http://www.indianivesh.in/Research/ViewResearch.aspx?id=1
Indianivesh who knows pharma sector very well turns positive with a target of 343.
Positive surprise on margins front, sustainability likely, maintain
BUY &revisetarget price upward from Rs 252 to Rs 343
Robust growth from USA (+53% y-o-y in USD term), higher contribution from
formulation business, and better product mix lead to substantial improvement in
margins of the company. Aurobindoas revenue grew ~28% y-o-y (11.6% q-o-q) to
Rs 18,970 mn (V/s INSPL est=Rs 19,940 mn) slightly below our estimates but better
than consensus. EBITDA margins increased ~620 bps y-o-y to 23.1% level (V/s INSPL
est 18.4%) & EBITDA grew 75% y-o-y to Rs 4,384 (V/s INSPL est= Rs 3,674 mn).
Adjusting forforex losses of Rs 683 mn in Q2FY14 V/s forex gain of 1,177 mn in
Q2FY13, net profit grew 189% y-o-y to Rs 3,022 mn (V/s INSPL est= Rs 2,135 mn).
Healthy revenue growth across the segments & geographies:
Companyas revenue increased ~28% y-o-y (11.6% q-o-q) to Rs 1,897 mn (V/s INSPL
estimates = Rs 1,954 mn) in Q2FY14. Formulation business (Excluding ARVs) grew
53% y-o-y to Rs 9,952 mn (contributed 51% of total revenue in Q2FY14 V/s 42.3% of
total revenue in Q2FY13) on the back of 72% y-o-y growth from US business (~53%
in USD term) & 17% y-o-y growth in European & RoW business. However, ARV
formulations (contributed 11.9% of total revenue) declined 7.6% y-o-y to Rs 2,331
mn mainly on higher base. Growth in API business was relatively lower compared
to Formulation business and contributed 36.8% of revenue in Q2FY14 compared to
40.5% of revenue in Q2FY13. API business grew ~15.4% y-o-y to Rs 7,180 mn on the
back of ~32% y-o-y growth in SSPs & ~27% y-o-y growth in ARV & others, partially
offset by ~8.3% decline in Cephs business. Company reported dossier income of
Rs 63 mn in Q2FY14 compared to Rs 117 mn in Q2FY13. (See the table given below).
Valuations:
During the quarter positive surprise was from the margins front but we believe
that companyas investment in its subsidiaries to expand front ended teams has
started paying dividends and likely to be sustainable. Its most of subsidiaries are
turning break even or higher EBITDA positive. Additionally, favorable product mix is
likely to be positive for gross margins also. In our view, considering robust
performance of the company in the last few quarters & promising outlook, re-rating
of the stock seems on the cards. We continue to maintain strong BUY on the stock
& increase target price from Rs 252 to Rs 343, valuing at 10x of FY15E. (Earlier
valued at 9x of FY15E).
At CMP of Rs 260, the stock is trading at P/E multiple of 10.4x of FY14E &7.6x of
FY15E earnings estimates.
