Aurobindo Pharma - Steady quarter; focus on new growth avenues - ICICI Securities

Aurobindo Pharma's (Aurobindo) Q4FY21 performance was broadly in line with estimates with higher ARV sales and lower S,G&A expenses. Revenues declined 2.5% YoY to Rs60.0bn owing to Natrol divsetment, EBITDA margin was down 60/30bps to 21.2% (I-Sec: 20.9%) due to higher R&D cost and adjusted net profit declined 8.2% YoY to Rs7.9bn (I-Sec: Rs7.7bn). Ex-Natrol, US sales marginally improved QoQ to US$393mn. We remain positive on Aurobindo's long-term outlook considering its strong US pipeline with potential to launch more than 20 products every year, rising share of injectable sales, significant balance sheet improvement and investments into new segments for future growth (biosimilars, vaccines, APIs etc.). Reiterate ADD.

- Revenue impacted by Natrol divestment and weak EU and EMs: Aurobindo's US revenues (ex-Natrol) grew 0.8% QoQ to US$393mn below estimated US$401mn. Injectable sales remained flat QoQ as elective surgeries are yet to pick up. Aurobindo has launched 19 products including 10 injectables, in the US during FY21. We expect 6.8% revenue CAGR in US sales (ex-Natrol) over FY21-FY23E, largely driven by injectable sales. ARV formulations grew strong 28.7% led by higher conversion of patients from TLE to TLD regime. Emerging market and EU revenues declined 18.8% and 6.0% respectively. Potential upside from APIs through PLI scheme is not captured in our estimates and would provide upside to revenue growth estimates.

- EBITDA margin remains stable: Aurobindo reported an EBITDA margin of 21.2%, down 60/30bps YoY/QoQ. This is despite significant 270/150bps increase in R&D spend as percentage to sales. Gross margin improved 50/30bps YoY/QoQ despite loss of export incentives largely driven by improved revenue mix. We expect EBITDA margin to remain stable around ~21-22%, considering potential increase in R&D expenses in coming years for biosimilars and injectables. The company is looking to file two biosimilars in H2FY22 and potential launch in H2FY23.

- Outlook: The company recently concluded Natrol divestment for US$550mn (3.5xFY20 sales) which helped Aurobindo to turn net cash. We expect the company to register 5.0% revenue and 7.0% PAT CAGRs over FY21-FY23E with EBITDA margin stable ~21-22%. Company has been investing for capacity creation of injectables, biosimilars, dermatology, APIs etc. which would help in ensuring long term growth momentum. We estimate RoIC to remain ~15% over FY21-FY23E and company to generate free cash flow of ~Rs45bn over FY22E-FY23E.

- Valuations and risks: We largely maintain estimates and retain ADD on the stock with a revised target price of Rs1,130/share based on 18xFY23E earnings (earlier: Rs1,116/share). Key downside risks: regulatory hurdles, currency volatility and delay in US launches.

Shares of AUROBINDO PHARMA LTD. was last trading in BSE at Rs.970.4 as compared to the previous close of Rs. 997.75. The total number of shares traded during the day was 316839 in over 8778 trades.

The stock hit an intraday high of Rs. 1007.95 and intraday low of 959.9. The net turnover during the day was Rs. 307738280.

Source : Equity Bulls

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