3QFY2017 Result Update | Pharmaceutical
February 23, 2017
Aurobindo Pharma
BUY
CMP
`686
Performance Highlights
Target Price
`877
Y/E march (` cr)
3QFY17 2QFY17
% chg (QoQ) 3QFY16
% chg (yoy)
Investment Period
12 months
Net sales
3,844
3,714
3.5
3,432
12.0
Other income
70
70
(0.7)
70
(0.9)
Stock Info
Operating profit
833
867
(3.9)
760
9.7
Sector
Pharmaceutical
Interest
(2)
(3)
(41.9)
23
(106.8)
Adj. Net profit
579
606
(4.6)
544
6.3
Market Cap (` cr)
40,137
Net debt (` cr)
3,265
Source: Company, Angel Research
Beta
1.1
For 3QFY2017, Aurobindo Pharma (APL) posted numbers which were almost in-
52 Week High / Low
895/582
line with expectations on sales and net profit front, with sales marginally higher
Avg. Daily Volume
177,746
than expected and net profit marginally lower than expected. On sales front, the
Face Value (`)
1
company posted sales of `3844cr (v/s. `3,715cr expected) v/s. `3,432cr in
BSE Sensex
28,762
3QFY2016, posting a yoy growth of 12.0%. On the operating front, the EBITDA
Nifty
8,927
margin came in at 21.7% (vs. 23.1% expected) v/s. 22.1% in 3QFY2016.
Reuters Code
ARBN.BO
Consequently, the Adj. PAT came in at `579cr (v/s. `603cr expected) v/s. `544cr
Bloomberg Code
[email protected]
in 3QFY2016, a yoy growth of 6.3%. We maintain our Buy rating on the stock.
Results mostly in-line with expectation: Aurobindo Pharma’s (APL) posted
Shareholding Pattern (%)
numbers which were almost in-line with expectations on sales and net profit
fronts, with sales marginally higher than expected and net profit marginally lower
Promoters
51.9
than expected. On sales front, the company posted sales of `3844cr (v/s.
MF / Banks / Indian Fls
13.8
`3,715cr expected) v/s. `3,432cr in 3QFY2016, posting a yoy growth of 12.0%.
FII / NRIs / OCBs
24.5
The formulation sales (`3,130cr) posted a yoy growth of 11.4%, while API
Indian Public / Others
9.8
(`775.9cr) posted a yoy growth of 11.6%. On the operating front, the EBITDA
margin came in at 21.7% (v/s. 23.1% expected) v/s. 22.1% in 3QFY2016.
Abs. (%)
3m 1yr
3yr
Consequently, the Adj. PAT came in at `579cr (v/s. `603cr expected) v/s. `544cr
Sensex
11.6
21.3
38.9
in 3QFY2016, a yoy growth of 6.3%.
Aurobindo
(3.6)
4.6
180.4
Outlook and valuation: We estimate the company’s net sales to log a CAGR of
15.1% over FY2016-18E to `18,078cr on the back of US formulations, which
3-year daily price chart
will be supplemented through the recent acquisitions of the Western European
1,000
formulation businesses of Actavis and US’ Natrol. The acquisitions have also led
APL to become a >US$2bn sales company, with ~80% of sales being accounted
800
by formulations. We recommend a Buy rating with a target price of `877.
