Aurobindo Pharma; CMP: 753; PE: 24.17; *As on March 23

A very well integrated pharma company, Aurobindo Pharma has established itself among the market leader in semi-synthetic penicillins. It enjoys the reputation of being among the top 10 companies in India in terms of consolidated revenues. Listed since 1995, the company also has a presence in key therapeutic segments such as neurosciences, cardiovascular, anti-retrovirals, anti-diabetics, gastroenterology and cephalosporins, among others. It exports to over 150 countries across the globe with more than 85 per cent of its revenues derived out of international business. Aurobindo Pharma has 21 Active Pharmaceutical Ingredients (API) and formulation manufacturing units with three of them in US and one in Brazil.

Financials

Aurobindo Pharma’s revenue and profit after tax (PAT) clocked a compounded annual growth rate (CAGR) of 29 per cent each over FY 2011-15. The formulations business witnessed y-o-y growth of 12 per cent during Q3 FY16, primarily on account of higher growth in US and rest of the world market. The API business registered a growth of 3.1 per cent during the same quarter on a y-o-y basis. Formulations business constituted 80.3 per cent and API comprised 19.7 per cent of gross sales for Q3 FY2016. International sales stood at Rs 3,114 crore and the domestic sales were at Rs 418 crore.

The company’s net debt declined by Rs 309 crore in Q3 FY16 against its previous quarter, courtesy the incremental US cash flows. Aurobindo Pharma enjoys well entrenched US portfolio of 387 filed Abbreviated New Drug Applications (ANDAs) including 35 approved in 9 months of FY16. The management expects majority of the products to be approved in fourth quarter of FY 2016 and FY2017, which will drive the profitability of the company going forward.

That said, Budget 2016 provided a 10 per cent tax rebate on income from worldwide exploitation of patents developed and registered in India. This will be positive for all pharmaceutical companies. Aurobindo Pharma aims to achieve $3 billion in revenues by 2017-18. In its two-decade-long journey since getting listed, it has given returns of 279 per cent since January 2013. Investors with the long-term horizon can surely invest in this scrip.

Why buy

• Continued focus on the base business formulations and speciality products will drive profitability
• Advantage of vertical integration with in-house API for over 75 per cent of its formulation products
• Geographic diversification into selective markets of Asia pacific and Africa

Watch out for

• Regulatory uncertainties due to delays in FDA approvals

himali@outlookindia.com