COMPANY REPORT

Aurobindo Pharma - ADD

Strong US growth; steady outlook

Strong US driven by Spectrum, volume gains and Ertapenem CMP (Rs) 598 12‐mts Target (Rs) 660 Upside 10.7%
US sales jumped a robust 33% yoy adjusted for ~US$25mn of acquired Stock data (As on Aug 08, 2019) Sector: Pharmaceuticals
Sensex: 37,327 Stock performance
Spectrum oncology assets; stable growth in base business, fair amount
52 Week h/l (Rs) 838/527 ARBP Sensex
of volume gains and Ertapenem were the key drivers of such a strong 150
Market cap (Rs mn) 350,368
US showing. Management believes injectables sales at US$67mm (flat 120
Enterprise value (Rs mn) 395,971
qoq) will be softer in Q2 though it would rebound in H2 FY19. Growth 90
6m Avg t/o (Rs mn): 2,549
came in stronger across other geographies too with Europe at +16% yoy 60
FV (Re): 1
(including full quarter of Apotex business), growth markets (+22% yoy) 0.4 Aug-18 Dec-18 Apr-19 Aug-19
Div yield (%):
and ARV revenues which doubled yoy. Gross margin improved on
Bloomberg code: ARBP IN
better mix as formulations accounted for 86% of sales vs 82% a year ago. Shareholding pattern (As of Jun’19 end)
BSE code: 524804 Promoter 51.9%
Other costs jumped on integration of Spectrum business though
NSE code: AUROPHARMA FII+DII 35.2%
EBIDTA still gained yoy. Operating profit is higher by Rs280mn due to
Others 12.9%
adoption of lease accounting which resulted in higher depreciation. Net
debt reduced by US$130mn due to release of working capital across Exhibit 1: Result table
both US and Europe and company targets US$150-200mn reduction in (Rs mn) Q1 FY20 Q4 FY19 % qoq Q1 FY19 % yoy
FY20. On regulatory front, management expects inspection for all three Revenues 54,446 52,922 2.9 42,503 28.1
facilities in CY19 even as only about 15 products filed from the RM + inventory (17,685) (18,604) (4.9) (14,721) 20.1
combined 3 facilities which lowers the risk in case of escalation, if any. Purchase of stocks (5,301) (5,122) 3.5 (4,351) 21.8
Staff (7,799) (7,135) 9.3 (5,961) 30.8
Revenue growth to be modest; margins stable Other expenses (12,198) (11,458) 6.5 (9,677) 26.1
OPM (%) 21.1 20.0 102 bps 18.3 272 bps
Aurobindo indicated that growth in US oral solids business is wide
Depreciation (2,409) (1,866) 29.1 (1,545) 55.9
spread while only Ertapenem being a lumpy product in which one can Interest (499) (501) (0.4) (295) 68.9
expect additional competition. Moreover, acquisition of Spectrum and Other income 110 323 (65.9) 437 (74.8)
Sandoz businesses will incrementally add to margin, especially in the Tax (2,278) (2,311) (1.5) (1,155) 97.1
case of latter, driven by economies of scale (in product overlap), site Effective tax rate (%) 26.5 27.0 (48) bps 18.1 845 bps
transfers and some synergy in R&D. We reckon earnings growth will Forex/JV share 48 (390) - (682) -
be steady though incremental R&D on biosimilars and other initiatives PAT 6,357 5,854 8.6 4,556 39.5
will dampen margin. ADD stays with revised 1-year PT of Rs660. Source: Company, YES Sec – Research

August 09, 2019

Research Analyst: Bhavesh Gandhi  bhavesh.gandhi@ysil.in
Head of Research: Amar Ambani  amar.ambani@ysil.in (For important information about YES SECURITIES (INDIA) LTD. and other disclosures, refer to the end of this material.)
Aurobindo Pharma

