Aurobindo Pharma: US sales, European biz suggest drivers are in place

Aurobindo Pharma on Monday announced the completion of its acquisition of Apotex’s commercial operations and a few supporting infrastructure in five European countries including Poland, Czech Republic, the Netherlands, Spain and Belgium.
 
The acquired business is estimated to have annual sales of euro 130 million, according to analysts, and will add to Aurobindo’s prospects in Europe.
 
The company’s European business has shaped up well over the past few years, largely through turnaround from acquisitions. The region now contributes about a fourth to Aurobindo’s revenues and is growing well — sales were up 10.3 per cent year-on-year in the December quarter (Q3). It is also complementing the strong US growth, thereby driving overall prospects of Aurobindo. Like other acquisitions in Europe, the company is expected to turn around Apotex’s business by transferring product manufacturing to India and achieving double-digit margins in a few years, say analysts.
 

Aurobindo is also close to completing acquisition of the dermatology business of Sandoz in the US. Estimated to be at attractive valuations, the acquisition will give Aurobindo higher scale (combined sales of $2.3 billion in US) and diversify its US portfolio, say analysts. “The incorporation of Sandoz’s business will increase the FY20 EPS by 15-20 per cent,” say analysts at Elara Capital who add that the robust US business and an emerging European Union show drivers are in place for Aurobindo.
 
The company, however, has added leverage to fund acquisitions and the Street remains watchful on debt, rising costs with scale of operations and regulatory compliances. Aurobindo has guided for reduction of $50 million by FY19-end and $200 million in FY20 from its net debt of $558 million as on December 31, 2018.
 
Another area to keep a tab on is regulatory compliance. The company’s Unit 4 was issued two observations after the US FDA inspection recently. However, there were no repeat observations or data integrity issues, which is somewhat comforting. Aurobindo recently posted strong sales growth of 22 per cent year-on-year in Q3, led by the US (up 27 per cent).