600
Key financials (Consolidated)
400
Y/E March (` cr)
FY2015
FY2016
FY2017E
FY2018E
200
Net sales
12,043
13,651
15,720
18,078
0
% chg
49.8
13.3
15.2
15.0
Adj. Net profit
1,619
1,982
2,418
2,763
% chg
21.5
22.4
22.0
14.2
EPS (`)
27.7
33.9
41.4
47.3
Source: Company, Angel Research
EBITDA margin (%)
20.6
21.7
23.7
23.7
P/E (x)
24.7
20.2
16.6
14.5
RoE (%)
36.4
32.5
29.6
26.1
RoCE (%)
25.3
24.8
24.0
22.5
P/BV (x)
3.9
5.7
4.3
3.4
Sarabjit Kour Nangra
EV/Sales (x)
1.9
3.2
2.8
2.4
+91 22 3935 7800 Ext: 6806
EV/EBITDA (x)
9.4
14.6
11.7
10.1
[email protected]
Source: Company, Angel Research; Note: CMP as of February 21, 2017
Please refer to important disclosures at the end of this report
1
Aurobindo Pharma | 3QFY2017 Result Update
Exhibit 1: 3QFY2017 performance (Consolidated)
Y/E March (` cr)
3QFY2017
2QFY2017
% chg (QoQ) 3QFY2016
% chg (YoY) 9MFY2017 9MFY2016
% chg (YoY)
Net sales
3,844
3,714
3.5
3,432
12.0
11,263
10,036
12.2
Other income
70
70
(0.7)
70
(0.9)
218
223
(2.2)
Total income
3,914
3,784
3.4
3,502
11.8
11,480
10,258
11.9
Gross profit
2,135
2,085
2.4
1,879
13.6
6,245
5,500
13.6
Gross margins
55.5
56.2
54.7
55.5
54.8
Operating profit
833
867
(3.9)
760
9.7
2,527
2,148
17.6
OPM (%)
21.7
23.4
(7.2)
22.1
22.4
21.4
Interest
(2)
(3)
(41.9)
23
(106.8)
9
108
(91.3)
Dep & amortisation
111
110
0.9
99
11.7
328
281
16.6
PBT
793
830
(4.4)
708
12.0
2,408
1,982
21.5
Provision for taxation
218
224
(2.8)
186
17.0
643
514
24.9
Net profit
575
606
(5.0)
522
10.3
1,766
1,467
20.3
Less : Exceptional items (gains)/loss
-
-
-
0
-
-
MI & share in associates
3
0
13
3
3
-
PAT after Exceptional items
579
606
(4.6)
544
6.3
1,769
1,470
20.3
Adjusted PAT
579
606
(4.6)
544
6.3
1,769
1,470
20.3
EPS (`)
9.9
10.4
9.3
30.3
25.2
Source: Company, Angel Research
Exhibit 2: Actual v/s Estimate
(` cr)
Actual
Estimate
Variation %
Net sales
3,844
3,715
3.5
Other operating income
70
60
16.8
Operating profit
833
857
(2.8)
Tax
218
193
13.0
Adj. Net profit
579
603
(4.0)
Source: Company, Angel Research
Revenue up 12.0% yoy; marginally higher than our expectation: On sales front,
the company posted sales of `3844cr (v/s. `3,715cr expected) v/s. `3,432cr in
3QFY2016, a yoy growth of 12.0%. The formulation sales (`3,130cr) posted a yoy
growth of 11.4%, while API (`775.9cr) posted a yoy growth of 11.6%. The US
business, which contributed 46% to the gross sales, witnessed a yoy growth of
17.8% in 3QFY2017.
In the formulation segment, the US (`1,735cr) posted a yoy growth of 17.8%,
while Europe & ROW (`990cr) posted a yoy growth of 7.6%. ARV (`279cr) posted
a yoy de-growth of 0.6%. Overall, formulations now contribute around 80.1% of
sales, while the balance is accounted by APIs. The company has 303 approved
ANDAs including 41 tentative approvals.
During 3QFY2017, the company filed 9 ANDAs with the USFDA, i.e. 5 in the oral
category and 4 in the injectable category. The company received 23 ANDA
approvals from the USFDA including 14 final approvals and 3 tentative approvals
during the quarter.
February 23, 2017
2
Aurobindo Pharma | 3QFY2017 Result Update
Exhibit 3: Sales break-up (Consolidated)
(` cr)
3QFY2017
2QFY2017
% chg (qoq)
3QFY2016
% chg (yoy)
9MFY2017 9MFY2016
% chg
Formulations
3,130
3,004
4.2
2,809
11.4
9,166
8,098
13.2
US
1,745
1,735
0.6
1,558
12.0
5,184
4,445
16.6
Europe & ROW
1,043
990
5.4
946
10.3
3,058
2,773
10.3
ARV
342
279
22.8
305
12.0
924
881
4.8
API
776
769
0.9
695
11.6
2279
2109
8.1
SSP
525
511
2.7
449
16.8
1531
1355
13.0
Cephs
251
258
(2.6)
246
2.1
748
755
(0.9)
NPNC
3,906
3,773
3.5
3,504
11.5
11,445
10,207
12.1
Source: Company, Angel Research
OPM comes in at 21.7%: On the operating front, the EBITDA margin came in at
21.7% (v/s. 23.1% expected) v/s. 22.1% in 3QFY2016. The gross margin came in
at 55.5% in 3QFY2017 v/s. 54.7% in 3QFY2016. Other expenses posted a yoy
growth of 16.4%.
