 "Improving profitability to drive Aurobindo's earnings")
Aurobindo Pharma continued its strong show, with robust September quarter performance. Notably, the prospects also look good.
Even though some on the Street may be disappointed with its revenue growth, operating profit margin came ahead of expectations. Bloomberg consensus estimate for revenue stood at Rs 3,840 crore while revenue grew 12.2% year over year to Rs 3,776 crore.
Operating profit margin of 24.6% was better than the 24% estimate, while operating profit of Rs 929 crore came ahead of Bloomberg consensus estimate of Rs 918 crore. Operating profit margin expanded by a good 150 basis points year over year and 100 basis points quarter over quarter.
With more than 75 approvals received for new launches in the US during the past 18 months, US revenue (nearly half of overall revenue) grew a good 18%, driving overall profit. The company attributed the US growth to volume increase and new launches in both oral and injectable segments.
The European Union (22% of revenues) also contributed, with revenue or sales growing 6.4% year over year. Notably, the Actavis portfolio, acquired by Aurobindo, has turned around and continues to see profits during the quarter. Also, as of September 30, Aurobindo had transferred 37 products from Europe to India for manufacturing. All these should aid profit in European Union.
The only weak spot was the anti-retroviral (ARV) business, which shrunk 0.6% during the quarter. (ARV drugs are designed to stop viruses such as HIV damaging the body.) But since its revenue share is only seven-eight%, the shrinkage didn't disturb the cart. ARV business is generally tender-based and its decline was one of the reasons why Aurobindo failed to meet analysts' expectations on revenues. For instance, Motilal Oswal Securities was expecting the ARV business to grow by five%.
Nevertheless, with strong US sales or revenues and better operating profit margin, net profit at Rs 602 crore grew 33.2% year over year.
The reduction in net debt to Rs 3,226 crore from Rs 4,240 crore at the end of March is also a positive. Dollar-denominated debt at $484.2 million was lower than $500 million Aurobindo had forecast for FY17.
Moving forward, all eyes will be on whether Aurobindo can sustain its revenue growth given a high base now. The company, however, has growth levers in place, which include the 169 products pending approval, acquisitions of Natrol and Actavis portfolio.
Profit will continue to be driven by niche products such as injectables and other complex generics that face limited competition.
Overall, analysts remain positive on the company's US portfolio and turnaround in European operations, and their target prices go as high as Rs 1,012, showing potential for the stock.
