Aurobindo Pharma's Q3FY18 results (Outperformer) - Steady operating performance
Q3FY18 result highlights
- Cons revs came in higher at Rs44.4bn (+11% yoy) vs our est of Rs39.3b driven by higher formulations rev. US revs came at $297m, ($326m in Q2), above est of $286m despite flattish injectable sales. EU / RoW came in higher at Rs11.7bn /Rs2.5bn vs est Rs9.06bn / Rs2.3bn while ARV was lower at Rs2.4bn (est Rs2.6bn). API stood higher at Rs7.7bn (est of Rs6.8bn)
- GMs came in lower at 58.1% (vs 60.1% in Q2; est 59%) due to higher non-US revenues. Other exp were lower at Rs9.5b (-8% qoq; est Rs9.8bn) while R&D cost was steady sequentially. Employee cost was higher at Rs5.4bn (+10% yoy) vs est of Rs5bn
- Led by higher revenues EBITDA came in higher at Rs10.3bn (+15% yoy) vs est of Rs9.8bn with margins at 23.7% vs est of 25.1%
- Tax rate stood higher at 34% led by one time charge. Consequently PAT stood lower at Rs5.95bn (+3% yoy). Adjusted PAT stood at Rs6.6bn higher than our est of Rs6.3bn
Key positives: Strong revenue momentum; lower net debt
Key negatives: Lower injectable sales; lower GMs; higher tax rate
Impact on financials: We have maintained our earnings estimate
Valuations & view
Even adjusted for the non-recurring gRenvela contribution in the last 2 quarters, Aurobindo’s 9mFY18 performance has been better than most peers in an extremely tough operating environment. Improving traction in EU and RoW segments is adding to the overall growth momentum and imparts further solidity to the business. Aurobindo continues to see abundant growth opportunities in global generics, unlike most large-cap peers who look to actively diversify beyond generics. The company believes monetization of its R&D investments in complex generics (microspheres, peptides, etc., and vaccines, biosimilars, etc.,) will help the company sustain organic growth momentum beyond FY20. We estimate free cash flow of ~US$375m over FY17-20E, with consistent RoCE of 23-25% will provide significant headroom for M&A strategies to complement the organic growth initiatives. Reiterate Outperformer. Aurobindo is top pick in the large cap pharma space.
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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