 "Aurobindo Pharma: Overhang gone, gains ahead")
The Aurobindo Pharma stock consolidated on its gains of 11 per cent on Thursday, with further gain of five per cent intra-day on Monday. The stock registered sharp gains after news that the US FDA has lifted the import alert on one of its units in Hyderabad.
The restriction was imposed on the company in February 2011, forcing it to stop exports of nine products to the US market. The company said the unit which manufactures non-sterile products had annual sales of $33 million prior to the import alert. The lifting of the import alert not only allows for improvement in revenues, but will also aid in margin expansion. “We believe the company should be able to achieve historical sales from this plant by FY15.
The approval should be more beneficial on the margin front, as the company was only booking overhead cost from the plant without any addition to the topline,” says Hitesh Mahida of Fortune Equity Brokers. At the current price, the stock is trading at six times its FY14 earnings estimates, with Bloomberg consensus target price estimates at Rs 232.
Strong US sales
Driven by new launches and higher base of existing product sales, the US business has been going strong with the company reporting a 58 per cent year-on-year growth for formulation exports in the December quarter to Rs 513 crore.
The company also received approvals for seven ANDAs (generic version) during the same quarter, with the market size for the innovator (patented) products pegged upwards of $4 billion and should contribute from this financial year onwards. An Edelweiss Financial Advisors report expects the company to achieve $300-310 million revenue (Rs 1,650 crore) from this geography in FY13, which translates to a 35 per cent growth over the previous financial year. Analysts expect growth to be in the 23-25 per cent range FY13-16, driven by niche launches in injectables, controlled substances and oral formulations.
The margins improved in the December quarter, aided by better product and country mix. While US revenue contribution improved to 32 per cent from 25 per cent a year earlier, revenues from low-margin anti-retroviral drugs fell from 16 per cent to 11 per cent. Gross margins improved 510 basis points year-on-year (60 basis points sequentially) to 50 per cent.
Operating margins were hampered over the past few quarters due to poor capacity utilisation and an import alert for Unit VI falling over 600 basis points between December quarter FY11 and June quarter FY13 (11 per cent). Most analysts believe margins are likely to stabilise at 18-19 per cent (December quarter number at 18 per cent, up 300 basis points year-on-year) on improving capacity utilisation, FDA clearance of Unit VI and new product launches.
The restriction was imposed on the company in February 2011, forcing it to stop exports of nine products to the US market. The company said the unit which manufactures non-sterile products had annual sales of $33 million prior to the import alert. The lifting of the import alert not only allows for improvement in revenues, but will also aid in margin expansion. “We believe the company should be able to achieve historical sales from this plant by FY15.
The approval should be more beneficial on the margin front, as the company was only booking overhead cost from the plant without any addition to the topline,” says Hitesh Mahida of Fortune Equity Brokers. At the current price, the stock is trading at six times its FY14 earnings estimates, with Bloomberg consensus target price estimates at Rs 232.
Strong US sales
Driven by new launches and higher base of existing product sales, the US business has been going strong with the company reporting a 58 per cent year-on-year growth for formulation exports in the December quarter to Rs 513 crore.
The company also received approvals for seven ANDAs (generic version) during the same quarter, with the market size for the innovator (patented) products pegged upwards of $4 billion and should contribute from this financial year onwards. An Edelweiss Financial Advisors report expects the company to achieve $300-310 million revenue (Rs 1,650 crore) from this geography in FY13, which translates to a 35 per cent growth over the previous financial year. Analysts expect growth to be in the 23-25 per cent range FY13-16, driven by niche launches in injectables, controlled substances and oral formulations.
The margins improved in the December quarter, aided by better product and country mix. While US revenue contribution improved to 32 per cent from 25 per cent a year earlier, revenues from low-margin anti-retroviral drugs fell from 16 per cent to 11 per cent. Gross margins improved 510 basis points year-on-year (60 basis points sequentially) to 50 per cent.
Operating margins were hampered over the past few quarters due to poor capacity utilisation and an import alert for Unit VI falling over 600 basis points between December quarter FY11 and June quarter FY13 (11 per cent). Most analysts believe margins are likely to stabilise at 18-19 per cent (December quarter number at 18 per cent, up 300 basis points year-on-year) on improving capacity utilisation, FDA clearance of Unit VI and new product launches.