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Aurobindo
BUY
INDUSTRY PHARMA
Weak quarter
ARBPs topline grew ~12% YoY to Rs 38.6bn in price erosion in the base business. Forecast 15% US
CMP (as on 10 Feb 2017) Rs 679 rev. CAGR over FY17-19E.
3QFY17. The EBITDA margin declined ~170bps QoQ
Target Price Rs 900 and 45bps YoY to 23.2% on account of heightened R&D expenses are now expected to increase
significantly to fuel potential filings in biosimilars and
Nifty 8,794 pricing pressure (13%YoY) in the US. Reported PAT complex injectable products. We believe costs will
Sensex 28,334 stood at Rs 5.8bn, up ~6%YoY. The increased pricing push up to ~6-7% of sales, further increasing the
KEY STOCK DATA pressure in the US base business and the scale up in pressure on ARBPs margins.
Bloomberg ARBP IN R&D spends on account of planned clinical trials for Highlights of the quarter
No. of Shares (mn) 585 biosimilars and other complex products are likely to
Concall takeaways: (1) Base business has faced price
MCap (Rs bn) / ($ mn) 398/5,948 keep improvement in margins muted over FY18-19E.
erosion of ~13% YoY, ~7% sequentially, (2) Launched
6m avg traded value (Rs mn) 1,780 Hence, we have cut our earnings estimates by 8-9% 11 new products in 3QFY17, incl. 3 injectables. 13
STOCK PERFORMANCE (%) (FY18-19E). At CMP, ARBP is trading at 14.5x FY18E launches planned for 4QFY17, (3) 9 ANDAs filed incl. 4
52 Week high / low Rs 895/582 and 12.4x FY19E, still a ~35% discount to the sector injectables, 19 approvals received incl. 2 injectables (4)
3M 6M 12M average. Maintain BUY rating with a revised TP of Rs Injectables sales expected to grow at 50% YoY for next
Absolute (%) (14.3) (8.9) (1.7) 900 (18x Dec-18E). 2-3 years, (5) Acquired biosimilar products will address
At present, ~45% of ARBPs revenues come from the US$ 20bn market opportunity, (6) Launches: gEpzicom
Relative (%) (17.2) (10.9) (21.0)
US generics business. Although the base is high at ~US$ - 1QFY18, gViread 4QFY18, Dolutagravir (ARV FDF)
SHAREHOLDING PATTERN (%)
1bn, ARBP still has ~140 ANDAs pending with the US 1QFY18, Vancomycin 2QFY18 (7) Natrol biz growth to
Promoters 46.76 be ~15% YoY for the next 2-3 years, (8) Debt will
FDA (37 injectables) and is likely to launch 40-45
FIs & Local MFs 7.40 ANDAs in FY18. The shift from plain vanilla generics to increase to US$ 600mn in 4Q due to EU acquisition.
FIIs 34.86 more niche categories will be the key for ARBP to Near-term outlook: Pick up in complex generic
Public & Others 10.83 maintain double-digit growth and to tackle increased approvals will be the significant driver for ARBP.
Source : BSE
Financial Summary
(Rs mn) 3QFY17 3QFY16 YoY (%) 2QFY17 QoQ (%) FY16 FY17E FY18E FY19E
Amey Chalke Net Sales 38,640 34,635 11.6 37,355 3.4 1,38,111 1,53,061 1,72,806 1,95,048
amey.chalke@hdfcsec.com EBIDTA 8,948 8,177 9.4 9,292 (3.7) 32,056 36,651 40,677 47,083
+91-22-6171-7321 APAT 5,784 5,443 6.3 6,056 (4.5) 19,820 23,739 26,172 30,387
Diluted adj. EPS (Rs) 9.9 9.3 6.3 10.3 (4.5) 33.9 40.6 44.7 51.9
Siddhant Mansukhani P/E (x) 20.2 16.9 15.3 13.2
siddhant.mansukhani@hdfcsec.com RoE (%) 32.5 29.1 24.9 23.0
+91-22-6639-2476 Source: Company, HDFC sec Inst Research # Consolidated
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters
AUROBINDO: RESULTS REVIEW 3QFY17
Margin Analysis
EBITDA margin came in at 3QFY17 3QFY16 YoY (bps) 2QFY17 QoQ (bps) 3QFY17E Var (bps)
23.2%, below expectations by Material Expenses % Net Sales 43.2 43.6 (41) 42.6 59 43.5 (34)
~55bps. This was mostly on Employee Expenses % Net Sales 11.5 11.6 (6) 11.4 11 11.3 23
account of price erosion in the Other Expenses % Net Sales 22.2 21.2 92 21.1 101 21.5 65
US market EBITDA Margin (%) 23.2 23.6 (45) 24.9 (172) 23.7 (54)
Tax Rate (%) 27.4 24.3 315 27.0 47 26.2 126
APAT Margin (%) 15.0 15.7 (75) 16.2 (124) 15.0 (2)
Source: Company, HDFC sec Inst Research
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AUROBINDO: RESULTS REVIEW 3QFY17
29.0 30 250
28.1 10
25.8 10
24.3 201 10
10 10
19.2
17.4
9
20.1 9
12.0 9
9
1 12 12 6 10
(2) (5)
12 13 14 15 16 17 17 17 17
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
51
(9) (10)
7 7 7 7 7 8 7 8 8
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
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AUROBINDO: RESULTS REVIEW 3QFY17
Assumptions
FY16 FY17 FY18E FY19E
European business grew 8% US 61,440 70,349 79,472 93,334
in constant currency terms Growth (%) 31.5 14.5 13.0 17.4
Europe 31,304 33,495 38,855 41,186
Growth (%) (2.0) 7.0 16.0 6.0
We expect US revenue ARV 11,999 12,599 14,867 17,543
growth to settle at 15% Growth (%) 24.5 5.0 18.0 18.0
CAGR over FY17-19E. RoW 6,914 7,951 9,541 11,450
Growth (%) 21.7 15.0 20.0 20.0
SSPs - API 8,708 9,753 10,241 10,753
Growth (%) (5.0) 12.0 5.0 5.0
ARV segment will grow Ceph - API 9,858 10,548 11,181 11,852
relatively quickly on the back Growth (%) 6.0 7.0 6.0 6.0
of important product ARVs - API 10,271 10,066 10,569 11,097
launches Growth (%) 12.6 (2.0) 5.0 5.0
Total 1,40,494 1,54,761 1,74,725 1,97,214
Growth (%) 14.6 10.2 12.9 12.9
Source: HDFC sec Inst Research
Overall top line is expected
to grow at 13% CAGR over
FY17-19E
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AUROBINDO: RESULTS REVIEW 3QFY17
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AUROBINDO: RESULTS REVIEW 3QFY17
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AUROBINDO: RESULTS REVIEW 3QFY17
RECOMMENDATION HISTORY
Date CMP Reco Target
Aurobindo TP
1,000 25-Aug-16 790 BUY 925
16-Nov-16 734 BUY 980
900 23-Jan-17 715 BUY 950
10-Feb-17 679 BUY 900
800
700
600
Sep-16
Feb-17
Jun-16
Jul-16
Mar-16
Dec-16
Oct-16
Aug-16
Nov-16
Jan-17
May-16
NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period
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AUROBINDO: RESULTS REVIEW 3QFY17
Disclosure:
We, Amey Chalke, MBA and Siddhant Mansukhani, CA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect
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Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.
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