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Spark Capital: Aurobindo Pharma – Q4 FY14 results review – Cymbalta does it again; maintain ‘Reduce’




Spark Capital Advisors(India) Private Limited


03 Jun 2014





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Cymbalta does it again; maintain ‘Reduce’ For the second consecutive quarter, Aurobindo Pharma benefited from shared exclusivity for generic Cymbalta in the US. US sales of $181mn for the quarter (vs. $150mn in Q3FY14) includes ~$50mn high-margin generic Cymbalta sales (~$30mn in Q3FY14), according to our estimates. The company reported topline growth of 9% and EBITDA margin improvement of ~180bps sequentially for the quarter. Strong contribution from Cymbalta is expected for one more quarter as exclusivity expires on June 10th, post which additional competition and price erosion is expected. Ramp up in US sales driven by Cymbalta, Aurolife (controlled-substances subsidiary) and Auromedics (injectables subsidiary) and declining leverage are positives of FY14 for Aurobindo. However, expected decline in profit contribution from Cymbalta and losses from recently acquired Actavis’ Western European business are challenges for FY15. While acknowledging the recent improvements, we await clarity on financial impact of the acquired EU business (consolidated from April 1, 2014) before turning constructive on the stock. Maintain ‘Reduce’ rating with a revised target price of Rs. 600 (12x FY16E EPS of Rs. 50) Takeaways from post-results conference call: During the quarter, Auromedics generated $12mn sales ($10mn in Q3FY14, $37mn for FY14). Management expects sales of ~$60mn in FY15. The company has made 55 filings from Unit IV, with 8 approvals till date Aurolife generated revenues of $74mn in FY14 driven by higher capacity utilization and new product launches. The company has made 20 filings from Aurolife, with 7 approvals till date. Reintroduced cephalosporin products from Unit VI generated sale of $28mn in FY14 The company has filed 336 ANDAs with165 final approvals and 26 tentative approvals API sales for the quarter grew 13% driven by strong SSP sales (35% yoy) Forex gain (largely MTM on forex debt) for the quarter was Rs. 356mn (Rs. 2bn loss for FY14 vs. Rs. 1.6bn loss in FY13) Net debt of Rs. 36bn as of Mar 2014. ~Rs. 4bn of cash (consideration payable to Actavis) was included in loans and advances. Adjusted for this net debt was at Rs. 32bn (flat yoy). Management guided for FY15 capex of Rs. 4-5bn, excluding Actavis acquisition (closed on April 1, 2014)

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