 "Aurobindo: Inorganic expansion to aid growth")
Aurobindo Pharma, which is growing well organically led by strong growth in the US market, has become aggressive on inorganic expansion, too. After completing the acquisition of Actavis’ commercial operations in Europe, it has completed the acquisition of Natrol Inc, a nutraceutical player in the US. Spending $132.5 million (Rs 800 crore), Aurobindo is eyeing diversification from being a generics player in the US to a nutraceutical and over-the-counter branded player, too.
The nutraceuticals market is not only large but also has limited players resulting in low competition. The global nutraceuticals market is estimated at $35 billion (Rs 2.1 lakh crore) and Ranjit Kapadia at Centrum Broking expects it to grow at a compounded annual growth rate of 6.7 per cent to $55 billion (Rs 3.36 lakh crore) by 2020.
Natrol has an operating margin of 15 per cent and Kapadia expects this to improve to 17 per cent by FY17, with higher capacity utilisation, cost reduction initiatives and marketing thrust. Although Natrol margins are lower than the current margins of Aurobindo (22-23 per cent), it is a distressed company, facing cash crunch. Aurobindo can turn it around utilising its brands portfolio. Further, Aurobindo’s entry into the complex molecules and growing injectables portfolio is likely to boost margins. This should also allay any concerns on margins. Earlier, the Street expected these to be hit due to integration-related issues after the Actavis acquisition. However, the company posted an operating profit margin of 22.1 per cent for the September quarter.
The Natrol acquisition not only benefits Aurobindo due to its product portfolio but will also boost Aurobindo’s distributor network and presence across channels, given Natrol’s long association with channel partners. Further, Aurobindo can expand the nutraceuticals range in other geographies, too. Kapadia feels Natrol’s acquisition will be earnings per share-accretive from FY15 itself. His target price for the Aurobindo stock , currently at Rs 1,097, is Rs 1,400. The Bloomberg consensus target price is Rs 1,179.
The nutraceuticals market is not only large but also has limited players resulting in low competition. The global nutraceuticals market is estimated at $35 billion (Rs 2.1 lakh crore) and Ranjit Kapadia at Centrum Broking expects it to grow at a compounded annual growth rate of 6.7 per cent to $55 billion (Rs 3.36 lakh crore) by 2020.
Natrol has an operating margin of 15 per cent and Kapadia expects this to improve to 17 per cent by FY17, with higher capacity utilisation, cost reduction initiatives and marketing thrust. Although Natrol margins are lower than the current margins of Aurobindo (22-23 per cent), it is a distressed company, facing cash crunch. Aurobindo can turn it around utilising its brands portfolio. Further, Aurobindo’s entry into the complex molecules and growing injectables portfolio is likely to boost margins. This should also allay any concerns on margins. Earlier, the Street expected these to be hit due to integration-related issues after the Actavis acquisition. However, the company posted an operating profit margin of 22.1 per cent for the September quarter.
The Natrol acquisition not only benefits Aurobindo due to its product portfolio but will also boost Aurobindo’s distributor network and presence across channels, given Natrol’s long association with channel partners. Further, Aurobindo can expand the nutraceuticals range in other geographies, too. Kapadia feels Natrol’s acquisition will be earnings per share-accretive from FY15 itself. His target price for the Aurobindo stock , currently at Rs 1,097, is Rs 1,400. The Bloomberg consensus target price is Rs 1,179.