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Aurobindo Pharma (ARBP) - Qtr. Update - Dtd. - February 11, 2013




Axis Capital Limited


11 Feb 2013





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Aurobindo Pharma’s Q3 adj. PAT (adjusted for forex loss of Rs 733 mn and one-time cost of Rs 200 mn) at Rs 1.7 bn, up 78% YoY, was above our (Rs 1.5 bn) and Street (Rs 1.4 bn) estimate. This was driven by marginally higher revenue (Rs 15.7 bn, up 22% YoY) and lower tax (14% vs. our estimate of 22%). EBITDA margin improved to 18% (289 bps YoY) led by better product-mix. Upgrade to BUY with TP of Rs 230 (25% upside from CMP) We believe with sustained strong growth in US and other emerging markets (led by product launches and market share ramp-up), margin will sustain at 18-19%. We now get more comfort on margin with sustained traction in US and lower capex (Rs 250 mn in Q3). We roll forward to FY15E and raise TP to Rs 230 (9x FY15E EPS of Rs 26). Upgrade to BUY. At CMP of Rs 184, the stock trades at 9xFY14E EPS of Rs 21 and 7xFY15E EPS of Rs 26. Gross margin (GPM) improved 510 bps YoY/ 60 bps QoQ to 50% led by better product/ country mix – US revenue contribution increased to 32% from 25% in Q3FY12 while ARV (lower-margin segment) contribution declined to 11% from 16% in Q3FY12. Rs 933 mn of one-off expenses – (a) Forex loss of Rs 733 mn, largely MTM in nature, (b) Rs 80 mn of Generic User Fee, and (c) Rs 120 mn of surcharge on power cost. US gaining traction – Management expects Unit-VI to get US FDA clearance in Q4FY13. Management sounded confident on US growth with 20-25 product launches in FY14 and aggressive market share ramp-up on recent niche approvals – Modafinil, Abacavir Sulphate, Nafcillin injections, and Ondansetron injections. Regards, Deepak Khetan (Asst VP – Life Sciences) Institutional Equity Research Axis Capital Limited Tel: +91 22 4325 1132

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