rs6.67bn in Q4FY13. APL has benefited from the shortage of SSP and cephalosporin APIs in the domestic market.

- Valuations: We expect APL to benefit from good growth in the domestic, US and RoW markets. The strong product pipeline in the US will deliver consistent growth. At the CMP of Rs187, the stock trades at 8.9x FY14E EPS of Rs21.1 and 6.3x FY15E EPS of Rs29.6. We have revised our FY14 and FY15 estimates downwards by 31% and 18% respectively. We have a Buy rating for the scrip with a revised target price of Rs254 (based on 10x Sept'14 EPS of Rs25.4) with an upside of 35.6% over the CMP.

Source : Equity Bulls

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