CONCALL HIGHLIGHTS Exhibit 2: Key costs breakup

% of net sales Q1 FY20 Q4 FY19 bps qoq Q1 FY19 bps yoy
 Fair amount of volume increase in some of existing products and RM + inventory 32.5 35.2 (267) 34.6 (215)
Purchase of goods 9.7 9.7 6 10.2 (50)
sartans business; base business price erosion of 5%
Staff 14.3 13.5 84 14.0 30
 Had a meeting on Unit 9 and 11 and have to meet CAPA; expect Other expenses 22.4 21.7 75 22.8 (36)
inspection for all three facilities in CY19 Total costs 78.9 80.0 (102) 81.7 (272)

 Total of 15 products from 3 affected facilities over next 2 years and Gross profit Rs mn 31,461 29,196 7.8 23,430 34.3
market size of combined is US$30mn GM (%) 57.8 55.2 262 55.1 266
 Auromedics (injectables subsidiary) sales of US$67mn vs US$66mn Source: Company, YES Sec – Research

in Q4
Exhibit 3: Revenue distribution
 Working capital days have declined mostly in US with some (Rs mn) Q1 FY20 Q4 FY19 % qoq Q1 FY19 % yoy
reduction in Europe Formulations 47,119 43,735 7.7 35,008 34.6
US 26,884 24,811 8.4 18,896 42.3
 Cautiously optimistic on injectables though Q2 would be slower;
Europe 13,916 13,118 6.1 11,991 16.1
expect recovery in subsequent quarters
Growth markets 3,134 2,891 8.4 2,565 22.2
 Await CBE30 approval for Valsartan API ARV 3,185 2,915 9.3 1,556 104.7

 Not many products filed from Unit 3 and it is not a lead plant for APIs 7,322 9,167 (20.1) 7,480 (2.1)
filing products Betalactum 4,310 5,830 (26.1) 4,919 (12.4)
 1 more player can come in Ertapenem; no benefit from any single Non Betalactum 3,012 3,337 (9.7) 2,561 17.6
product and growth spread out in oral solids business Dossier income 4 19 (78.9) 15 (73.3)
Total revenues 54,445 52,921 2.9 42,503 28.1
 No deterioration seen in Sandoz business and revenue base of Source: Company, YES Sec – Research
US$900mn already factors in erosion and lumpiness
 Would have reduced debt without factoring too, though not to the
same scale
 Aim to reduce debt by US$150-200mn of which US$130mn has
already happened in Q1

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Aurobindo Pharma

Exhibit 4: US revenues clocked strong yoy growth Exhibit 6: Europe revenues up 16% yoy
Revenues Growth % qoq Revenues Growth % yoy
30.0 Rs bn 26.9 30.0
16.0 Rs bn 60.0
24.3 24.8 25.0 13.9
25.0 23.8 14.0 12.9 13.1
21.0 22.3 50.0
20.0 11.7 11.5 12.0 11.6
19.1 18.9 17.8 12.0 11.1
20.0 17.4 17.5 16.9 17.4 15.0 40.0
16.4 10.0
9.3 10.0 36.9
15.0 8.7
8.4 8.0 37.0 30.7 30.0
5.0
3.1 2.0 48.2
10.0 0.0 6.0
10.3 13.9 20.0
1.8 0.6 4.0 3.9 16.1
(8.9) (5.0)
(5.8)
5.0 10.0
(9.0) (10.0) 2.0
0.0 (15.0) 0.0 0.0
Q2 FY17

