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Aurobindo Pharma (ARBP) - Qtr. Update - Dated - February 07, 2014




Axis Capital Limited


08 Feb 2014





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Aurobindo’s (Bloomberg: ARBP IN) Q3 performance was much ahead of estimates led by higher contribution from gCymbalta. Revenue grew 36% to Rs 21 bn vs. estimates (our: Rs 20 bn; Street: Rs 19 bn). Ex-gCymbalta EBITDA margin (assuming USD 28 mn revenue; 85% margin), was ~25% (23% in Q2; estimated 23%). Consequently, adjusted PAT of Rs 4.2 bn (1.5x Q3FY13) was above estimate (our/ Street: Rs 2.9 bn/ Rs 2.5 bn). Maintain HOLD; turnaround in EU acquisition key to re-rating (7% downside from CMP) We raise FY14E/ FY15E EPS by 22%/ 14% to Rs 40/ Rs 43 to factor in better margin. We maintain our target PE as we expect turnaround in Actavis business to be slow; faster turnaround/ lower margin impact may trigger rerating. Maintain HOLD with revised TP of Rs 470 (11x FY15E EPS) vs. Rs 411 earlier. At CMP of Rs 507, the stock trades at 13x FY14E EPS and 12x FY15E EPS. Key highlights  Revenue growth led by: (a) US (Rs 9 bn, up 81% YoY driven by currency benefits, USD 10 mn revenue from injectables, re-launch of Cephalosporins, and ramp-up of recent launches including gCymbalta), and (b) EU (up 37% YoY driven by customer addition and product launches). API revenue was up 13% YoY at Rs 7.4 bn  Gross margin improved ~800 bps YoY/ 600 bps QoQ to 58% largely due to gCymbalta. Ex-gCymbalta, gross margin was ~55% (assuming 90% gross margin on gCymbalta)  ARBP filed 14 ANDAs (308 cumulative) and received 6 final approvals in Q3FY14  US gaining traction: US growth was driven partially by re-introduction of Cephalosporin and ramp-up of injectable products (USD 10 mn in Q3; two products launched at Q3-end to drive growth in Q4) and largely by gCymbalta and few other launches. The company launched two more Controlled Substances in Q3. Management is confident of 20%+ growth in FY15. FY16 growth would be driven by launch of injectables under shortage list Regards, Deepak Khetan (VP – Life Sciences) Institutional Equity Research Axis Capital Limited Tel: +91 22 4325 1132

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