Aurobindo strengthens its presence in Europe

The Portuguese acquisition should rub off positively on the stock

Aurobindo Pharma announced yet another acquisition in Europe, as it signed a binding agreement to acquire Portuguese drug firm Genesis for 135 million euro (Rs 969 crore). Aurobindo has been steadily expanding its European footprint since 2006 and had acquired commercial operations of Actavis in seven Western European countries in 2014 to drive growth. Europe contributes about 25 per cent to Aurobindo’s overall sales.

The acquisition of Generis will help Aurobindo scale the number one rank in the Portuguese pharmaceutical market. What’s more while the Actavis acquisition was being looked at to drive Aurobindo’s European growth and has of late become operationally profitable, Genesis portfolio will add to benefits. 

The number two generic group in Portugal, Genesis had net sales of 64.8 million in 2016 and the Aurobindo management expects it to clock in Euro 72 million in FY17. Importantly, the adjusted operating profit of the company stood at Euro 12.7 million in 2016 and Aurobindo will not be acquiring any debt. The management expects operating profits to grow to 15.8 million in 2017. Thus the deal valuations is at 2.1 times 2016 sales with Aurobindo will also be getting access to a manufacturing facility in Portugal.

In another positive development for its operations in the US, Aurobindo received final approval from USFDA to launch injections of Levetiracetam, a neurology treatment drug. The injectable portfolio of Aurobindo is one of the strongest amongst Indian peers and this is the 41st ANDA approval from Unit IV facility in Hyderabad, used for manufacturing general injectable products.

The company’s drug approval rate has been good as has been the new product launches in the US unlike peers such as Sun Pharmaceuticals, Cadila and Dr Reddy’s who are grappling with FDA-related issues. Aurobindo has seen net profits grow 33 per cent during September 2016 quarter which were ahead of expectations and primarily driven by US, which contribute about half to overall sales. It is limited competition products such as injectables and other complex generics in Aurobindo’s portfolio that are its sustainable growth drivers. For December quarter too, analysts at Edelweiss expect US sales to grow 10 per cent year-on-year in dollar terms driven by healthy approvals. The last quarter should also see the company post an improvement in operating profit margins.

Thus approval for launch of product and acquisition in Europe are positives and could rub off on the stock in trade on Monday. The stock closed at Rs 692.75 levels on Friday.