Exhibit 4: OPM Trend
23.4
24.0
23.0
22.1
21.7
22.0
22.6
21.0
22.1
20.0
19.0
18.0
17.0
16.0
15.0
3QFY2016
4QFY2016
1QFY2017
2QFY2017
3QFY2017
Source: Company, Angel Research
Net profit marginally lower than estimate: Consequently, the Adj. PAT came in at
`579cr (v/s. `603cr expected) v/s. `544cr in 3QFY2016, a yoy growth of 6.3%.
The lower than estimated net profit growth was aided by lower than expected
OPM.
February 23, 2017
3
Aurobindo Pharma | 3QFY2017 Result Update
Exhibit 5: Adj. net profit
620
606
610
600
590
585
579
580
570
562
560
550
544
540
530
520
510
3QFY2016
4QFY2016
1QFY2017
2QFY2017
3QFY2017
Source: Company, Angel Research
Management takeaways
At the end of 3QFY2017, the company had filed 421 ANDAs, with 303 final
approvals, and 41 tentative approvals.
R&D as % of sales to be ~5-6% in FY2018/FY2019.
Planning to increase Auro Life capacity in the US by 3x.
Transferred manufacturing of 42 products (to be sold in EU) to India till now;
plans to transfer >60 by the end of 4QFY2017.
Recommendation rationale
US and ARV formulation segments - the key drivers for base business: APL’s
business will primarily be driven by the US and ARV segments on the
formulation front. The company has been an aggressive filer in the US market
with 421 ANDAs filed until 3QFY2017. Amongst peers, APL has emerged as
one of the top ANDA filers. The company has aggressively filed ANDAs in the
last few years and is now geared to reap benefits, even though most of the
filings are for highly competitive products. Going ahead, with US$70bn going
off-patent in the US over the next three years, we believe APL is well placed to
tap this opportunity and is one of the largest generic suppliers. The company
enjoys high market share, as it is fully integrated in all its products apart from
having a larger product basket. Also, the company plans to launch
18
injectables in the next 2 years, which would drive its growth and profitability.
The US revenue has grown at a CAGR of 31% over FY2009-2015 to
`4,832cr. Going forward, the US business of the company is expected to post
a CAGR of 15% over FY2016-18E.
Acquisitions to augment growth and improve sales mix: APL announced the
signing of a binding offer to acquire commercial operations in seven Western
European countries from Actavis. The net sales from the acquired businesses
were around EUR320mn in 2013 with a growth rate of over 10% yoy. With
this, the European sales of the company would now be ~EUR400mn.
Although these businesses are currently loss-making (by around EUR20mn),
February 23, 2017
4
Aurobindo Pharma | 3QFY2017 Result Update
APL expects them to return to profitability in combination with its vertically
integrated platform and existing commercial infrastructure.
The acquisition will make APL one of the leading Indian pharmaceutical
companies in Europe with a position in the top 10 in several key markets,
which it plans to leverage to supply or widen its product portfolio through
introduction of its own products, especially high margin products like
injectiables.
Also, in December 2014, Aurobindo USA, spent US$132.5mn to acquire the
assets of Natrol with an agreement to take on certain liabilities. With this
acquisition, the company gets an entry into the nutraceutical markets.
Aurobindo USA believes that Natrol is an excellent strategic fit and provides
the right platform for creating a fully-integrated OTC platform in the USA and
in other international markets. Natrol, which manufactures and sells nutritional
supplements in USA and other international markets, provides Aurobindo
with-strong brand reputation and presence in a variety of attractive
supplement markets. Natrol has a proven performance in the mass market,
health food and specialty channels, and has existing long term relationships
with key distribution and retail partners. It addresses a broad range of
consumers and has an effective growth strategy to expand market penetration.
