Aurobindo Pharma's Q3FY19 results (Outperformer) - Strong quarter; broad based revenue momentum
Q3FY19 result highlights
- Consol revs came at Rs52.7bn vs est Rs48.5bn; Beat across segments. US revs of $337m vs est of $325m; Q2 was $318m. While US was expected to be strong the quantum is a positive surprise. EU revs came at $179m vs est $165m. ARV / RoW/ API revs also beat est by good margin
- Consol EBITDA came at Rs10.8bn vs est Rs10.5bn; Q2 was Rs10.2bn. EBITAM came at 20.6% vs est 21.6%; Q2 was 21.6%.
- EBITDA was impacted by lower GMs – 54.6% vs est 57%; Q2 was 57%; Mgt indicated ~100bps (~Rs500m) impact due to failure to supply penalties, the same is unlikely to recur. Adverse product mix also impacted GMs. GP was Rs28.8bn vs est Rs27.7bn; Q2 was Rs27bn
- Overheads were higher than est – Rs17.9bn vs est Rs17.1bn; Q2 was Rs16.8bn. However as % of sales, overheads came at 34% vs 35.4% est / Q2. R&D spends were Rs2.55bn vs Rs2.17bn in Q2; 4.8% vs 4.6% in Q2
- Interest costs came at Rs477m vs est Rs350m. There was Rs500m forex gains. PAT came at Rs7.3bn vs est Rs6.7bn. Auro also booked Rs250m non-recurring charges related to acquisition expenses
- Net Debt is $559m vs $551m in Q2; Finance cost is 3.3% up from 2% as of March’18. Guided to $50m debt reduction over March18 levels of $538m..
Key positives: Strong revenue traction across segments
Key negatives: Lower GM
Impact on financials: Maintain earning estimates.
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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