Healthy outlook: Aurobindo Pharma posts Rs 5.95 billion net profit in Q3

Aurobindo Pharma's reported profit after tax at Rs 5.95 billion for the December quarter (Q3), up a mere three per cent year-on-year, may have disappointed the street as the stock fell 2.4 per cent to Rs 602 on Thursday, but a look at the core performance and future prospects provide comfort.

For one, Aurobindo had to re-measure its US deferred tax assets and liabilities based on the new tax law and also recognise a one-time charge of Rs 664 million in Q3. Thus, its net profit came below estimates of Rs 6.63 billion.

Overall performance, however was healthy led by growing US and Europe sales. The US (44 per cent of topline) and Europe (27 per cent) businesses grew by 9.4 per cent and 37 per cent, respectively over the year ago period. Thus, overall revenues at Rs 43.36 billion (up 11 per cent year-on-year) came ahead of estimates of Rs 42.56 billion. Operating profit at Rs 10.26 billion was up 14.6 per cent year-on-year, leading to an 80 basis points expansion in margins. Although ARV (anti-retroviral or HIV treatment drugs) sales fell by 30 per cent and disappointed, it was compensated by the 33 per cent rise in sales in remaining geographies.

The recent weakness in street sentiment (stock is down 24 per cent in three months) can also be partly attributed to the looming US FDA inspection of company's injectables unit IV. But, some analysts sound confident as the company has seen positive outcome for other plant inspections in recent past. Another worry is that the major gains expected from launch of generics of Renvela (kidney treatment) in US in September quarter got dented with entry of more players leading to a decline in Aurobindo's market share.

Yet, Aurobindo has continued to mark decent growth in US and overall topline, thanks to relatively lower dependence on any single product. In Q3, it launched eight products and received final approval for 20 products, including tentative approval for two products, from the long list of products awaiting US FDA nod. Its overall pipeline of 152 products is some assurance that growth momentum will sustain, and take care of any pricing pressures in the US. Among these, injectables (limited competition products) are expected to clock 30 per cent growth in FY19 as its over-the-counter (OTC) range is ramping up well and hold promises. Its new oncology unit (Eugia), too, will start contributing from mid-FY19.


On the other hand, European sales were led by strong growth in core business, currency benefits (constant currency growth stood at 40.1 per cent) and consolidation of Generis Farmaceutica SA (a Portugese company acquired earlier by Aurobindo). The company has transferred manufacturing of 78 products from Europe to India as on 31 December, which will aid profitability.

In light of healthy prospects in Europe and sustained traction in US sales, analysts remain positive on Aurobindo. Ranbir Singh at Systematix Shares has maintained his target price of Rs 836, while Ranjit Kapadia at Centrum Broking also maintains a buy rating.


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