Aurobindo 4Q FY 2013

7/28/2019 Aurobindo 4Q FY 2013

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Please refer to important disclosures at the end of this report 1

Y/E march (` cr) 4QFY13 3QFY13 % chg (qoq) 4QFY12 % chg (yoy)Net sales 1553 1552 0.0 1171 32.6Other income 32 24 33.6 26 22.8

Operating profit 222 241 (7.7) 119 86.7

Interest 33 33 (0.7) 35 (6.6)

Adj. Net profit Profit/(loss) 110 137 (20.1) 30 262.4Source: Company, Angel Research

For 4QFY2013, Aurobindo Pharmaceuticals Ltd (APL) outperformed expectation

on the top-line front, while the bottom-line came in below expectations. The OPM

came lower than expectations (of 18.3%) at 14.3%. However, on back of lowertaxations, the adj. net profit came in at `110cr, still lower than our estimate of

`194cr. On back of improvement on the financial front and clearance of facilities

by the USFDA, the company expects sales to grow by 20.0% and OPM to expand

by 200-300bps for FY2014. We have a Buy recommendation on the stock.Sales higher than expected: Net sales grew strongly by 32.6% yoy to`1,553cr,led by a robust growth in formulations (41.4% yoy growth). The active

pharmaceutical ingredients (API) segment grew by 17.0% yoy. Formulations in key

geographies like the US, and Europe and rest of world (RoW) grew by 61.5% and

44.9% respectively. Gross margin came in at 48.2% (vs 45.2% in 4QFY2012) on

back of favourable product mix, thus impacting the OPM which came in at 14.3%

vs10.2% in the corresponding quarter of the previous year. This led the company to

post an Adj. net profit of`110cr.

Outlook and valuation: The commencement of operations at the Hyderabad SEZand incremental contribution from the Pfizer deal would boost APLs earnings

and provide better growth visibility going forward. We estimate net sales to log a

14.9% CAGR to`7,637cr over FY201315E on the back of supply agreements

in the US and antiretroviral (ARV) formulation contracts. Even after factoring

in lower profitability going forward, the stock trades at an attractive

valuation. Hence, we maintain our Buy recommendation on the stock with aprice target of `271.Key financials (Consolidated)Y/E March (` cr) FY2012 FY2013 FY2014E FY2015ENet sales 4,551 5,783 6,641 7,637% chg 10.3 27.1 14.8 15.0

Net profit 198 432 560 657% chg (62.4) 118.2 29.7 17.2

Recurring profit 141 376 504 601% chg (57.4) 165.7 34.2 19.1

EPS (`) 6.8 14.8 19.3 22.6Recurring EPS 4.9 12.9 17.3 20.6EBITDA margin (%) 11.7 14.1 15.9 15.9

P/E (x) 36.6 13.8 10.3 8.6

RoE (%) 8.3 17.5 19.5 18.9

RoCE (%) 8.4 9.9 12.3 13.1

P/BV (x) 2.2 2.0 1.6 1.4

EV/Sales (x) 1.8 1.4 1.2 1.0

EV/EBITDA (x) 15.2 9.9 7.5 6.3

Source: Company, Angel Researc; Note: CMP as of June 3, 2013

BUYCMP `178

Target Price `271

Investment Period 12 months

Stock Info

Sector

Bloomberg Code ARBP@IN

Shareholding Pattern (%)

Promoters 54.8

MF / Banks / Indian Fls 18.9

FII / NRIs / OCBs 17.3

Indian Public / Others 9.0

Abs. (%) 3m 1yr 3yr

Sensex 3.5 22.2 14.2

Aurobindo 19.5 75.5 11.2

Pharmaceutical

Avg. Daily Volume

Market Cap (`cr)

Beta

52 Week High / Low

5,397

1.1

205/100

292,522

Net debt (`cr) 3,185

Face Value (`)

BSE Sensex

Nifty

Reuters Code

1

19,546

5,919

ARBN.BO

Sarabjit Kour Nangra+91 22 3935 7800 Ext: 6806

[email protected]

Aurobindo PharmaPerformance Highlights

4QFY2013 Result Update | Pharmaceutical

June 4, 2013


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Aurobindo Pharma | 4QFY2013 Result Update