Outlook and valuation
We estimate the company’s net sales to log a CAGR of 15.1% over FY2016-18E to
`18,078cr on the back of US, which accounts for the largest portion of its product
pipeline. This, along with the recent acquisitions of the Western European
formulation businesses of Actavis and US’ Natrol, will lead APL to become a
>US$2bn sales company, with ~ 80% of sales being accounted by formulations.
We maintain our Buy rating on the stock.
Exhibit 6: Key assumptions
FY2017E
FY2018E
Sales Growth (%)
15.2
15.0
Operating Margins (%)
23.7
23.7
Capex (`cr)
800
800
Source: Company, Angel Research
February 23, 2017
5
Aurobindo Pharma | 3QFY2017 Result Update
Exhibit 7: One-year forward PE
900
800
700
600
500
400
300
200
100
0
5x
10x
15x
20x
Source: Company, Angel Research
Exhibit 8: Recommendation summary
Company
Reco
CMP Tgt. price Upside
FY2018E
FY16-18E
FY2018E
(`)
(`)
% PE (x) EV/Sales (x) EV/EBITDA (x) CAGR in EPS (%) RoCE (%) RoE (%)
Alembic Pharma
Neutral
593
-
-
19.5
2.6
12.2
(10.8)
27.5
25.3
Aurobindo Pharma Buy
686
877
27.9
14.5
2.4
10.1
18.1
22.5
26.1
Cadila Healthcare Neutral
440
-
-
22.9
3.6
16.6
13.5
23.6
27.1
Cipla
Sell
593
465
(21.5)
24.2
2.7
16.3
14.2
12.2
13.9
Dr Reddy's
Neutral
2,899
-
-
22.1
2.6
11.4
(2.7)
15.3
15.2
Dishman Pharma Neutral
229
-
-
20.3
2.3
10.0
13.3
10.3
10.9
GSK Pharma*
Neutral
2,683
-
-
44.5
6.8
32.8
16.9
37.5
34.5
Indoco Remedies
Reduce
272
240
(11.8)
17.0
2.0
10.9
33.2
19.1
20.1
Ipca labs
Accum
554
613
10.7
28.8
2.0
12.9
34.8
8.6
9.5
Lupin
Buy
1,469
1,809
23.1
21.2
4.0
13.1
17.2
24.4
20.9
Sanofi India
Neutral
4,186
-
-
24.3
3.2
17.4
22.2
25.6
28.8
Sun Pharma
Buy
673
847
25.8
19.1
4.0
12.2
26.5
18.9
20.1
Source: Company, Angel Research; Note: *December year ending
February 23, 2017
6
Aurobindo Pharma | 3QFY2017 Result Update
Company background
Aurobindo Pharma manufactures generic pharmaceuticals and APIs. The
company’s manufacturing facilities are approved by several leading regulatory
agencies like the USFDA, UK MHRA, WHO, Health Canada, MCC South Africa
and ANVISA Brazil among others. The company’s robust product portfolio is
spread over six major therapeutic/product areas encompassing antibiotics,
antiretrovirals, CVS, CNS, gastroenterological, and anti-allergics. The company
has acquired the generic business of Actavis, which has made it a US$2bn
company and a leading company in Europe. With this acquisition, formulations
now contribute around 80% to the company’s sales (as in FY2016).
February 23, 2017
7
Aurobindo Pharma | 3QFY2017 Result Update
Profit & loss statement (Consolidated)
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016
FY2017E FY2018E
Gross sales
5,863
8,198
12,221
13,878
15,959
18,353
Less: Excise duty
80
159
178
227
239
275
Net Sales
5,783
8,038
12,043
13,651
15,720
18,078
Other operating income
72
61
77
245
245
245
Total operating income
5,855
8,100
12,121
13,896
15,965
18,323
% chg
26.5
38.3
49.6
14.6
14.9
14.8
Total Expenditure
4,966
5,968
9,557
10,691
12,001
13,802
Net Raw Materials
2,792
3,606
5,506
6,158
6,288
7,231
Other Mfg costs
578
804
1,204
1,365
1,572
1,808
Personnel
663
832
1,302
1,551
1,783
2,051
Other
932
726
1,545
1,617
2,358
2,712
EBITDA
817
2,071
2,486
2,960
3,718
4,276
% chg
53.2
153.5
20.1
19.1
25.6
15.0
(% of Net Sales)
14.1
25.8
20.6
21.7
23.7
23.7
Depreciation& Amort.
