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Aurobindo Pharma (ARBP) - Qtr. Update - Dated - June 02, 2014




Axis Capital Limited


02 Jun 2014





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Aurobindo Pharma’s (Bloomberg: ARBP IN) Q4 performance was much ahead of our/ Street estimate. Revenue (up 48% YoY, Rs 23 bn) was marginally above estimate. This was driven by US formulations (Rs 11 bn vs. Rs 10 bn estimated) due to better pricing, market share in gCymbalta. EBITDA margin (32% vs. our/ Street estimate: 27%/ 29%) was a positive surprise. Even ex-gCymbalta (assuming USD 45 mn revenue; 75% margin), EBITDA margin was >26%. Margin expansion was led by operating leverage and improving product mix. Consequently, adj. PAT at Rs 4.7 bn (4x Q4FY13) was above estimate (our/ Street: Rs 4 bn). Maintain HOLD with TP of Rs 575 (10% downside from CMP) Maintain HOLD with TP of Rs 575 (11x FY16E EPS). Faster turnaround of Actavis business and debt reduction could trigger rerating. At CMP of Rs 639, the stock trades at 15x FY15E EPS of Rs 42 and 12x FY16E EPS of Rs 52. Key highlights  Revenue growth led by: (a) US (Rs 11 bn, up 130% YoY driven by currency benefits, injectables, re-launch of Cephalosporins, and ramp-up of recent launches including gCymbalta), and (b) EU (up 77% YoY driven by customer addition and product launches). API revenue was up 13% YoY to Rs 7.5 bn  Gross margin improved 340 bps YoY/ 1,270 bps QoQ to 61% largely due to gCymbalta. Ex-gCymbalta, gross was ~60% (assuming 75% gross margin on gCymbalta)  ARBP filed 28 ANDAs (336 cumulative) and received 1 final approvals in Q4FY14  Management confident of maintaining base-EBITDA (ex-Cymbalta, ex-Actavis business) margin of >23% (in line with Q2FY14). Actavis business (~USD430 mn) is currently making EBITDA margin loss of 6%; management remains confidant of turning EBITDA neutral in FY17. Our FY15E EBITDA margin of 17% factors in 23% base-EBITDA margin and 3% EBITDA margin loss for Actavis business Regards, Deepak Khetan (VP – Life Sciences) deepak.khetan@axiscap.in; 91 22 4325 1132

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