Aurobindo: Wonder formula

Growth in high-margin formulations business boosts Aurobindo results

Aurobindo Pharma recorded an impressive 592 per cent y-o-y in operating profit to Rs 71.58 crore in the March 2006 quarter compared with 62.1 per cent growth in net sales.

Operating profit margin grew 1184 basis points y-o-y to 15.45 per cent in Q4 FY06. Faster profit growth for Aurobindo was owing to a rapid growth in its high-margin formulations business, coupled with a tight check on raw material costs, point out analysts.

Raw materials as a percentage of net sales fell 320 basis points y-o-y to 57 per cent in the March 2006 quarter. Consolidated operating profit grew 40.6 per cent y-o-y to Rs 177.5 crore in FY06.

The improved performance has not gone unnoticed "" the stock has gained 33 per cent since the start of CY06 compared with 8 per cent gain in the Sensex.

Aurobindo's formulations sales rose to Rs 106.8 crore in Q4 FY06 compared with Rs 28.9 crore a year earlier. Analysts point out that this was largely owing to improved sales of medications in the anti-AIDS product segment.

As part of its strategy to grow in the anti-AIDS market, Aurobindo has recently received a license from Bristol Myers Squibb to market two anti-AIDS medications in 49 countries.

Aurobindo had earlier enhanced its presence in Europe by acquiring the UK-based Milpharm, which has over 100 marketing authorisations. Aurobindo's consolidated operating profit margin grew 156 basis points y-o-y to 10.46 per cent in FY06.

Aurobindo also recently received USFDA approval for the generic version of Abacavir oral solution, an anti-AIDS medication.

The street appears to have factored in the growth opportunities for the company, as the stock trades at about 21 times estimated FY07 earnings.

Trent: Not trendy enough

Trent's numbers for FY06 are in line with the Street's expectations, but the stock was down two per cent in Thursday's trading.

The standalone top line has grown 48 per cent to Rs 346.44 crore but more impressive is the expansion in the operating profit margin by over 200 basis points y-o-y to 9.5 per cent.

That has happened because the company has managed to keep costs in check: the ratio of total expenditure to sales has actually dropped by about 200 basis points.

While the operating profit has risen smartly by 88 per cent to Rs 33 crore, the increase at net profit level is just 28 per cent to Rs 24.4 crore, because of higher depreciation and taxes.

One reason why Trent has managed to grow its margins, whereas Pantaloon has not, is because the rollout of stores has been very slow.

In fact, that is also the biggest disappointment with the performance last year. It has added just about 2.35 lakh sq ft of space during the year, across six stores and now has 23 Westside stores.

Besides, thus far it has opened only one hypermarket though it plans to roll out another one in Bangalore soon. Of course, the company's business model by which 80 per cent of revenues are derived from store brands also helps it earn better margins.

While Trent has been growing inorganically""it acquired the Landmark chain of book and music stores""it needs to add space at a faster pace.

At the current price of Rs 707, the stock trades at nearly 24 times estimated consolidated earnings for FY07 and 19 times FY08. At these levels the price captures most of the growth for the next couple of years.

With contributions from Amriteshwar Mathur and Shobhana Subramanian