Analyst Research Report Snapshot

Title:

Spark Capital: Aurobindo Pharma – Q3 FY14 results review – Cymbalta drives strong quarter, but recent improvements priced in; maintain ‘Reduce’

Price:

$35.00

Provider:

Spark Capital Advisors(India) Private Limited

Date:

10 Feb 2014

Pages:

5

Type:

AcrobatPDF

Companies referenced:

ARBN.NS

Available for Immediate Download
Summary:

Cymbalta drives strong quarter, but recent improvements priced in; maintain ‘Reduce’ On a sequential basis, Aurobindo Pharma reported an impressive 12% growth in topline and 740bps EBITDA margin improvement in Q3FY14. The performance was driven by high-margin sales from generic Cymbalta in the US and continuing strong margins in the company’s base business (estimated ex Cymbalta EBITDA margin of ~23%, in line with Q2FY14). US sales for the quarter was $150mn (vs. $118mn in Q2FY14) driven by generic Cymbalta. While the recent operational improvements (FY14 ex Cymbalta topline growth of ~30%, margin improvement of ~700bps) are encouraging, we expect performance to be muted in FY15 on account of losses from the recently acquired Actavis’ Western European business and decline in profits from generic Cymbalta (given the expected competition). We believe Aurobindo deserves to trade at discount to midcap peers given the inferior business mix, balance sheet quality and execution risks related to the acquired business. Maintain ‘Reduce’ rating on the stock with a target price of Rs. 475 (11x FY16E EPS of Rs. 43.2) Takeaways from results and post-results conference call: Aurobindo launched generic Cymbalta through Citron Pharma, a newly incorporated entity based in New Jersey. Citron’s CEO, Vimal Kavuru, was the co-founder of Celon Labs (Aurobindo’s partner in its recently-announced oncology and hormones manufacturing JV, Eugia) and is also the CEO of NJ-based generic distribution company, Gensource Rx For the quarter, cephalosporins (re-launched from Unit VI) and AuroMedics (injectables) generated sales of $9mn and ~$10mn, respectively. The company has filed 380 ANDAs with163 final approvals and 25 tentative approvals During the quarter, Auromedics launched bupivacaine and lidocaine injectables. Management expects 11 products under the shortage list to be approved in FY15. The company has made 50 filings from Unit IV, with 8 approvals till date. Management guided for ~$60mn sales from Auromedics in FY15 (~$35mn in FY14) During the quarter, the company announced the acquisition of the Western European operations of Actavis for EUR30mn. For CY13, the acquired entity reported topline of EUR320mn and EBITDA loss of ~EUR20mn. The transaction is expected to close by the end of FY14 Net debt of Rs. 33.9bn as of Dec 2013 (vs. Rs. 33.8bn as of Sep 2013). Management guided for full year capex of Rs. 3bn, excluding acquisitions (Actavis portfolio, Silicon Life Sciences and JV with Celon Labs)

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