Aurobindo Pharma's Q1FY20 results (Outperformer) - US drives another strong quarter
Q1FY20 result highlights
- Consol revs came at Rs54.4bn inline with est; Beat mainly US driven. US sales came at $387m vs est $365m; Q4 was $352m; Organic sales (ex-Spectrum) likely to ~$362m vs $342m in Q4. Notably, this sales performance was achieved despite no meaningful new launches during the qtr combined with ongoing FDA issues
- EU revs came at $200m vs est $206m. API revs stood below est
- Consol EBITDA came ahead at Rs11.5bn vs est Rs10.9bn; Q4 was Rs10.6bn. EBITAM came at 21.1% vs est 20%; Q4 was 20%.
- EBITDAM driven by better GMs – 57.8% vs est 55.5% ; Q4 was 55.2% - Notably, lower GMs had been a challenge for the company for the last 2-3 quarters so this improvement is positive
- Overheads were higher than est – Rs20bn vs est Rs19.3bn; Q4 was Rs18.6bn. R&D spends were Rs2.5bn vs Rs2.3bn in Q4. Depreciation was higher than est – Rs2.4bn vs est Rs1.9bn.
- PAT came at Rs6.4bn inline; Auro booked Rs127m of non-recurring charges related to acquisition expenses.
- Sandoz transaction expected to close in near future. Mgt remains positive of beating its earnings guidance linked to the transaction. Net Debt is $593m vs $724m in Q4 – maintains guidance of $150-200m debt reduction in FY20 (excluding Sandoz impact).
Impact on financials: We have reduced our FY20/21 earnings est by 2% each to incorporate higher depreciation charges.
Valuations & view
Despite limited meaningful new launches over last few quarters, Aurobindo’s US performance has been far better than most peers in a tough operating environment. Improving traction in EU and RoW is adding to the overall growth momentum. Additionally, the proposed Sandoz business acquisition, arguably near the bottom of generic cycle, is positive for Aurobindo strategically and financially. With this acquisition Aurobindo becomes the second largest US generics player and adds niche dermatology segment to its strong Oral Solids and Injectables portfolio. This has significant long term competitive advantage. Further, Aurobindo believes monetization of its R&D investments in complex products will help the company sustain organic growth momentum beyond FY20. Reiterate Outperformer with a TP of Rs941 (15x FY21E EPS). Aurobindo is our preferred pharma pick. ​
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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