Aurobindo Pharma - Steady quarter; investing for new growth avenues - ICICI Securities

Aurobindo Pharma's (Aurobindo) Q3FY21 performance was marginally higher than estimates led by higher US and ARV sales. Revenues grew 8.0% YoY to Rs63.6bn (I-Sec: Rs63.1bn), EBITDA margin was up 100bps to 21.5% (I-Sec: 20.8%) and adjusted net profit grew 18.1% YoY to Rs8.4bn (I-Sec: Rs7.9bn). US revenues remained flat QoQ at US$431mn despite Natrol divestment vs estimate of US$413mn. Company concluded Natrol divestment during Q3FY21 and received cash (post tax) of US$434mn which helped company to turn net cash (US$117mn). We remain positive on Aurobindo's long-term outlook considering its strong US pipeline with potential to launch more than 20 products every year, significant balance sheet improvement and investments into new segments for future growth (biosimilars, vaccines, APIs etc.). Reiterate BUY.

- Revenue growth led by US, EU and ARVs: Aurobindo's US revenues grew 3.1% YoY and remained flat QoQ at US$431mn. This is despite revenue impact of US$15mn from Natrol divestment. This was driven largely by oral solid portfolio and some recovery in injectables. Aurobindo has launched eleven products including four injectables, in the US during the quarter. Injectable sales were impacted due to lockdown but have recovered 7.8% QoQ. ARV formulations grew strong 41.5% led by higher conversion of patients from TLE to TLD regime. Emerging market revenues also reported a strong growth of 14.5% while EU grew 13.2% YoY.

- EBITDA margin remains stable: Aurobindo reported an EBITDA margin of 21.5%, up 100bps YoY and also higher than our estimate of 20.8% driven by better revenue mix. Gross margin improved 310bps YoY but dropped 160bps QoQ due to loss of export incentives. We expect EBITDA margin to remain stable around 21-22%, considering potential increase in R&D expenses in coming quarters. Adjusted PAT grew 18.1% driven by lower interest cost backed by debt reduction and improved profitability.

- Outlook: The company recently concluded Natrol divestment for US$550mn (3.5xFY20 sales) which helped Aurobindo to turn net cash. We expect the company to register 5.6% revenue and 8.1% PAT CAGRs over FY20-FY23E with EBITDA margin stable ~21-22%. Company would be investing for capacity creation of injectables, biosimilars, dermatology, APIs etc. which would help in ensuring long term growth momentum. We estimate RoIC to improve to 15.9% by FY23E and company to generate free cash flow of ~Rs47bn over FY22E-FY23E.

- Valuations and risks: We largely maintain estimates and retain BUY on the stock with a revised target price of Rs1,116/share based on 18xFY23E earnings (earlier: Rs1,091/share based on Sep'22E). Key downside risks: regulatory hurdles, currency volatility and delay in US launches.

Shares of AUROBINDO PHARMA LTD. was last trading in BSE at Rs.929.9 as compared to the previous close of Rs. 935.1. The total number of shares traded during the day was 100809 in over 2568 trades.

The stock hit an intraday high of Rs. 952 and intraday low of 924.1. The net turnover during the day was Rs. 94128381.

Source : Equity Bulls

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