Maintain BUY on Aurobindo Pharma - Soft quarter, outlook remains strong - HDFC Securities

Mr. Bansi Desai, CFA, HDFC Securities

Q4 revenue/EBITDA were a tad lower than our estimates. Barring strong performance in ARV (+29% YoY), most markets reported sluggish growth. Despite sharp increase in R&D spends (7.6%, +150bps QoQ), EBITDA margin was largely in line with estimates at 21.2% (-30bps QoQ). Aurobindo's progress on complex pipeline (2 biosimilars filing in FY22/FY23, filings of depot injectables in FY23) provides good growth visibility over the medium to long term. Monetisation of COVID vaccine opportunity (Viral and UB-612) and potential value unlocking of injectables business are the key near-term triggers. We tweak our estimates and revise TP to INR1,075/sh, based on 16x FY23e EPS and NPV of INR50 for the PLI opportunity. Maintain BUY.

Revenue/EBITDA miss, PAT in line: Revenue at INR60bn (-3% YoY, +2% adj. for Natrol) was slightly below estimate as strong traction in ARV (+29% YoY) and non-betalactum API (+78% YoY) segments was offset by muted growth in the US (+1% QoQ, adj. for Natrol), EU (-12% YoY, high base) and growth markets (-18% YoY, low patient footfalls). EBITDA margin contracted to 21.2% (-56bps YoY, -26bps QoQ) as improvement in gross margin (+111bps YoY, +32bps QoQ) was offset by higher R&D expense (+369bps YoY, +148bps QoQ).

Vaccine opportunity - viral vaccine: Equipment installation and qualification to be completed by June-end, process validation expected to start by July-end; UB-612 (peptide-based vaccine): Aurobindo can manufacture this in the existing bacterial or general injectable facility. The innovator (Vaxxinity) is awaiting EUA in Taiwan by mid-July, post which, it will seek approval in other markets. Aurobindo currently has the capacity to manufacture 25mn doses, which can be ramped up. It has applied for Phase 2/3 trials in India. The company does not expect approval before 2021-end/ early 2022. Other vaccines: PCV (pneumococcal conjugate vaccine) product expected to be approved by mid-2022.

Pipeline update: Generic injectables - Aurobindo reiterated its goal to achieve USD700mn revenue in the next few years (from ~350mn currently); Biosimilars - expect to file 2 products in 2HFY22 (onco focused, for EU markets), 2 more in FY23 (US and EU), earliest anticipated launch is in 2HCY22; Complex injectables - 15-20 products in the pipeline (majorly in US), aims to file half of these by year-end.

Key call highlights: a) Europe - 50% of volume sourced from India, double digit margins; export volumes increased by 36% YoY in FY21; b) US - mid single digit price erosion, OTC products through E-commerce - expects USD10-15mn revenue over the next few years; c) vaccine capacity - 250mn doses in the existing facility, new facility can add 480mn doses.

Shares of AUROBINDO PHARMA LTD. was last trading in BSE at Rs.970.4 as compared to the previous close of Rs. 997.75. The total number of shares traded during the day was 316839 in over 8778 trades.

The stock hit an intraday high of Rs. 1007.95 and intraday low of 959.9. The net turnover during the day was Rs. 307738280.

Source : Equity Bulls

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