January 4, 2013 2

Exhibit 1:4QFY2013 performance (Consolidated)Y/E March (` cr) 4QFY2013 3QFY2013 % chg (qoq) 4QFY2012 % chg (yoy) FY2013 FY2012 % chg (yoy)Net sales 1,553 1,552 0.0 1,171 32.6 5,783 4,551 27.1Other income 32 24 33.6 26 22.8 101 102 (0.8)Total income 1,584 1,576 0.6 1,197 32.4 5,884 4,652 26.5Gross profit 748 770 (2.8) 529 41.4 2,792 2,031 37.5

Gross margins 48.2 49.6 45.2 48.3 44.6Operating profit 222 241 (7.7) 119 86.7 817 533 53.2

OPM (%) 14.3 15.5 10.2 14.1 11.7Interest 33 33 - 35 - 131 103 27.8

Dep & amortisation 69 61 14.0 54 28.5 249 201 24.0

PBT 152 171 (11.0) 56 - 538 332 62.1

Provision for taxation 45 6 589.2 52 - 83 (89) -

Net profit 107 164 - 4 2,607.1 455 420 8.2Less : Exceptional items 1 73 (103) 163 545

MI & share in associates (1) (1) - (0) (2) (1) -

PAT after Exceptional items 109 92 18.3 108 - 294 (124) -Adjusted PAT 110 137 (20.1) 30 262.4 432 198 118.3EPS (`) 3.8 4.7 (20.1) 1.0 262.4 14.8 6.8 118.3

Source: Company, Angel Research

Exhibit 2:Actual v/s Estimate

(` cr) Actuals Estimate Variation %Net sales 1,553 1,233 26.0Other operating income 31.8 36 (11.5)

Operating profit 222 225 (1.3)

Tax 45 6 642.0

Adj. Net profit 110 194 (43.6)Source: Company, Angel Research

Revenue up at 32.6% yoy; higher than expectations: Net sales grew by 32.6% yoyto `1,553cr, led by a robust growth in the formulations business (41.4% yoy

growth). Formulations in the key geographies like the US, and Europe and rest of

world (RoW) grew by 61.5% and 44.9% respectively.

The API segment grew by 21.7% yoy. Growth was led by the Ceph segment whichgrew by 26.2% yoy, while the SSP segment grew by 14.2% yoy.

As of March 2013, the company has 239 approved abbreviated new drug

applications (ANDAs) and 181 tentative approvals.


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January 4, 2013 3

Exhibit 3:Sales break-up (Consolidated)

(` cr) 4QFY2013 3QFY2013 % chg (qoq) 4QFY2012 % chg (yoy) FY2013 FY2012 % chgFormulations 918 912 0.7 649 41.4 3,387 2,603 30.1US 486 513 (5.3) 301 61.5 1753 1184 48.1

Europe & ROW 249 223 11.6 172 44.9 884 633 39.8

ARV 183 175 4.4 176 3.9 750 787 (4.6)

API 667 660 1.0 570 17.0 2,536 2,062 23.0SSP 189 213 (11.5) 165 14.2 765 629 21.7

Cephs 244 245 (0.7) 193 26.2 937 746 25.6

NPNC 235 202 16.2 212 10.7 834 687 21.4


OPM expands to 14.3% for the quarter: Gross margin came in at 48.2% (45.2% in4QFY2012), on back of favorable product mix. The OPM stood at 14.3% vs 10.2% in

the corresponding quarter of the previous year. For FY2014, the company expects

margins to be at 16-17%.

Exhibit 4:OPM Trend

10.2

15.6

15.5

15.5

14.3

9.0

10.0

11.0

12.0

13.0

14.0

15.0

16.0

4QFY2012 1QFY2013 2QFY2013 3QFY2013 4QFY2013

(%)


Net profit lower than estimates: For the quarter, the company posted an Adj. netprofit of`110cr, much lower than our expectation of `194cr. This was mainly on

back of lower-than-expected OPM and a higher-than-expected tax outgo.

Exhibit 5:Adj. net profit

30

7987

137

110

0

20

40

60

80

100

120

140

160

4QFY2012 1QFY2013 2QFY2013 3QFY2013 4QFY2013

(`

cr)



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January 4, 2013 4

Management takeaways

The company has guided for a sales growth of 20% for FY2014 and 22% in

FY2015.

US sales are expected to be around 30-35% in FY2014.

The Management has guided for 16-20 new launches in the US in FY2014.

A margin expansion of 200-300bps has been guided by the Management in

the coming quarters.

