 "Aurobindo Pharma: Margin pressure spoils the show")
The shares of Aurobindo Pharma fell five per cent to Rs 1,149.85 on Thursday as the December quarter results, announced on Wednesday, disappointed the Street on the operating front. Sales, at Rs 3,142.5 crore, were above the Bloomberg consensus estimates, primarily led by higher-than-expected revenues from Europe and ARV (anti-retroviral drugs for HIV treatment). But earnings before interest, taxes, depreciation and amortisation (Ebitda) at Rs 612.2 crore was lower than expectations of Rs 668 crore. Net profit was Rs 384.4 crore, short of estimates (Rs 423.5 crore).
Management attributed the Ebitda decline of 4.9 per cent over a year to an increase in materials consumption, staff costs and other expenses, which jumped 68-72 per cent over a year. Some provisioning for stocks in Europe and currency headwinds in Brazil impacted, too.
Management attributed the Ebitda decline of 4.9 per cent over a year to an increase in materials consumption, staff costs and other expenses, which jumped 68-72 per cent over a year. Some provisioning for stocks in Europe and currency headwinds in Brazil impacted, too.
Analysts say the decline in profitability can also be attributed to rising ARV revenues (low on profitability) and consolidation of operations of Actavis. Further, the approval rate for new launches in the US has remained slow. Cymbalta (anti-depressant), driving Aurobindo revenues during recent quarters has come under pricing pressure due to competition. A forex loss of Rs 20 crore also impacted. Adjusted for the same, net profit would be around Rs 405 crore.
Analysts see the stress on margins as a temporary blip, and believe pick-up in approvals (especially injectables portfolio) and turnaround in the European operations should drive results. Analysts at HSBC see a 200 basis points improvement in margins between FY15 and FY17. The analysts say despite a lower Cymbalta generic contribution, the Ebitda margin of 22 per cent in the first half of FY15 was a new base (average 18 per cent during FY09-13).
Currently, in the US, Aurobindo has 192 cumulative ANDA, approvals (including 27 tentative by the US Food and Drug Administration, net of five withdrawals), according to the company, with cumulative filings at 374. A majority of pending approvals are in limited competition areas, which drive growth and margins.
While most analysts are positive on the stock, a few are bearish due to absence of long-term growth drivers and a high likelihood of incumbents reviving in the US. The consensus target price for the stock according to analysts polled on Bloomberg post results works out to Rs 1,236, indicating a potential upside of 7.5 per cent.
Analysts see the stress on margins as a temporary blip, and believe pick-up in approvals (especially injectables portfolio) and turnaround in the European operations should drive results. Analysts at HSBC see a 200 basis points improvement in margins between FY15 and FY17. The analysts say despite a lower Cymbalta generic contribution, the Ebitda margin of 22 per cent in the first half of FY15 was a new base (average 18 per cent during FY09-13).
Currently, in the US, Aurobindo has 192 cumulative ANDA, approvals (including 27 tentative by the US Food and Drug Administration, net of five withdrawals), according to the company, with cumulative filings at 374. A majority of pending approvals are in limited competition areas, which drive growth and margins.
While most analysts are positive on the stock, a few are bearish due to absence of long-term growth drivers and a high likelihood of incumbents reviving in the US. The consensus target price for the stock according to analysts polled on Bloomberg post results works out to Rs 1,236, indicating a potential upside of 7.5 per cent.