12 November 2020 Results Review 2QFY21
Aurobindo Pharma
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Pipeline progress lifts outlook Recovery in US injectables (+26% QoQ), good performance across markets and
favorable product mix offset increased R&D spend (+200bps QoQ), driving
EBITDA beat of 7%. The progress on complex/specialty pipeline development
remains on track (4 biosimilars are in clinics, vaccines monetization from
FY22/23). We remain positive on Aurobindo’s capabilities to monetize these
opportunities over the next few years. Management also guided for strong
growth outlook (~20%) for the generic injectables business (~11% of revenues)
over the next three years. Despite higher R&D investments (~6% vs. 4.3% in
FY20), company’s endeavor to maintain EBITDA margin is noteworthy.
Balance sheet remains comfortable (net debt/equity at 0.08x). We trim our EPS
forecast by 1-2% over FY21-23e to factor Natrol divestment. Revise TP 1,005/sh.
Maintain BUY.
Steady margins despite higher R&D: Revenues at Rs64.8bn grew by 16%
YoY as strong traction in US (+7% YoY, +4% QoQ, injectables led), ARVs
(+100% YoY, shift towards TLD), RoW (+40% YoY) offset muted growth in
API (+3% YoY). Higher gross margin (+350bps YoY, +180bps QoQ, favorable
product mix) offset increased R&D cost (+235bps YoY, +203bps QoQ) which
led to steady EBIDTA margin of 22.1% (+125bps YoY, -14bps QoQ).
Pipeline update: Generic injectables – to grow from USD380mn to
USD650-700mn in 3 years; Biosimilars – Plans to file 5 products by end of
2022 (3 in EU, 2 in US); Vaccines – Covid vaccine- capacity of 400-450mn
doses to be ready by Mar-Apr 21, bacterial vaccine – PCV to be filed in India
in FY22, viral vaccine – in the clinical phase.
Key call highlights: a) Guidance – R&D at 5.5-6% of sales (ex-biosimilar
phase III trials); Europe biz achieved double digit margins in Q2; injectables
margin – to moderate over time; to maintain growth momentum in US
generics; b) Debt reduction – to be net debt free by FY22, net proceeds from
Natrol divestment to be utilized for strategic initiatives; c) Unit 1, IX, XI, VII
– completed remediation, awaiting FDA response on re-inspection; Aurolife
–will be submitting response by mid Nov; d) Capex – USD180-200mn (excl
PLI investment) to be funded through internal accruals and proceeds from
Natrol divestment.
Maintain BUY, risks: We trim our earnings estimates by ~1-2% for
FY21/22/23e to incorporate Natrol divestment (Jan 2021). We revise TP to
Rs1,005 based on 16x Sep 22e EPS. Key downside risks: higher price erosion
in the US, delay in plant resolution (Unit I, IX, XI, VII, AuroLife) and lower
margin improvement in EU business.
Financial Summary
Summary Q2
FY21
Q2
FY20
% YoY
chg
Q1
FY21
% QoQ
chg FY20 FY21E FY22E FY23E
Net Revenues 64,834 56,005 15.8 59,248 9.4 2,30,985 2,49,592 2,58,487 2,79,014
EBIDTA 14,328 11,675 22.7 13,174 8.8 48,643 54,486 55,575 61,040
APAT 8,016 6,760 18.6 8,070 (0.7) 28,493 32,781 35,044 38,551