The tax rate is expected to be around 20% in FY2014.

Capex for FY2014 is expected to be`250cr

Recommendation rationale Supply agreements to drive growth: APL has increased its filing (ANDAs and

dossiers) dramatically from 313 in FY2008 to 1,647 in FY2013, as it proposes

to scale up from SSP and Cephs to NPNC products. Further, the companys

transformation from being a pure API supplier to becoming a formidable

formulations player has increased its cost efficiencies, as 90% of its

formulation is now backward integrated. Thus, to leverage on its cost efficiency

and strong product filings, APL has entered into long-term supply agreements

with Pfizer (March 2009) and AstraZeneca (September 2010), which provides

significant revenue visibility going ahead. APL is also in discussion with other

MNCs for more supply agreements.

US and ARV formulation segments the key drivers for base business: APLsbusiness, excluding the supply agreements, would primarily be driven by the

US and ARV segments on the formulation front. The company has been an

aggressive filer in the US market, with 239 ANDAs filed until FY2013.

Amongst peers, APL has emerged as one of the top ANDA filers. The company

has aggressively filed ANDAs in the last few years and is now geared to reap

benefits, even though most of the filings are for highly competitive products.

APL expects to file 1520 ANDAs every year going forward. Going ahead,

with US$70bn going off-patent in the US over the next three years, we believe

APL is well placed to tap this opportunity. APL is one of the largest genericsuppliers under ARV contracts, with a 35% market share. The company enjoys

high market share as it is fully integrated in all its products apart from having

a larger product basket.

Outlook and valuation

The commencement of operations at the Hyderabad SEZ and incremental

contribution from the Pfizer deal would boost APLs earnings and provide better

growth visibility going forward. We estimate net sales to log a 14.9% CAGR to

`7,637cr over FY201315E on the back of supply agreements

in the US and antiretroviral (ARV) formulation contracts. Even after factoringin lower profitability going forward, the stock trades at an attractive

valuation. Hence, we maintain our Buy recommendation with aprice target of `271.


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January 4, 2013 5

Exhibit 6:Key assumptions

FY2014E FY2015ESales Growth (%) 14.8 15.0

Operating Margins (%) 15.9 15.9

Capex (`cr) 250 250


Exhibit 7:One-year forward PE

0.0

100.0

200.0

300.0

400.0

Feb-06

Oct-06

Jun-07

Jan-08

Sep-08

May-09

Jan-10

Sep-10

May-11

Jan-12

Sep-12

May-13

5x 10x 15x 20x


Exhibit 8:Recommendation summary

Company Reco CMP Tgt. price Upside FY2015E FY12-15E FY2015E(`) (`) % PE (x) EV/Sales (x) EV/EBITDA (x) CAGR in EPS (%) RoCE (%) RoE (%)

Alembic Pharma. Neutral 137 - - 9.8 1.3 6.9 26.1 34.0 34.7

Aurobindo Pharma Buy 178 271 52.8 8.6 1.0 6.3 61.9 13.0 18.9Cadila Healthcare Buy 772 909 17.7 16.1 2.0 11.1 12.7 15.4 23.1

Cipla Buy 369 444 20.3 16.6 2.5 11.3 15.9 15.7 15.9Dr Reddy's Buy 2,113 2,535 19.9 16.7 2.4 11.9 12.8 18.3 21.8

Dishman Pharma Buy 69 168 144.3 4.1 0.8 3.7 33.7 11.0 11.2

GSK Pharma* Neutral 2,661 - - 31.9 6.3 22.0 6.1 36.1 31.0

Indoco Remedies Buy 65 78 20.0 8.3 0.8 5.5 15.8 15.3 14.7

Ipca labs Accumulate 606 665 9.8 13.7 2.1 9.7 24.9 24.8 25.4

Lupin Buy 753 877 16.5 18.0 2.4 11.2 29.1 28.5 24.8Ranbaxy* Neutral 362 - - 16.1 1.2 9.3 (6.8) 13.1 19.1Sanofi India* Neutral 2,608 - - 26.3 2.6 15.7 13.4 15.9 16.7

Sun Pharma Neutral 1018 - - 25.6 6.0 14.5 18.8 29.4 22.0

Source: Company, Angel Research; Note: *December year ending

Company background

Aurobindo Pharma manufactures generic pharmaceuticals and active

pharmaceutical ingredients. The companys manufacturing facilities are approved

by several leading regulatory agencies like the USFDA, UK MHRA, WHO, Health

Canada, MCC South Africa and ANVISA Brazil among others. The companysrobust product portfolio is spread over six major therapeutic/product

areas encompassing antibiotics, anti-retrovirals, cvs, cns, gastroenterologicals,

and anti-allergics.


