 "Aurobindo: Long-term benefits outweigh near-term challenges")
Led largely by strong business growth in international markets, the share price of Hyderabad-based Aurobindo Pharma has zoomed from Rs 180 levels in September last year to its all-time high of Rs 908 last week.
After getting a US Food and Drug Administration (FDA) approval and resolution of issues associated with its manufacturing facilities in Unit 6, Aurobindo was able to scale up its product launches and monetise its filings in the US.
Not only did it benefit from the sales growth but from the niche filings in the pipeline. The US sales that contribute to half of its revenues have shot up almost 80 per cent from Rs 625 crore in the June 2013 quarter to Rs 1,116 crore in the June 2014 quarter. While AuroLife clocked $26 million sales, AuroMedics, the company marketing injectibles, saw sales at $15 million, growing a phenomenal 123 per cent over the June 2013 quarter. The company expects additional orders for an enhanced portfolio of controlled substances. Besides, post acquisition of Actavis, the company started integrating the western European business during the June'14 quarter, which aided the European formulation business to grow by 359 per cent year-on-year. As a result, overall revenues have risen every quarter since June 2013 quarter (Rs 1,716 crore) to Rs 2,911 crore in the June quarter.
Also, Aurobindo's profitability has improved, except for the dip in margin in the recently concluded quarter, which was due to consolidation of low-margin Actavis business acquired in Europe. Nevertheless, earnings before interest, tax, depreciation and amortisation (Ebitda) margins have improved 470 basis points to 22.6 per cent over the last five quarters. The stock's re-rating has been responsible for the excellent performance on the bourses.
According to Aurobindo, the key contributors to the growth in revenues and profits included resolution of the FDA import ban on Unit 6 and successful reintroduction of cephalosporin oral products in the US market during FY13-14. The company managers told Business Standard there had been growth traction in the US as a result of a steady flow of product approvals, which have been commercialised into the market and included some limited competition and early-to market products.
The company officials also stated that focus markets in Europe — the UK, Netherlands, Germany, Spain and Portugal — delivering better operational performance in FY14 translated into profits for Europe as a cluster.
Growth in active pharmaceutical ingredients, coming from better value non-betalactam product profile from advanced market customers in Europe and Japan also contributed to revenues and profit.
Favourable rupee-dollar scenario had marginal impact on topline and profitability, even though the non-cash losses on account of restatement of foreign exchange denominated debt were comparatively higher in FY14, despite reduction in borrowings by about $70 million. Total foreign exchange borrowings are currently $538 million.
The company officials said aggressive capital expenditure plans were in place to increase "organic growth". They were also expecting the Actavis acquisition to help the company emerge as the top 10 generics players in the European market.
Even in the Q1 of FY 2014-15, the company had increased its formulations sales by 107 per cent to Rs 2,275 crore compared to Rs 1,100 crore in the same quarter last year. Formulations sales accounted for 77.2 per cent of Aurobindo's gross sales.
Analysts at Emkay Global had said, "We believe the pipeline in US launches remains strong (especially injectable space) and EU turnaround possibilities give the company an excellent platform to achieve strong top line and bottom line performance." Even though the June quarter was the last one to see high contribution from Cymbalta generics, they believe long-term scale benefits outweigh near term consolidation challenges, and have built in 22 per cent compound annual growth rate in revenue during FY14-16. Though earnings growth might be in a single digit in FY15, these are estimated to grow between 18 and 20 per cent in FY16. A correction could provide a good entry point into the stock, say analysts.
After getting a US Food and Drug Administration (FDA) approval and resolution of issues associated with its manufacturing facilities in Unit 6, Aurobindo was able to scale up its product launches and monetise its filings in the US.
Not only did it benefit from the sales growth but from the niche filings in the pipeline. The US sales that contribute to half of its revenues have shot up almost 80 per cent from Rs 625 crore in the June 2013 quarter to Rs 1,116 crore in the June 2014 quarter. While AuroLife clocked $26 million sales, AuroMedics, the company marketing injectibles, saw sales at $15 million, growing a phenomenal 123 per cent over the June 2013 quarter. The company expects additional orders for an enhanced portfolio of controlled substances. Besides, post acquisition of Actavis, the company started integrating the western European business during the June'14 quarter, which aided the European formulation business to grow by 359 per cent year-on-year. As a result, overall revenues have risen every quarter since June 2013 quarter (Rs 1,716 crore) to Rs 2,911 crore in the June quarter.
Also, Aurobindo's profitability has improved, except for the dip in margin in the recently concluded quarter, which was due to consolidation of low-margin Actavis business acquired in Europe. Nevertheless, earnings before interest, tax, depreciation and amortisation (Ebitda) margins have improved 470 basis points to 22.6 per cent over the last five quarters. The stock's re-rating has been responsible for the excellent performance on the bourses.
According to Aurobindo, the key contributors to the growth in revenues and profits included resolution of the FDA import ban on Unit 6 and successful reintroduction of cephalosporin oral products in the US market during FY13-14. The company managers told Business Standard there had been growth traction in the US as a result of a steady flow of product approvals, which have been commercialised into the market and included some limited competition and early-to market products.
The company officials also stated that focus markets in Europe — the UK, Netherlands, Germany, Spain and Portugal — delivering better operational performance in FY14 translated into profits for Europe as a cluster.
Growth in active pharmaceutical ingredients, coming from better value non-betalactam product profile from advanced market customers in Europe and Japan also contributed to revenues and profit.
Favourable rupee-dollar scenario had marginal impact on topline and profitability, even though the non-cash losses on account of restatement of foreign exchange denominated debt were comparatively higher in FY14, despite reduction in borrowings by about $70 million. Total foreign exchange borrowings are currently $538 million.
The company officials said aggressive capital expenditure plans were in place to increase "organic growth". They were also expecting the Actavis acquisition to help the company emerge as the top 10 generics players in the European market.
Even in the Q1 of FY 2014-15, the company had increased its formulations sales by 107 per cent to Rs 2,275 crore compared to Rs 1,100 crore in the same quarter last year. Formulations sales accounted for 77.2 per cent of Aurobindo's gross sales.
Analysts at Emkay Global had said, "We believe the pipeline in US launches remains strong (especially injectable space) and EU turnaround possibilities give the company an excellent platform to achieve strong top line and bottom line performance." Even though the June quarter was the last one to see high contribution from Cymbalta generics, they believe long-term scale benefits outweigh near term consolidation challenges, and have built in 22 per cent compound annual growth rate in revenue during FY14-16. Though earnings growth might be in a single digit in FY15, these are estimated to grow between 18 and 20 per cent in FY16. A correction could provide a good entry point into the stock, say analysts.