Recurring EPS (Rs) 13.7 11.5 18.6 13.8 (0.7) 48.6 55.9 59.8 65.8
P/E (x) 17.3 15.0 14.0 12.8
EV / EBITDA (x) 10.7 8.8 8.1 7.0
RoCE (%) 16.8 16.4 15.2 14.4
Source: Company, HSIE Research
BUY
CMP(as on 12 Nov 2020) Rs 839
Target Price Rs 1,005
NIFTY 12,691
KEY
CHANGES OLD NEW
Rating BUY BUY
Price Target Rs 1,015 Rs1,005
EPS % FY21E FY22E
-2% -2%
KEY STOCK DATA
Bloomberg code ARBP IN
No. of Shares (mn) 586
MCap (Rs bn) / ($ mn) 492/6,588
6m avg traded value (Rs mn) 3,647
52 Week high / low Rs 968/281
STOCK PERFORMANCE (%)
3M 6M 12M
Absolute (%) (10.2) 21.4 91.7
Relative (%) (23.2) (16.8) 84.2
SHAREHOLDING PATTERN (%)
Sep-20 Jun-20
Promoters 52.01 52.01
FIs & Local MFs 13.67 12.56
FPIs 23.01 22.63
Public & Others 11.31 12.80
Pledged Shares 4.86 3.21
Source : BSE
Bansi Desai, CFA
+91-22-6171-7341
Karan Vora
+91-22-6171-7359
Page | 2
Aurobindo Pharma: Results Review 2QFY21
Quarterly Financial Snapshot
INR mn Q2FY21 Q2FY20 % YoY chg Q1FY21 % QoQ chg
Net Sales 64,834 56,005 15.8 59,248 9.4
EBITDA 14,328 11,675 22.7 13,174 8.8
Other Income 472 206 128.8 934 (49.5)
Interest 157 409 (61.6) 211 (25.4)
Depreciation 2,573 2,433 5.8 2,555 0.7
PBT 12,135 8,911 36.2 10,964 10.7
Tax 3,873 2,244 72.6 3,037 27.5
Tax Rate (%) 32 25 6.7 28 4.2
Minority (6) (3) 75.8 1 (680.0)
PAT (Adj.) 8,016 6,760 18.6 8,070 (0.7)
EO Items (66) 128 (151.5) 378 (117.4)
PAT (Reported) 8,062 6,671 20.9 7,806 3.3
Source: Company, HSIE Research
Margin Analysis
Margin Analysis Q2FY21 Q2FY20 YoY (bps) Q1FY21 QoQ (bps)
Gross Margins 60.6 57.1 347 58.7 181
Employee Expenses % Net Sales 14.1 13.9 19 15.0 (92)
R&D Expenses % Net Sales 6.4 4.0 235 4.4 203
Other Expenses % Net Sales 25.0 23.0 204 22.1 289
EBITDA Margin (%) 22.1 20.8 125 22.2 (14)
Tax Rate (%) 31.9 25.2 674 27.7 422
APAT Margin (%) 12.4 12.1 29 13.6 (126)
Source: Company, HSIE Research
Segmental Quarterly Performance
Sales break-up Q2FY21 Q2FY20 % YoY chg Q1FY21 % QoQ chg
US 31,898 28,355 12.5 31,071 2.7
EU 15,148 14,013 8.1 13,222 14.6
ARV 5,027 2,379 111.3 4,255 18.1
Growth Markets 4,465 3,192 39.9 2,896 54.2
Formulations 56,538 47,939 17.9 51,444 9.9
Betalactam 4,344 5,175 (16.1) 5,003 (13.2)
Non-Betlactam 3,946 2,883 36.9 2,798 41.0
API 8,290 8,058 2.9 7,801 6.3
Gross sales 64,834 56,005 15.8 59,248 9.4
Source: Company, HSIE Research
Revenues grew by 16% YoY
driven by strong across
markets.
Gross margins increased
by 350bps YoY and 180bps
QoQ led by favourable
product mix
R&D spends increased to
6.4% of sales (~4.4% in
Q1); company expects to
maintain 5.5-6% run-rate
p.a.
EBITDA margins were flat
QoQ as higher R&D was
offset by higher gross
margin
US biz grew ~4% QoQ
primarily driven by
sequential recovery in the
injectables biz (+26%
QoQ)
Europe recovered (+10%
QoQ, -3% YoY, in cc terms)
from Q1 lows which was
impacted by Covid-led
stocking up
ARV (+100% YoY, cc terms)
growth was led by shift
towards TLD
(tenofovir/lamivudine/dolu
tegravir) from TLE.