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January 4, 2013 6

Profit & loss statement (Consolidated)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013 FY2014E FY2015EGross sales 3,446 4,225 4,619 5,863 6,742 7,754Less: Excise duty 76 100 69 80 101 116Net Sales 3,370 4,126 4,551 5,783 6,641 7,637Other operating income 206 256 77 72 72 72Total operating income 3,575 4,381 4,627 5,855 6,713 7,710% chg 16.2 22.5 5.6 26.5 14.7 14.8

Total Expenditure 2,752 3,422 4,017 4,966 5,585 6,422

Net Raw Materials 1,777 2,189 2,520 2,792 3,088 3,551

Other Mfg costs 338 411 475 578 664 764

Personnel 327 429 536 663 762 876

Other 310 804 487 932 1,071 1,231

EBITDA 617 704 533 817 1,057 1,215% chg 65.1 14.0 (24.3) 53.2 29.3 15.0

(% of Net Sales) 18.3 17.1 11.7 14.1 15.9 15.9

Depreciation& Amortisation 149 172 201 249 279 309

EBIT 468 532 409 568 778 906% chg 90.0 13.8 (23.2) 38.8 36.9 16.5

(% of Net Sales) 13.9 12.9 9.0 9.8 11.7 11.9

Interest & other Charges 73 62 103 131 131 131

Other Income 44 25 25 29 29 29

(% of PBT) 6.9 3.4 7.5 5.3 3.8 3.3

Share in profit of Associates - - - - - -

Recurring PBT 645 751 331 538 747 876% chg 100.0 16.4 (55.9) 62.3 39.0 17.2

Extraordinary Expense/(Inc.) (109.5) (37.2) 544.5 163.4 - -

PBT (reported) 754 788 (213) 374 747 876Tax 191.4 225.1 (88.8) 82.7 186.8 218.9

(% of PBT) 25.4 28.6 41.6 22.1 25.0 25.0

PAT (reported) 563 563 (125) 291 560 657Less: Minority interest (MI) (0) (0) (1) (2) - -

PAT after MI (reported) 563 563 (124) 294 560 657ADJ. PAT 454 526 198 432 560 657% chg 50.7 15.9 (62.4) 118.5 29.7 17.2

(% of Net Sales) 16.7 13.7 (2.7) 5.1 8.4 8.6

Basic EPS (`) 20.2 19.3 6.8 10.1 19.2 22.6Diluted EPS (`) 16.3 18.1 6.8 14.9 19.2 22.6% chg 45.4 10.9 (62.4) 119.4 29.2 17.2


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January 4, 2013 7

Balance sheet (Consolidated)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013 FY2014E FY2015ESOURCES OF FUNDSEquity Share Capital 28 29 29 29 29 29Share Application Money - - - - - -

Reserves & Surplus 1,801 2,416 2,311 2,577 3,120 3,760

Shareholders Funds 1,829 2,445 2,340 2,606 3,149 3,789Minority Interest 4 9 10 11 11 11Long-term provisions 3 4 9 9 9

Total Loans 2,155 1,758 3,096 3,384 3,384 3,384

Deferred Tax Liability 91 119 2 68 68 68

Total Liabilities 4,079 4,334 5,452 6,069 6,613 7,252APPLICATION OF FUNDSGross Block 2,312 2,387 3,032 3,316 3,566 3,816

Less: Acc. Depreciation 697 699 892 1,140 1,419 1,728

Net Block 1,615 1,688 2,141 2,175 2,146 2,088Capital Work-in-Progress 570 657 645 645 645 645

Goodwill 96 51 54 55 55 55

Investments 0.3 39 39 22 22 22Long-term loans and adv. 111 108 243 243 243

Current Assets 2,506 3,322 3,248 4,128 4,878 5,783

Cash 73 188 71 208 377 607

Loans & Advances 375 505 315 332 381 439

Other 2,058 2,629 2,863 3,587 4,119 4,737

Current liabilities 708 1,534 784 1,200 1,378 1,584

Net Current Assets 1,798 1,788 2,465 2,928 3,500 4,199Mis. Exp. not written off - - - - - -

