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Aurobindo Pharma (ARBP) - Qtr. Update - Dated - August 08, 2014




Axis Capital Limited


09 Aug 2014





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Aurobindo Pharma’s (Bloomberg: ARBP IN) Q1 revenue (up 70% YoY, Rs 29 bn) was 5%/4% above our/Street estimates. EBITDA margin (23% vs. our/Street estimates of 20%/22%) was a positive surprise. This was driven by US business (Rs 11 bn vs. estimated Rs 10 bn), largely due to better pricing in gCymbalta and Cephalosporins. Adj. PAT of Rs 4.1 bn (up 140% YoY) was above estimate (our/Street: Rs 3.5/3.9 bn). Raise estimates and target PE; maintain BUY (23% downside from CMP) We raise our FY15E/FY16E EPS by 8%/4% to Rs 47/Rs 56 as we factor in faster ramp-up in US and better margin in EU business. Also, we raise target PE to 16x (from 15x earlier) to factor in improved FCF generation (Rs 6 bn in Q1, reduced net debt by Rs 5 bn). Maintain BUY with TP of Rs 890 (16x FY16E EPS) vs. Rs 800 earlier. At CMP of Rs 722, the stock trades at 15x FY15E EPS and 13x FY16E EPS. Key highlights  Revenue growth led by: (1) US (Rs 11 bn, up 79% YoY driven by currency benefits, injectables, price hikes in Cephalosporins, and ramp-up of recent launches including gCymbalta), and (2) EU (up 359% YoY driven by consolidation of Actavis business). API revenue was up 4% YoY to Rs 6.7 bn  Gross margin improved 453 bps YoY to 53% despite consolidation of low-margin Actavis business. This was largely due to gCymbalta, price hikes in Cephalosporins and improved business mix (77% formulations vs. 62%/68% in Q1/Q4 FY14)  ARBP filed 40 ANDAs (376 cumulative) including 11 injectables and 1 penem injectable  Management confident of maintaining base-EBITDA (ex-Cymbalta, ex-Actavis business) margin at 22-23%. Actavis business (~EUR 320 mn) would grow at ~10% and incur EBITDA loss of ~EUR 10 mn vs. EUR 23 mn in CY13. Our FY15E EBITDA margin of 18% factors in 23% base-EBITDA margin and 3% EBITDA loss for Actavis business Regards, Deepak Khetan (VP – Life Sciences) deepak.khetan@axiscap.in; 91 22 4325 1132

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