Stock Update

Weak quarter, improved outlook

Key points
Aurobindo Pharma
ŠŠ Numbers below expectation: Revenue of
Reco: Buy | CMP: Rs580 Aurobindo Pharma (Aurobindo) in Q4FY2018
grew by 11.2% y-o-y to Rs. 4,049.1 crore.
Operating profit grew by 11.5% to Rs. 804.1 crore
Company details
and operating profit margin (OPM) improved by
Price target: Rs725 5 BPS to 19.9%. Adjusted net profit grew by 2.6%
y-o-y to Rs. 544.2 crore. R&D spends stood
Market cap: Rs33,982 cr
at Rs. 186.6 crore (4.6% of sales). Result was
52-week high/low: Rs809 / 504 below our expectation mainly on account of
NSE volume: (No of shares) 21.9 lakh
weak injectables sales ( due to multiple product
recalls in the U.S. and discontinuance of a
BSE code: 524804 manufacturing line, a remedial measure taken
NSE code: AUROPHARMA for future).

Sharekhan code: AUROPHARMA ŠŠ FY2019 outlook stable; Product approval

from Unit-4 key monitorable: Management
Free float: (No of shares) 28.2 cr has indicated that pricing pressure in the U.S.
is easing. There is good traction in Europe and
Shareholding pattern ROW businesses and, hence, margins are likely
to pick up. Key injectable units (Unit-4 and Unit-
12) of Aurobindo have received Establishment
Institutions
16% Inspection Report (EIR) from the USFDA (as
indicated by management on the call), lifting
some gloom or overhang from the stock.
Public and However, we feel product approval from these
others Promoters
52% sites will be key monitorable in the near term to
14%
watch for. Management has planned to launch
30-40 products in the U.S. for FY2019 (10 of
Foreign these are already approved).
18%
ŠŠ Maintain Buy with unchanged PT of Rs. 725:
Taking cues from management call, we have
revised downward our sales estimates by
Price chart
7%/5% for FY2019E/FY2020E and earnings
820
estimates by 10% each for FY2019E and
760 FY2020E. However, EIR for key facilities lifts
700 certain overhang from the stock and, hence,
640
we maintain our Buy recommendation with an
unchanged price target (PT) of Rs. 725.
580

520

460

400
Jan-18

May-18
Sep-17
May-17

Price performance
(%) 1m 3m 6m 12m
Absolute -4.0 -1.4 -14.1 14.3
Relative to Sensex -4.7 -4.4 -18.1 -0.5

May 29, 2018 4

Sharekhan Stock Update

Results Rs cr
Particulars Q4FY18 Q4FY17 YoY (%) Q3FY18 QoQ (%)
Total Income 4049.1 3641.6 11.2 4336.1 -0.1
Operating expenditure 3245.0 2920.4 11.1 3310.5 0.0
Operating profit 804.1 721.2 11.5 1025.6 -0.2
Other income 43.8 40.8 7.5 25.8 0.7
EBIDTA 847.9 762.0 11.3 1051.4 -0.2
Interest 24.7 14.3 73.1 18.9 0.3
Depreciation 156.6 100.1 56.6 138.1 0.1
PBT 666.5 647.7 2.9 894.4 -0.3
Tax 122.4 117.2 4.5 240.5 -0.5
Adjusted PAT (Ex forex) 544.2 530.5 2.6 653.9 -0.2
Except. Item -15.1 1.5 -59.2
Reported PAT 529.1 532.1 -0.6 594.7 -0.1
Adj. EPS (Rs) 9.3 9.1 2.6 11.2 -0.2
Reported EPS (Rs 9.0 9.1 -0.6 10.2 -0.1
BPS BPS
OPM (%) 19.9 19.8 5 23.7 -379
EBIDTA margin (%) 20.9 20.9 2 24.2 -331
Adj PAT margin 13.4 14.6 -113 15.1 -164
Tax rate 18.4 18.1 27 26.9 -853

