Aurobindo Pharma Ltd. share price target

Aurobindo Pharma Limited (Aurobindo) reported in-line results for Q2FY2020. Sales grew strongly by 18% to Rs. 5,600 crore because of sturdy growth in the U.S. and Europe formulations business. Operating profit grew by 14% y-o-y to Rs. 1,168 crore, while adjusted PAT was almost flat y-o-y to Rs. 679.5 crore, in line with our estimates. Aurobindo is witnessing higher USFDA scrutiny in the recent past, pointing at elevated regulatory risks. More than 50% of the company's fillings are from impacted plants; hence, resolution is a key parameter to watch....

Good start to the year with robust US sales Aurobindo Pharma Ltd (ARBP) is a leading pharmaceutical company which is vertically integrated with business units comprising of formulations,...

US Business US revenue grew by 42% YoY and to `26,884 mn. On a constant currency basis, US revenue increased by 37% year-on-year basis to $387 million led by new product launches and improvement in volumes of existing products. Revenue of Aurobindo Pharma USA, the company marketing oral products in the US increased by 32% YoY, while Revenue of AuroMedics (injectable business) witnessed a growth of 86% year-on-year to $67 million. During the quarter, Aurobindo witnessed the full impact of consolidation Spectrum Pharmaceuticals. 40 more new products are expected to be launched in the next 9 months. Price erosion in the base business was below 5% for the quarter. Approval...

Aurobindo Pharma Limited (Aurobindo) reported a strong set of numbers in Q1FY2020. Sales rose by a strong 28.1% y-o-y to Rs 5,444.6 crore (6% above our estimates), driven by strong growth in formulation business across geographies. Operating profit increased by 47.1% y-o-y to Rs. 1,146.4 crore (15.3% above our estimates). Gross margin improved by 270 bps y-o-y to 57.8%. OPM improved by 272 bps y-o-y to 21.1% (168 bps above our estimate of 19.4%). Adjusted PAT grew by 22.1% y-o-y to Rs. 638.9 crore (7.9% above our estimate)....

Q1FY20 EBITDA beat estimate by 12%, led by better gross margins (+260bps qoq; strong US, weak API) and lower R&D; spends (4.5% vs. ~5% guided incl. the Sandoz acquisition). The other positives are strong US sales and a reduction in net debt by US$130mn qoq. Despite no meaningful launches, the US business (US$387mn, +10% qoq) continued to remain strong, led by Injectables (US$67mn, flat qoq despite gErtapenem competition), addition of Spectrum portfolio (~US$25mn) and stable base business (<5% price erosion). The Sandoz deal is expected to close in the near future and should be a key near-term trigger (can add ~15% to our estimates). ARBP has shown exemplary execution in the US...

US key growth driver; acquisitions to strengthen US basket After filing ANDA in the US in 2003, the company has come a long way as current ANDA filings are at 551. US revenues have grown from ~US$100 million in 2009 crossing $1 billion sales as on 2017. In rupee terms, US sales have grown at 17% CAGR to | 9031 crore in FY15-19. US formulations now constitute 46% of total turnover, up from 30% in FY13. Post acquisition of Sandoz' US dermatology and oral solid businesses, Aurobindo will become the second largest generic player in the US by number of prescriptions. Due...

The Q1FY20 sales, adj. EBITDA and PAT beat our estimates by 7%, 9% and Change in Estimates | Target | Reco 2% respectively. While the injectable business was in line with guidance, its flat growth with sales of US$67m in US injectable, despite seasonal...

Q1FY20 revenue/EBITDA beat estimates by 8%/10% spurred by strong US sales at US$ 384mn and 260bps gross margin expansion YoY and QoQ.

The WL highlighted that the company has initiated recalls/additional process controls and testing of all manufactured batches of certain API, post the mention by regulatory agencies. There has been failure to ensure that equipment surface in contact with the API does not alter it beyond the established specification. Though the company has engaged a consultant to evaluate operations, the WL highlighted that the firms management will be responsible for fully resolving all deficiencies to ensure CGMP compliance. The WL also indicated that the USFDA has cited similar CGMP observations at other sites Unit I and Unit IX. the USFDA would require comprehensive measures to ensure adequate quality oversight of operations/equipment that could affect the drug quality, including any revised qualification and evaluation procedures. The USFDA would also require an update on the CAPA plans already initiated by ARBP, in addition to a thorough review of all API batches made at ARBP sites, in terms of impurities above reported thresholds.