Q3 FY17

Q4 FY17

Q1 FY18

Q2 FY18

Q3 FY18

Q4 FY18

Q1 FY19

Q2 FY19

Q3 FY19

Q4 FY19

Q1 FY20

Q2 FY18

Q3 FY18

Q4 FY18

Q1 FY19

Q2 FY19

Q3 FY19

Q4 FY19

Q1 FY20
Source: Company, YES Sec – Research Source: Company, YES Sec – Research

Exhibit 5: Growth markets remained healthy Exhibit 7: ARV revenues doubled yoy
Revenues Growth % yoy Revenues Growth % yoy
4.0 Rs bn 40.0
3.4 36.1 3.5 Rs bn 3.2 120.0
3.5 37.9 35.0
33.2 3.1 2.9 2.8 2.9 100.0
37.7 32.3 2.9 3.0 104.7
3.0 30.0 2.4 80.0
2.5 2.6 2.4
2.4 26.3 2.5 96.2
2.5 25.0 2.1 60.0
2.1
2.0 40.0
2.0 20.0 1.5 1.6
1.5 17.6 20.0
1.5 15.0
17.7 0.0
1.0 22.2 10.0 1.0 (25.5) (30.1)
(36.4) (20.0)
0.5 6.3 5.0 0.5 (43.3)
(40.0)
0.0 0.0 0.0 (60.0)
Q2 FY18

Q3 FY18

Q4 FY18

Q1 FY19

Q2 FY19

Q3 FY19

Q4 FY19

Q1 FY20

Q2 FY18

Q3 FY18

Q4 FY18

Q1 FY19

Q2 FY19

Q3 FY19

Q4 FY19

Q1 FY20
Source: Company, YES Sec – Research Source: Company, YES Sec – Research

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Aurobindo Pharma

Exhibit 8: Financial summary

Y/e 31 Mar (Rs mn) FY17 FY18 FY19 FY20E FY21E
Revenues 150,899 164,998 195,636 221,811 240,943
yoy growth (%) 8.1 9.3 18.6 13.4 8.6
Operating profit 34,343 37,885 39,519 45,209 49,083
OPM (%) 22.8 23.0 20.2 20.4 20.4
Reported PAT 23,017 24,224 23,647 27,405 29,799
yoy growth (%) 13.7 5.2 (2.4) 15.9 8.7

EPS (Rs) 39.3 41.4 40.4 46.8 50.9

P/E (x) 15.2 14.4 14.8 12.8 11.7
P/BV (x) 3.7 3.0 2.5 2.1 1.8
EV/EBITDA (x) 10.1 9.0 8.4 7.3 6.4
Debt/Equity (x) 0.3 0.4 0.5 0.4 0.4
ROE (%) 26.8 23.1 19.6 18.0 16.6
ROCE (%) 32.0 27.3 24.1 23.0 21.3
Source: Company, YES Sec – Research
Note: Numbers do not include Sandoz acquisition

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returns, the recommendations are categorized as mentioned below. The performance horizon is 12 to 18 months unless specified and the target price is defined as the analysts’
valuation for a stock. No benchmark is applicable to the ratings mentioned in this report.

BUY > 15%

ADD 5% to 15%
HOLD -15% to +5%
SELL > - 15%
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ABOUT YES SECURITIES (INDIA) LIMITED

YES SECURITIES (INDIA) LIMITED (‘‘YSL’’) was incorporated on 14th March 2013 as a wholly owned subsidiary of YES BANK LIMITED. YSL is a SEBI registered stock broker
holding membership of NSE and BSE. YSL is also a SEBI registered Category I Merchant Banker, Investment Adviser and a Research Analyst. YSL offers, inter alia,
trading/investment in equity and other financial products along with various value added services. We hereby declare that there are no disciplinary actions taken against YSL
by SEBI/Stock Exchanges.

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YES SECURITIES (INDIA) LIMITED
Registered Office: Unit No. 602 A, 6th Floor, Tower 1 & 2, Indiabulls Finance Centre,
Senapati Bapat Marg, Elphinstone Road, Mumbai – 400013, Maharashtra, India.
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DISCLOSURE OF INTEREST
Name of the Research Analyst : Bhavesh Gandhi
The analyst hereby certifies that opinion expressed in this research report accurately reflect his or her
personal opinion about the subject securities and no part of his or her compensation was, is or will be
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