249
313
333
393
532
588
EBIT
568
1,758
2,154
2,567
3,187
3,689
% chg
38.8
209.5
22.5
19.2
24.1
15.7
(% of Net Sales)
9.8
21.9
17.9
18.8
20.3
20.4
Interest & other Charges
131
108
84
159
192
220
Other Income
29
23
81
68
68
68
(% of PBT)
5.3
1.3
3.6
2.5
2.1
1.8
Share in profit of Asso.
-
-
-
-
-
-
Recurring PBT
538
1,735
2,227
2,722
3,309
3,782
% chg
62.3
222.7
28.4
22.2
21.5
14.3
Extraordinary Exp./(Inc.)
163.4
203.1
59.6
-
-
-
PBT (reported)
374
1,532
2,168
2,722
3,309
3,782
Tax
82.7
363.5
596.6
744.4
893.4
1,021.2
(% of PBT)
22.1
23.7
27.5
27.3
27.0
27.0
PAT (reported)
291
1,168
1,571
1,978
2,416
2,761
Less: Minority int. (MI)
(2)
(4)
(5)
(4)
(3)
(2)
PAT after MI (reported)
294
1,172
1,576
1,982
2,418
2,763
ADJ. PAT
432
1,333
1,619
1,982
2,418
2,763
% chg
118.5
208.6
21.5
22.4
22.0
14.2
(% of Net Sales)
5.1
14.6
13.1
14.5
15.4
15.3
Basic EPS (`)
7.4
22.8
27.7
33.9
41.4
47.3
% chg
8.9
208.6
21.5
22.4
22.0
14.2
February 23, 2017
8
Aurobindo Pharma | 3QFY2017 Result Update
Balance sheet (Consolidated)
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016
FY2017E FY2018E
SOURCES OF FUNDS
Equity Share Capital
29
29
29
58
58
58
Share Application Money
-
-
-
-
-
-
Reserves & Surplus
2,577
3,721
5,127
6,998
9,246
11,838
Shareholders Funds
2,606
3,750
5,156
7,057
9,304
11,896
Minority Interest
11
26
26
60
57
55
Long-term provisions
9
9
24
24
24
24
Total Loans
3,384
3,769
3,864
4,076
5,500
5,500
Deferred Tax Liability
68
205
211
236
236
236
Total Liabilities
6,069
7,760
9,280
11,452
15,098
17,688
APPLICATION OF FUNDS
Gross Block
3,316
4,107
6,095
7,195
7,995
8,795
Less: Acc. Depreciation
1,140
1,461
1,794
2,187
2,718
3,306
Net Block
2,175
2,645
3,752
4,865
5,277
5,490
Capital Work-in-Progress
645
310
310
310
310
310
Goodwill
55
76
64
89
89
89
Investments
22
20
20
0
0
0
Long-term loans and adv.
