Aurobindo: Strong growth visibility led by US approvals

More approvals in the second half of FY16 could keep US growth momentum strong

Aurobindo Pharma has gained 18 per cent on the bourses in the past three months following its March 2015 quarter results when the company also announced a bonus issue. The gains include the six per cent rise since last week, after the firm posted a good set of numbers for the June quarter as well.

The Street remains upbeat on Aurobindo’s US growth. Regular approvals for new launches in oncology peptides and penem segments as well as investments in complex products (as injectables) are also expected to drive the company’s growth. While Natrol (which Aurobindo acquired) is also adding to its US growth, the European acquisition (Actavis) is likely to drive earnings growth from FY17.

For the June 2015 quarter, the US formulation sales at Rs 1,430 crore grew 28 per cent year-on-year (y-o-y) and 6.6 per cent sequentially. This made up for the soft European sales that declined 7.1 per cent y-o-y and 3.6 per cent sequentially to Rs 742 crore, hit by currency headwinds. Higher exports to the US drove Aurobindo’s exports from India, which at Rs 1,777 crore at standalone level grew 11.2 per cent y-o-y and 7.5 per cent sequentially.

Aurobindo saw eight approvals for new launches in the June quarter and these should drive growth in the September quarter, too. The ones in the injectables segment are being watched keenly. During the June quarter, injectables revenues stood at $17 million; more approvals are expected in the second half, taking the tally to 20-22 for FY16. Aurobindo has guided for 50 per cent y-o-y revenue growth in FY16 and FY17 from injectables and expects revenues of $60-70 million in FY16 from this business.

According to Prabhudas Lilladher’s Surjit Pal, the growth in valuation will be triggered with approvals of large products from the fourth quarter of FY16 onwards. Religare Institutional Research analysts expect the US business to grow at a compounded annual growth rate of 20 per cent over FY15-FY18.

The European market could see better growth in FY17 with Actavis turning profitable. Aurobindo plans to shift 50 per cent of manufacturing to India. Commencement of the same by FY17 should drive meaningful pick-up in profitability with peak margins of 14-15 per cent over the medium term, say analysts at Reliance Securities.

The domestic business is also seeing strong trajectory given that revenues were up 24 per cent y-o-y and 7.5 per cent sequentially to Rs 482 crore in June quarter.