Aurobindo Pharma's Q2FY18 results (Outperformer) - gRenvela drives a strong quarter
Q2FY18 result highlights
- Cons revs came in higher at Rs44.4bn (+17.5%/+20.6% yoy/qoq) vs our est of Rs39.5b driven by higher formulations rev. US revs came at $326m, ($263m in Q1), above est of $313m likely driven by higher than expected gRenvela contribution. EU / RoW came in higher at Rs11.1bn /Rs2.4bn vs est Rs8.7bn / Rs2.1bn while ARV was lower at Rs2.4bn (est Rs2.3bn). API stood higher at Rs7.7bn (est of Rs6.4bn)
- GMs were healthy at 60.1% (vs 59.3% in Q1; est 58.5%) despite impact of certain product related provisions. Other exp were higher at Rs10.3b (22% qoq; est Rs9.5bn) led by costs of on new Unit 16, higher carriage and settlement cost while R&D cost was lower flat sequentially. Employee cost was higher at Rs5.2bn (+22% yoy)
- Reported EBITDA came in higher at Rs11.2bn (+20%/+33% yoy/qoq) vs est of Rs10.2bn with margins at 25.2% vs est of 25.8% due to higher SGA
- PAT stood higher at Rs7.8bn (+51%/29% yoy/qoq), vs est of Rs6.7bn led by higher revenues and lower tax of 20% (27% in Q1; est 25%).
Key positives: QoQ growth in US sales, improved gross margins;
Key negatives: Lower ARV sales; higher debt
Impact on financials: We have lowered FY18/19 earnings by 15%/14% to account for lower gRenvela contribution and higher overhead costs
Valuations & view
Even adjusted for the one-off gRenvela contribution in the current quarter, Aurobindo’s H1FY18 performance has been better than most peers in an extremely tough operating environment. Going forward, while earnings will moderate sequentially with lower gRenvela contribution, growing contribution from high margin injectable sales should help to maintain the earnings momentum. Combined with a steady pickup in EU growth and profitability and uptick in ARV sales from FY19 onwards, we expect 10% EBITDA CAGR over FY17-19E with healthy return ratios (~20%/24% RoCE/RoE). We maintain our Outperformer rating on the stock. Aurobindo is one of our top picks in the sector.
Aurobindo Pharma is a vertically integrated pharmaceutical group based in India. Co. maintains a product portfolio spread over major product areas encompassing CVS, CNS, Anti-Retroviral, Antibiotics, Gastroenterologicals, Anti-Diabetics and Anti-Allergic with approved manufacturing facilities by USFDA, UKMHRA, WHO, MCC-SA, ANVISA-Brazil for both APIs & Formulations. In addition to Semi-Synthetic Penicillins, Co. has a presence in key therapeutic segments such as neurosciences, cardiovascular, anti-retrovirals, anti-diabetics, gastroenterology and cephalosporins, among others. Co. exports to over 125 countries across the globe.
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