Market share in TLD is at
20%
API – Low margin
betalactum business
declined by 16% YoY,
however, non-betalactum
reported strong growth of
37% YoY
Page | 3
Aurobindo Pharma: Results Review 2QFY21
Financials Income Statement
Year to March (INR mn) FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Total Revenues 1,38,961 1,50,899 1,64,998 1,95,636 2,30,985 2,49,592 2,58,487 2,79,014
Growth (%) 14.6 8.6 9.3 18.6 18.1 8.1 3.6 7.9
Material cost 61,575 63,793 67,527 87,126 97,352 98,807 1,02,102 1,10,211
Gross margin (%) 54.6 56.2 59.1 55.5 57.9 60.4 60.5 60.5
Employee Benefits Expense 15,508 17,678 21,308 25,849 32,192 35,570 36,188 39,062
Other Expenses 29,821 34,536 38,277 43,141 52,798 60,728 64,622 68,702
Total expenditure 1,06,905 1,16,006 1,27,113 1,56,116 1,82,342 1,95,105 2,02,912 2,17,974
EBITDA 32,056 34,893 37,885 39,520 48,643 54,486 55,575 61,040
Margins (%) 23.1 23.1 23.0 20.2 21.1 21.8 21.5 21.9
Depreciation 3,926 4,276 5,580 6,680 9,667 9,558 9,861 10,970
EBIT 28,130 30,617 32,305 32,840 38,976 44,928 45,714 50,070
EBIT margin (%) 20.2 20.3 19.6 16.8 16.9 18.0 17.7 17.9
Other income 682 538 1,020 1,157 1,919 2,272 2,601 2,445
Interest 927 667 777 2,626 3,051 962 954 586
PBT 27,225 30,558 32,380 30,138 37,582 45,926 47,427 51,929
Extraordinary Items (EO) -660 71 -168 -1,233 -261 -312 66 -
PBT after EO items 26,565 30,629 32,213 28,905 37,321 45,614 47,493 51,929
Tax 7,444 7,596 8,183 7,269 9,135 12,845 11,840 12,982
Tax rate 28.0 24.8 25.4 25.1 24.5 28.2 24.9 25.0
Minority Interest -39 -55 -34 -30 137 519 497 396
Reported PAT 19,820 23,017 24,231 22,899 28,310 32,562 35,090 38,551
Adj. PAT 20,282 22,967 24,349 23,762 28,493 32,781 35,044 38,551
Source: Company, HSIE Research
Balance Sheet
Year to March (INR mn) FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Share Capital 585 586 586 586 586 586 586 586
Reserves & Surplus 72,288 93,133 1,16,218 1,38,322 1,67,518 1,97,971 2,30,952 2,67,394
Shareholders' Funds 72,873 93,719 1,16,804 1,38,908 1,68,104 1,98,557 2,31,538 2,67,979
Minority Interest 26 21 18 16 1 -5 -14 -18
Other long term liabilities
Long Term 7,428 1,814 4,512 1,800 - - - -
Short Term 42,983 31,827 43,187 67,862 55,620 40,620 27,495 14,370
Total Debt 50,411 33,641 47,700 69,662 55,620 40,620 27,495 14,370
Deferred Tax Liability (net) 1,060 758 2,353 2,813 3,025 3,025 3,025 3,025
Total Equity and Liabilites 1,24,369 1,28,139 1,66,875 2,11,398 2,26,750 2,42,196 2,62,043 2,85,356
Net Block 41,797 48,338 65,207 84,749 93,965 80,657 85,596 88,626
Capital WIP 8,481 14,581 15,830 16,685 19,859 19,859 19,859 19,859
Current Assets 1,03,981 93,450 1,23,634 1,55,389 1,66,259 2,08,643 2,28,196 2,55,300
Inventories 40,561 43,305 58,584 72,456 76,999 92,315 95,605 1,05,503
Receivables 46,067 27,653 30,844 34,138 43,152 46,499 48,157 53,516
Cash & Bank Balances 8,003 5,135 12,616 19,572 28,422 51,929 66,299 77,888
Other Curr Assets & Advances 9,350 17,357 21,590 29,223 17,687 17,900 18,135 18,393
Current Liabilities 34,833 34,355 44,177 53,145 62,514 76,144 80,789 87,611
Sundry Creditors 24,570 24,883 26,274 26,771 28,969 39,661 41,075 44,342
Provisions 10,263 9,473 17,903 26,374 33,545 36,483 39,714 43,269
Net current assets 69,148 59,095 79,456 1,02,243 1,03,745 1,32,499 1,47,407 1,67,689
Source: Company, HSIE Research
Page | 4
Aurobindo Pharma: Results Review 2QFY21
Cash Flows
