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MOSL: AUROBINDO PHARMA (Buy)-Pricing pressure drags profitability

AUROBINDO PHARMA: Pricing pressure drags profitability

(ARBP IN, Mkt Cap USD6.0b, CMP INR760, TP INR900, 18% Upside, Buy)

 

• ARBP delivered a miss on 1QFY22 earnings, led by increases in pricing pressure in the US Generics segment and reduced offtake of ARV medicines. It has recently allocated ~USD160m for forward integrating/enhancing product offerings in the Veterinary space and adding ANDAs in the US Generics segment.
• We reduce our FY22E/FY23E EPS estimate by 5%/6% to factor in higher competition in US Generics and lower other income to account for the usage of capital for acquisitions. We value ARBP at 14x its 12-month forward earnings to arrive at our TP of INR900. ARBP is working on building a complex product pipeline. However, timely approval remains critical for a better growth outlook over the next 2-3 years. We maintain our Buy rating.

 

Lower US/ARV sales led to a YoY earnings decline

• Sales declined by 4% YoY to INR57b in 1QFY22 (est. INR62.2b). The decline was largely led by lower Formulation sales (down 5% YoY to INR49b) and divestment of the Natrol business.
• US Formulation sales declined by 1.5% YoY to INR26.8b (USD364m; 47% of sales). ARV sales fell 30% YoY to INR3b in 1QFY22 (5% of sales).
• EU Formulation sales grew 19.7% YoY to INR15.8b (28% of sales). Sales in growth markets grew 13.7% YoY to INR3.3b (6% of sales). API sales grew 4.1% YoY to IN8.12b (14% of sales)
• Gross margin contracted by 90bp YoY to 58.5% due to the product mix.