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Spark Capital: Aurobindo Pharma - 3QFY13 results reviews




Spark Capital Advisors(India) Private Limited


12 Feb 2013





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Aurobindo Pharma - US business surprises positively; Upgrade to ‘Buy’ Continuing sequential improvement in US sales was the highlight of Aurobindo Pharma’s Q3FY13 results. Overall topline (ex dossier income) grew 21% yoy. EBITDA margin declined sequentially due to one-off charges. Aurobindo’s strategy to focus more on sales through its own subsidiaries (vs. sales through marketing partners) has led to a significant improvement in performance in the past couple of quarters. We expect this to sustain and incremental sales from Unit IV (recently approved) and Unit VI (import ban likely to be lifted shortly) should provide further fillip to growth. Valuing the stock at 12x FY14E EPS of Rs. 20.3, we arrive at a target price of Rs. 243 and upgrade the stock to ‘Buy’ Takeaways from post-results conference call: Key approvals during the quarter include gZiagen and nafcillin injection. The company also received its first product approval, ondansetron injection, from Unit IV facility during the quarter New product launches as well as base business growth (15% yoy) contributed to the strong US sales in the quarter. Key products contributing to the growth were modafinil, montelukast (tabs and chewtabs), valacyclovir and venlafaxine. The company continued to maintain high inventory levels in its US business. Management expects 20-25 new launches in the US in FY14 During the quarter, USFDA cleared Unit IV (first inspection) and Unit XII (re-inspection). According to management, Unit IV should contribute over $30mn sales in FY14 (~$12mn in FY13). For Unit VI (under import ban, inspected along with Unit IV), the company expects clearance in ~1 month As of Dec 2012, Aurobindo has 262 cumulative ANDA filings with 171 approvals (including 26 tentative approvals). 11 ANDA filings were made during the quarter and 14 ANDAs were withdrawn (as part of payment of user fees) EBITDA margin ex dossier sales was 14.4% (160bps qoq decline). Other expenses increased 11% qoq. This includes user fees provisioning of Rs. 80mn and fuel surcharge payment of Rs. 120mn Gross debt as of Dec-12 is Rs. 32.5bn with cash balance of Rs. 1.5bn. Net debt increased Rs. 850mn qoq Forex loss of Rs. 734 includes 1) ~Rs. 500mn MTM loss on long-term foreign currency-denominated loans 2) ~Rs. 100mn loss on translation of overseas subsidiaries 3) ~Rs. 130mn loss on hedges

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