Year to March (INR mn) FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Net Profit Before Tax 27,443 30,608 32,412 30,914 37,430 45,926 47,427 51,929
Depreciation 3,924 4,276 5,580 6,680 9,667 9,558 9,861 10,970
Other non-cash items 951 -472 -230 1,460 1,245 437 448 186
Cash flow before WC changes 32,318 34,413 37,762 39,053 48,342 55,921 57,736 63,085
WC changes -10,794 6,110 -10,690 -14,845 2,509 -5,247 -537 -8,694
Taxes paid -7,326 -7,737 -7,524 -7,698 -7,298 -12,845 -11,840 -12,982
Others
Cash flow from operations 14,198 32,786 19,548 16,510 43,554 37,829 45,358 41,409
Net capex -15,657 -16,846 -12,406 -15,369 -14,121 3,750 -14,800 -14,000
Others 1,205 -1,024 -7,163 -13,657 -1,556 - - -
Cash flow from investing -14,452 -17,870 -19,570 -29,026 -15,676 3,750 -14,800 -14,000
Equity capital issues 72 67 2 1 2 - - -
Borrowings (net) 6,033 -17,279 12,022 22,304 -15,300 -15,000 -13,125 -13,125
Dividends paid -1,616 -1,372 -2,641 -1,599 -1,884 -2,109 -2,109 -2,109
Interest expense -835 -568 -742 -1,515 -1,266 -962 -954 -586
Others 41 0 304 0 -1,024 0 - -
Cash flow from financing 3,695 -19,153 8,945 19,191 -19,472 -18,072 -16,188 -15,820
Net Increase/(Decrease) in Cash and Equivalents 3,441 -4,237 8,924 6,674 8,405 23,507 14,371 11,588
Opening cash balance 4,038 7,435 3,196 12,099 18,756 28,422 51,929 66,299
Closing cash balance 7,479 3,198 12,120 18,774 27,161 51,929 66,299 77,888
Source: Company, HSIE Research
Key Ratios
Year to March FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
PROFITABILITY (%)
GPM 54.6 56.2 59.1 55.5 57.9 60.4 60.5 60.5
EBITDA Margin 23.1 23.1 23.0 20.2 21.1 21.8 21.5 21.9
APAT Margin 14.6 15.2 14.8 12.1 12.3 13.1 13.6 13.8
RoAE 32.6 27.6 23.1 18.6 18.6 17.9 16.3 15.4
RoIC (or Core RoCE) 18.4 18.2 16.4 13.2 13.5 13.8 13.6 13.7
RoACE 18.8 18.5 16.9 13.6 14.1 14.5 14.4 14.4
EFFICIENCY
Tax Rate (%) 27.3 24.9 25.3 24.1 24.3 28.0 25.0 25.0
Fixed Asset Turnover (x) 2.8 2.4 2.0 1.9 2.0 2.5 2.5 2.6
Inventory (days) 107 105 130 130 122 135 135 138
Debtors (days) 121 67 68 68 69 68 68 70
Payables (days) 65 60 58 50 40 58 58 58
Working capital days (X) 163 111 140 148 151 145 145 150
Net Debt/EBITDA (x) 1.3 0.8 0.9 1.3 0.6 -0.2 -0.7 -1.0
Net D/E (x) 0.6 0.3 0.3 0.4 0.2 -0.1 -0.2 -0.2
Interest Coverage (x) 30 46 42 13 13 47 48 85
PER SHARE DATA (Rs)
Adj. EPS 34.7 39.2 41.6 40.6 48.6 55.9 59.8 65.8
Dividend 2 3 3 3 3 3 3 3
Book Value 125 160 199 237 287 339 395 457
VALUATION
P/E (x) 24.2 21.4 20.2 20.7 17.3 15.0 14.0 12.8
P/BV (x) 6.7 5.2 4.2 3.5 2.9 2.5 2.1 1.8
EV/EBITDA (x) 16.6 14.9 13.9 13.7 10.7 8.8 8.1 7.0
EV/Revenues (x) 3.8 3.4 3.2 2.8 2.2 1.9 1.8 1.5
OCF/EV (%) 2.7 6.3 3.7 3.0 8.4 7.9 10.0 9.7
FCF/EV (%) -1.5 -2.6 -0.1 0.6 2.5 11.6 11.4 14.9
Dividend Yield (%) 0.3 0.3 0.3 0.4 0.4 0.4 0.4 0.4
Source: Company, HSIE Research
Page | 5
Aurobindo Pharma: Results Review 2QFY21
Rating Criteria
BUY: >+15% return potential
ADD: +5% to +15% return potential
REDUCE: -10% to +5% return potential
SELL: > 10% Downside return potential
Date CMP Reco Target
13-May-20 691 BUY 790
5-Jun-20 759 BUY 835
28-Jul-20 791 BUY 835
13-Aug-20 881 BUY 980
29-Sep-20 803 BUY 1,015
12-Nov-20 839 BUY 1,005
RECOMMENDATION HISTORY
250
350
450
550
650
750
850
950
1,050
No
v-1
9
Dec
-19
Jan
-20
Feb
-20
Mar
-20
Ap
r-20
May
-20
Jun
-20
Jul-
20
Au
g-2
0
Sep
-20
Oct
-20
No
v-2
0
Aurobindo TP
Page | 6
Aurobindo Pharma: Results Review 2QFY21
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