Total Assets 4,079 4,334 5,452 6,069 6,613 7,252


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January 4, 2013 8

Cash flow statement (Consolidated)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013 FY2014E FY2015EProfit before tax 752 751 (213) 374 747 876

Depreciation 149 172 201 249 279 309(Inc)/Dec in Working Capital (261) 236 (796) (191) (404) (468)

Less: Other income 44 25 25 29 29 29

Direct taxes paid (153) (180) 89 (83) (187) (219)

Cash Flow from Operations 443 952 (745) 321 407 469(Inc.)/Dec.in Fixed Assets (400) (470) (633) (283) (250) (250)

(Inc.)/Dec. in Investments (9) (38) - (16) - -

Other income 44 25 25 29 29 29

Cash Flow from Investing (365) (483) (608) (271) (221) (221)Issue of Equity 5 1 - - - -

Inc./(Dec.) in loans (1) (389) 1,340 288 - -

Dividend Paid (Incl. Tax) (29) (34) (34) (17) (17) (17)

Others (109) 67 (70) (183) - -

Cash Flow from Financing (132) (354) 1,236 88 (17) (17)Inc./(Dec.) in Cash (54) 115 (117) 138 169 230

Opening Cash balances 128 73 188 71 208 377Closing Cash balances 73 188 71 208 377 607


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January 4, 2013 9

Key ratios

Y/E March FY2010 FY2011 FY2012 FY2013 FY2014E FY2015EValuation Ratio (x)P/E (on FDEPS) 10.9 9.8 26.2 11.9 9.2 7.9P/CEPS 6.9 7.0 67.4 9.5 6.2 5.4

P/BV 2.7 2.1 2.2 2.0 1.6 1.4

Dividend yield (%) 0.6 1.1 0.5 0.3 0.3 0.3

EV/Sales 2.1 1.6 1.8 1.4 1.2 1.0

EV/EBITDA 11.4 9.4 15.2 9.9 7.5 6.3

EV / Total Assets 1.7 1.5 1.5 1.3 1.2 1.1

Per Share Data (`)EPS (Basic) 20.2 19.3 6.8 10.1 19.2 22.6

EPS (fully diluted) 16.3 18.1 6.8 14.9 19.2 22.6

Cash EPS 25.6 25.2 2.6 18.6 28.8 33.2

DPS 1.0 2.0 1.0 0.5 0.5 0.5

Book Value 65.7 84.0 80.4 89.5 108.1 130.1

Dupont AnalysisEBIT margin 13.9 12.9 9.0 9.8 11.7 11.9

Tax retention ratio 74.6 71.4 58.4 77.9 75.0 75.0

Asset turnover (x) 0.9 1.1 1.0 1.0 1.1 1.2

ROIC (Post-tax) 9.8 9.9 5.1 8.0 9.8 10.7

Cost of Debt (Post Tax) 2.4 2.3 2.5 3.2 2.9 2.9

Leverage (x) 1.5 0.9 1.0 1.3 1.1 0.8

Operating ROE 20.6 16.7 7.6 14.0 17.2 17.2

Returns (%)ROCE (Pre-tax) 12.1 12.7 8.4 9.9 12.3 13.1

Angel ROIC (Pre-tax) 15 16 10 12 15 16

ROE 29.6 24.6 8.3 17.5 19.5 18.9

Turnover ratios (x)Asset Turnover (Gross Block) 1.7 1.9 1.7 1.8 2.0 2.1

Inventory / Sales (days) 101 107 98 98 101 104

Receivables (days) 94 92 115 129 133 137

Payables (days) 74 118 237 78 80 80

WC cycle (ex-cash) (days) 169 139 158 159 159 159

Solvency ratios (x)Net debt to equity 1.1 0.6 1.3 1.2 1.0 0.7

Net debt to EBITDA 3.4 2.2 5.7 3.9 2.8 2.3

Interest Coverage (EBIT / Int.) 6.4 8.5 4.0 4.3 5.9 6.9


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January 4, 2013 10

Research Team Tel: 022 3935 7800 E-mail: [email protected] Website: www.angelbroking.com

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Disclosure of Interest Statement Aurobindo Pharma

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors.

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)

Documents

Aurobindo 4Q FY 2013