Key conference call highlights: Europe formulations business (26% of total

U.S. business (45% of total revenue) to grow as
pricing pressure eases:
ŠŠ Sales for the quarter grew by 5.8% y-o-y to Rs.
1,738.8 crore (on constant currency basis growth
was at 10.1% y-o-y).
ŠŠ We expect U.S. business growth to be driven by
several medium-size launches in the injectables
space in the upcoming quarters.
ŠŠ During Q4FY2018, the company filed 11 ANDAs
(includes two injectables) with the USFDA. The
company received final approval for 10 ANDAs
during the quarter. The company launched
seven new products, including one injectable,
during the quarter.
ŠŠ Management also stated that pricing pressure
in the U.S. is easing up and, hence, margin pick
up could be witnessed going forward.
ŠŠ Moreover, management confirmed that EIR has
been received from the USFDA for key facilities
such as Unit-4. Hence, product approval from
this site will be key monitorable in the near term
to watch for.
revenue) is gaining traction:
ŠŠ In Q4FY2018, sales from the EU formulations
business grew by robust 48.2% y-o-y to Rs.
1,151.6 crore, driven by strong growth in some
of the key markets. On constant currency basis,
sales grew by 29.3% y-o-y.
ŠŠ The acquired business (Actavis) continued to
witness improvement in profitability during
the quarter. EU business has the potential for
margin expansion in the coming years, with
the business having already turned around.
As of March 30, 2018, Aurobindo Pharma has
transferred manufacturing of 83 products from
Europe to India. Out of the total 200 products,
the company plans to shift ~112 products to
India.
ŠŠ R&D cost for FY2018 stood at Rs. 666.5 crore
(4% of sales). Gross debt reduced by Rs. 275
crore during FY2018 to Rs. 4,771 crore. Net debt
for FY2018 is at Rs. 3,507 crore. Finance cost is
at 2% (as majority debt is dollar denominated).
Cash balance stood at Rs. 1,264 crore. Tax rate
will be 25% for the next two years.

May 29, 2018 5

Sharekhan Stock Update

Sales break up: Rs cr

Particulars Q4FY18 Q4FY17 YoY (%) Q3FY18 QoQ (%)
U.S. 1738.8 1643.2 5.8 1909.6 -8.9
Europe 1151.6 777.2 48.2 1171.6 -1.7
Emerging Markets 209.6 197.1 6.3 250.2 -16.2
ARV 148.6 261.9 -43.3 238.9 -37.8
Formulations 3248.6 2879.4 12.8 3570.3 -9.0
Betalactums 532.7 512.1 4.0 536.6 -0.7
Non Betalactums 266.9 250.6 6.5 229.2 16.4
API 799.6 762.7 4.8 765.8 4.4
Gross Sales 4048.2 3642.1 11.2 4336.1 -6.6
Dossier Income 0.8 (0.6) 0.1
Net Sales 4049.0 3641.5 11.2 4336.2 -6.6

Maintain Buy with unchanged price target of Rs. 725: Taking cues from management call, we have revised
downward our sales estimates by 7%/5% for FY2019E/FY2020E and earnings estimates by 10% each for
FY2019E and FY2020E. However, EIR for key facilities lifts certain overhang from the stock. Hence, we
maintain our Buy recommendation with unchanged PT of Rs. 725.

Valuation Rs cr
Particulars FY17 FY18 FY19E FY20E
Net sales 15089.9 16499.8 20098.1 23933.4
Adj. PAT 2290 2440 3172 4020
Shares in issue (cr) 58.6 58.6 58.6 58.6
EPS (Rs.) 39.1 41.6 54.1 68.6
% yoy change 11.3 6.6 30.0 26.7
PER (x) 14.8 13.9 10.7 8.5
EV/Ebidta (x) 10.3 10.0 7.1 5.3
Book value (Rs./share) 160.0 199.4 252.4 319.8
P/BV (x) 3.6 2.9 2.3 1.8
Mcap/sales 2.3 2.1 1.7 1.4
ROCE (%) 25.7 22.7 23.9 26.1
RONW (%) 27.5 23.2 24.0 24.0

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

May 29, 2018 6

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