Aurobindo Pharma - Deleveraging continues - ICICI Securities

Aurobindo Pharma's (Aurobindo) Q1FY21 performance was broadly in line with our estimates. Revenues grew 8.8% YoY to Rs59.2bn (I-Sec: Rs60.5bn), EBITDA margin was flattish at 21.2% (I-Sec: 20.1%) and adjusted net profit grew 19.2% YoY to Rs7.6bn (I-Sec: Rs7.1bn). US revenues remained flat QoQ at US$411mn but was above our estimate of US$401mn. Company reduced net debt by US$168mn in Q1FY21 which came as a big positive surprise as we were expecting US$200mn reduction in FY21E. We remain positive on Aurobindo's long-term outlook considering its strong US pipeline with potential to launch >20 products every year, significant balance sheet improvement with constant net debt reduction every quarter and increasing revenue contribution from complex generics (injectables, opthalmics, penems, etc.). Reiterate ADD.

- Revenue growth led by US and ARVs: Aurobindo's US revenues grew 6.5% YoY but remained flattish QoQ to US$411mn (I-Sec: US$401mn) led by volume gain in existing products, new launches and integration of Spectrum acquisition. Aurobindo launched six products including one injectable, in the US during the quarter. Injectable sales were weak due to lockdown and we expect gradual pick-up in coming quarters. ARV formulations also grew strong 33.6%. Emerging market revenues declined 7.6% and EU dropped 5.0% YoY (10.6% in constant currency).

- EBITDA margin remained stable: Aurobindo reported an EBITDA margin of 21.2%, flattish YoY, but came above our estimate of 20.1% with higher sales in US and ARVs. Gross margin improved 160bps YoY but remained flat QoQ with better revenue mix incorporating higher US & ARV sales. We expect EBITDA margin to remain stable around 21-22% considering potential increase in operating expenses I coming quarters. Adjusted PAT grew 19.2% driven by lower interest cost backed by debt reduction and higher other income.

- Outlook: We expect Aurobindo to register 9.3% revenue and 14.1% PAT CAGRs over FY20-FY22E with EBITDA margin stable around 21-22%. Debt reduction of US$168mn in Q1FY21 to US$191mn surprised positively as we had estimated net debt reduction to US$200mn for the full year. We expect net debt reduction to continue and we expect the company to become debt free by FY22E. We estimate RoCE to improve to 15.1% by FY22E from current 13.7%.

- Valuations and risks: We raise our earnings estimates by 1-2% to factor in lower interest cost and also raise target P/E(x) to 16x from 14x considering strengthening balance sheet and improving US business environment. We maintain ADD on the stock with a revised target price of Rs1,025/share based on 16xFY22E earnings (earlier: Rs884/share based on 14xFY22E). Key downside risks: regulatory hurdles, currency volatility and delay in US launches.

Shares of AUROBINDO PHARMA LTD. was last trading in BSE at Rs.878.2 as compared to the previous close of Rs. 881.3. The total number of shares traded during the day was 357271 in over 11925 trades.

The stock hit an intraday high of Rs. 899.95 and intraday low of 863.3. The net turnover during the day was Rs. 317480793.

Source : Equity Bulls

Keywords