Aurobindo Pharma's Q2FY19 results (Outperformer) - Strong quarter led by US sales pickup
Q2FY19 result highlights
- Cons revs came at Rs47.5bn (+12% qoq) vs our est of Rs44.8b. US sales surprised significantly - $318m vs est $295m; Q1 was $282m. While US sales were expected to be strong given gErtapenem launch, gValsartan shortages and new business wins, the quantum is a positive surprise
- EU sales were below est but ARV / RoW and API sales were ahead of est.
- EBITDA came at Rs10.3bn vs est Rs9.7bn; Q1 - Rs7.8bn. EBITDA margins of 21.6% were in line; Q1 was 18.3%. GMs improved qoq to 57% from 55.1% in Q1; we est 58%. GMs were impacted by adverse product mix.
- Gross profit gains were partially negated by higher overheads. R&D costs higher at 4.6% of revs vs 4% in Q1; Rs2.17bn vs Rs1.7bn in Q1. During the qtr, the company filed 25 ANDAs including 8 injectables
- PBT was impacted by Rs397m forex loss and higher depreciation / interest costs. PBT came at Rs8.1bn in line with est. Tax rate was 22%.
- PAT (pre-exceptional) came at Rs6.38bn vs est Rs6.17bn. Auro booked Rs278m one-off charges on acquisition related expenses
- Net Debt is $551m down marginally qoq from $571m; Finance cost inched upto 2.5% from 2% as of March’18.
Key positives: Strong revenue traction in US and other segments
Key negatives: Lower GM; forex loss
Impact on financials: We reduce FY19 EPS by 5% to account for H1 forex loss while maintaining FY20 earnings (ex-Sandoz).
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. Owing to significant distribution consolidation in US generics, scale is becoming increasingly key to compete effectively. 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. 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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