Aurobindo Pharma gains nearly 8% on growth prospects in US market

The completion of Sandoz acquisition and new product launches are triggers

The Aurobindo Pharma stock was up nearly 8 per cent after the drugmaker posted a strong performance in the April-June quarter — both on revenue and margin. The company’s revenue growth at 28 per cent over the year-ago quarter was led by a 42-per cent spurt in its US revenues. The jump in US revenues was on the back of volume gains, consolidation of Spectrum Pharmaceuticals, and new launches. 

While the company has launched 15 products, including four injectables in the quarter, it has lined up 40 launches for the rest of the year, which should keep revenue growth at elevated levels. What should help is the gradual reduction in price erosion, which was limited to 5 per cent in the quarter. US, which accounts for about half of the consolidated revenues, will be the key growth geography for Aurobindo.

In addition to the current portfolio, the acquisition of Spectrum and Sandoz’s dermatology/oral solids business will add to the revenue growth in the US market. The two businesses increase the footprint of the company’s derma and oncology branded segment and fill the portfolio gaps. 

After the completion of Sandoz acquisition, the company is expected to become the second-largest generic player in the US market by the number of prescriptions. Analysts at ICICI Securities expect the US revenues to grow from Rs 9,000 crore in 2018-19 to nearly Rs 17,000 crore by 2020-21. Among other geographies, the company’s European revenues grew 18 per cent, with the management guiding for 8-10 per cent growth over the next two years.

While revenue growth and outlook are strong, what has been positive in the quarter is the improvement in gross margins by 266 basis points to 57.8 due to better product mix. 

While good growth and margins should help, the Street will keenly watch out for the progress on the leverage front. The company, which has a net debt of over Rs 4,000 crore ($593 million), has guided that it will reduce its debt by $150-$200 million by the end of the current financial year. Further, the US Food and Drug Administration clearance for the company’s facilities will also act as a rerating trigger.