243
789
486
434
434
436
Current Assets
4,128
5,631
8,279
10,001
12,249
15,113
Cash
208
179
469
834
2,089
2,275
Loans & Advances
332
789
692
784
409
1,625
Other
3,587
4,664
7,118
8,383
9,751
11,213
Current liabilities
1,200
1,730
3,634
4,247
3,261
3,750
Net Current Assets
2,928
3,901
4,645
5,755
8,988
11,363
Mis. Exp. not written off
-
18
5
-
-
-
Total Assets
6,069
7,760
9,280
11,452
15,098
17,688
February 23, 2017
9
Aurobindo Pharma | 3QFY2017 Result Update
Cash flow statement (Consolidated)
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016
FY2017E FY2018E
Profit before tax
374
1,532
2,168
2,722
3,309
3,782
Depreciation
249
313
333
393
532
588
(Inc)/Dec in Working Capital
(191)
(457)
(757)
(796)
(1,979)
(2,188)
Less: Other income
29
23
81
68
68
68
Direct taxes paid
(83)
(363)
(597)
(744)
(893)
(1,021)
Cash Flow from Operations
321
1,001
1,066
1,507
900
1,093
(Inc.)/Dec.in Fixed Assets
(283)
(455)
(1,989)
(1,100)
(800)
(800)
(Inc.)/Dec. in Investments
(16)
(2)
-
(20)
-
-
Other income
29
23
81
68
68
68
Cash Flow from Investing
(271)
(435)
(1,908)
(1,051)
(732)
(732)
Issue of Equity
-
-
-
-
-
-
Inc./(Dec.) in loans
288
385
94
213
1,424
-
Dividend Paid (Incl. Tax)
(17)
(102)
(171)
(171)
(171)
(171)
Others
(183)
(879)
1,209
(132)
(167)
(4)
Cash Flow from Financing
88
(596)
1,133
(90)
1,086
(175)
Inc./(Dec.) in Cash
138
(30)
291
365
1,255
186
Opening Cash balances
71
208
179
469
834
2,089
Closing Cash balances
208
179
469
834
2,089
2,275
February 23, 2017
10
Aurobindo Pharma | 3QFY2017 Result Update
Key ratios
Y/E March
FY2013
FY2014
FY2015
FY2016
FY2017E
FY2018E
Valuation Ratio (x)
P/E (on FDEPS)
92.7
30.0
24.7
20.2
16.6
14.5
P/CEPS
36.8
13.5
10.5
16.9
13.6
12.0
P/BV
7.7
5.3
3.9
5.7
4.3
3.4
Dividend yield (%)
0.1
0.1
0.1
0.1
0.1
0.1
EV/Sales
4.0
2.9
1.9
3.2
2.8
2.4
EV/EBITDA
28.3
11.4
9.4
14.6
11.7
10.1
EV / Total Assets
3.8
3.0
2.5
3.8
2.9
2.4
Per Share Data (`)
EPS (Basic)
7.4
22.8
27.7
33.9
41.4
47.3
EPS (fully diluted)
7.4
22.8
27.7
33.9
41.4
47.3
Cash EPS
18.6
51.0
65.4
40.7
50.5
57.4
DPS
0.5
0.5
0.5
0.5
0.5
0.5
Book Value
89.5
128.8
176.6
120.8
159.3
203.7
Dupont Analysis
EBIT margin
9.8
21.9
17.9
18.8
20.3
20.4
Tax retention ratio
77.9
76.3
72.5
72.7
73.0
73.0
Asset turnover (x)
1.0
1.2
1.5
1.4
1.4
1.3
ROIC (Post-tax)
8.0
20.1
19.2
19.5
20.0
19.2
Cost of Debt (Post Tax)
3.2
2.3
1.6
2.9
2.9
2.9
Leverage (x)
1.3
1.1
0.8
0.6
0.4
0.3
Operating ROE
14.0
39.5
33.4
28.9
27.1
24.4
Returns (%)
ROCE (Pre-tax)
9.9
25.4
25.3
24.8
24.0
22.5
Angel ROIC (Pre-tax)
11.5
28.5
27.6
27.5
27.9
26.7
ROE
17.5
41.9
36.4
32.5
29.6
26.1
Turnover ratios (x)
Asset Turnover (Gross Block)
1.8
2.2
2.4
2.1
2.1
2.2
Inventory / Sales (days)
98
49
90
95
101
108
Receivables (days)
129
95
93
95
63
63
Payables (days)
78
73
114
119
81
81
WC cycle (ex-cash) (days)
159
145
119
119
135
159
Solvency ratios (x)
Net debt to equity
1.2
1.0
0.7
0.5
0.4
0.3
Net debt to EBITDA
3.9
1.7
1.4
1.1
0.9
0.8
Interest Coverage (EBIT / Int.)
4.3
16.3
25.5
16.2
16.6
16.8
February 23, 2017
11
Aurobindo Pharma | 3QFY2017 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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Disclosure of Interest Statement
Aurobindo Pharma
1. Financial interest of research analyst or Angel or his Associate or his relative
No
2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives
No
3. Served as an officer, director or employee of the company covered under Research
No
4. Broking relationship with company covered under Research
No
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)
February 23, 2017
12