Aurobindo Pharma Ltd. share price target

The Q3FY19 sales, adj. EBITDA and PAT beat our estimates by 9%, 3% and Change in Estimates | Target | Reco 8% respectively. While the injectable business was in line with guidance, its flat value erosion of US generics QoQ and efficient execution of new business...

Maintain NEUTRAL with a revised TP of Rs 800 (15x Dec-20E EPS). It is encouraging to see the US base businesses of many Indian pharma companies recovering sharply in 3QFY19, largely led by exit of big players. However, our concerns over Aurobindo (ARBP) remain related to the Sandoz acquisition, which will be completed by 1HFY20. We strongly believe that this acquisition will expand ARBPs exposure to commodity products and the portfolio will be highly prone to future competition.

Aurobindo Pharmaceuticals' Q3FY19 numbers were higher than Idirect estimates due to higher-than-expected sales in all geographies except the US. Revenues grew 21.5% YoY to | 5269.7 crore (I-direct estimate: | 5022.3 crore) mainly due to 27.4% YoY growth in the US EBITDA margins contracted 344 bps YoY to 20.7% (I-direct estimate: 21.0%) mainly due to lower gross margins. EBITDA grew 6.2% to | 1089 crore against I-direct estimate of | 1055.5 crore Adjusted net profit grew 25.4% YoY to | 737.3 crore (I-direct estimate: | 669.1 crore). The delta vis--vis EBITDA was due to...

grew ~22% YoY to INR52.7b (v/s our est. of INR47.6b), largely led by the US (~46% of sales) and API segment (~17% of sales). The US sales were up ~22% YoY, while API segment sales were up ~20% YoY. Other geographies also 8 February 2019 reported healthy growth. Gross margin (GM) contracted 340bp YoY to 55% (-200bp QoQ), partly due to one-time provision for penalty on supply failure of some products in the US market, and change in product mix. EBITDA margin also contracted ~300bp YoY (-100bp QoQ) to 20.6%. R&D; spend was higher by ~120bp YoY to 4.8% (as % of sales), partially offset by lower other expense (down ~150bp YoY). Forex gain stood at INR51m v/s INR7.3m YoY. Adjusting for forex gain and acquisition related exceptional expense, PAT increased by ~5% YoY to INR6.9b (v/s our est.

17 January 2019 injectable products, intellectual property and commercial infrastructure from Spectrum Pharma for a cash consideration of USD160m. The acquired products are already commercialized in the US (contributed USD116.2m in CY17 and likely to have contributed ~USD105m in CY18 for Spectrum Pharma). For ARBP, these products are expected to generate sales of ~USD100m for the first 12 months post completion of the deal. portfolio analysis indicates four products are under patent, which are expiring over FY20-34. This is largely due to increased R&D; (76% of sales) and selling expenses (84% of sales) for Spectrum. Post-acquisition of the commercial portfolio by ARBP, the R&D; spend would get eliminated. In addition, selling expenses would reduce considerably as ARBP will use its own marketing platform. Pro forma P&L; (Exhibit 1) indicates PAT of USD10m in FY20, which will only increase on the back of an improvement in sales and profitability.

Auro reported 7% YoY increase in net sales in Q2FY19 aided by growth in the US (up 6% YoY), ARV (up 18% YoY) and RoW business (up 26.3% YoY). Formulations business registered 7% YoY growth in Q2FY19 led by US business which grew 6% YoY despite high base in the corresponding quarter due to gRenvela exclusivity. The growth in the US was driven by currency benefits, new product launches in both oral and injectable segments and volume growth in existing products. The company filed 25 ANDAs, launched 14 products including 2 injectables in the quarter and received final approval for 13 ANDAs and tentative approval for two ANDAs in Q2FY19. On a cumulative basis, Auro filed 510 ANDAs with USFDA and received 385 approvals. AuroMedics, the injectable business witnessed a growth of 8% YoY driven by Ertapenem launch and the management has maintained its...

Downgrade the stock to Neutral with a TP of Rs 840 (15x Sep'20E EPS). While Aurobindos (ARBP) Sandoz acquisition may not lead to a disaster like peers (Teva, Endo, Hikma and Lupin), it could considerably hamper the growth in the medium term. Our analysis of Sandozs large oral and derma portfolio suggests that it is likely to face severe competition in the next 2-3 years.

For 2QFY2019, Aurobindo Pharma (APL), the company posted sales of `4,667cr v/s. `4,354cr in 2QFY2018, a yoy growth of 7.2%. On the operating front, the EBITDA margin came in at 18.8% v/s. 23.8% in 2QFY2018. YoY decline is on the back of sales of certain high margin products in 2QFY18. Sequentially EBDITA margins expanded by ~340bp. Conseq..

US Business U.S. formulation business reported revenue of `2,226.8 Crs. witnessing a growth of 6.1% YoY and 17.8% on a sequential basis. US business reported healthy growth inspite of high base due to one-off opportunity in Q2FY18. The launch of Ertapenem and shortage of Valsartan helped to report improved volumes in the US. During the quarter, Aurobindo received final approvals for 13 ANDAs including one injectable and filed 25 ANDAs including 8 ANDAs for injectable products. The management has maintained their growth guidance for the injectable business of ~30% growth for FY19and...

Maintain BUY with a TP of Rs 875 (15x Sep'20E EPS). Aurobindo Pharmas (ARBP) 2QFY19 performance was ahead of our estimates, with revenue at Rs 47.5bn, up 7/12% YoY/QoQ despite a high base of 2QFY18 which includes gRenvela sales. The 11% beat was primarily driven by the US business (~47% of revenue, up 6/18% YoY/QoQ), while all other segments also grew during the quarter.