Aurobindo Pharma's Q4FY19 results (Outperformer) - Broadly in-line
Q4FY19 result highlights
- Consol revs came at Rs52.9bn vs est Rs49bn; Beat mainly in US, EU and API largely driven by recent acquisitions. US revs of $353m ($345m – organic) vs est of $331m; Q3 was $337m. EU revs came at $186m ($166m – organic) vs est $159m. ARV / RoW revs stood below est
- Consol EBITDA came largely inline at Rs10.6bn vs est Rs10.5bn; Q3 was Rs10.86bn. EBITAM came at 20.0% vs est 21.4%; Q3 was 20.6%.
- EBITDA was impacted by lower GMs – 55.2% vs est 57.1%; Q3 was 54.6%; Mgt indicated ~$10m one-offs impacted GMs. Overheads were higher than est – Rs18.6bn vs est Rs17.5bn; Q3 was Rs17.9bn. R&D spends were Rs2.31bn vs Rs2.55bn in Q3
- Interest costs came at Rs501m vs est Rs474m. PAT came at Rs6.22bn vs est Rs6.16bn. Auro also booked Rs362m of non-recurring charges related to acquisition expenses
- Sandoz transaction expected to close in 10-12 weeks. Mgt remains positive of beating its earnings guidance linked to the transaction. Net Debt is $724m vs $559m in Q3 – Net debt is down ~$100m qoq adjusted for acquisitions and dividend payout ; Guided to $150-200m debt reduction in FY20 (excluding Sandoz impact)
Key positives: Continued traction in US, EU & API segments
Key negatives: Lower GM; Delay in Sandoz closure to Q2FY20
Impact on financials: We have reduced our FY20/21 earnings est by 13% / 5% to incorporate delay in Sandoz closure and softer margins.
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 Rs959 (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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