MOSL: AUROBINDO PHARMA (Buy)-Continues to surprise positively; sustenance of growth key

​AUROBINDO PHARMA: Continues to surprise positively; sustenance of growth key

(ARBP IN, Mkt Cap USD6.9b, CMP INR759, TP INR900, 19% Upside, Buy)

• Net sales grew 17.5% YoY to INR44.4b (9% beat). Gross margin expanded 330bp YoY and 90bp QoQ to 60.1%. EBITDA increased by ~20% YoY to INR11.2b (~1% beat); EBITDA margin expanded 60bp YoY and 2.3pp QoQ to 25.2%. PAT grew 32% YoY to INR781m (10% beat). The significant beat is attributed to lower tax rate at 20.2% against 27% in 2QFY17.
  
• US business shines; EU surprises positively: US business sales grew 25% YoY and 24% QoQ to USD327m. The strong sequential growth is attributed to Renvela ramp-up (USD50m-55m), growth in injectables business (up USD11m QoQ on the back of launches and benefits from shortage of few drugs), ramp-up of other key launches including Nexium OTC, Strattera, Meropenem, Mucinex, and Ebzicom. We expect gRenvela tablet sales to decline, as it has become a 5-player market. The lower gRenvela tablet sales will be partially offset by ramp-up in injectables business (quarterly run rate in 2H will increase to ~USD60m from ~USD40m in 1H) on launches like Fondaparinux. Vancomycin and Etanercept are other key launches we expect by 4QFY18/early FY19. EU business grew ~37% YoY. Adjusted for Generis acquisition, EU business grew >20% YoY.