Aurobindo Pharma slips 4% post Q2 nos; Credit Suisse, Citi remain bullish

Shares of pharma company Aurobindo Pharma dropped as much as 4.38 per cent to Rs 763 in the intra-day trade on Tuesday after the company reported a 21.7 per cent decline in net profit at Rs 6.11 billion for the quarter ended September 2018, owing to rise in costs. The company's net profit was Rs 7.81 billion in the corresponding quarter last year. 

Total income for the quarter under review grew 7.42 per cent to Rs 47.78 billion, helped by increased sales revenue from the US and other countries as compared with Rs 44.46 billion in the year-ago period. READ MORE

Net sales during the quarter stood at 46.67 billion, up 7 per cent on YoY basis and 10 per cent from April-June period. 

"We have delivered a healthy quarter in terms of both financial performance and developments in differentiated portfolio. Our revenues increased by 7 per cent YoY, EBITDA margin for the quarter was at 21.6 per cent," said company managing director N Govindarajan.

The company's board of directors approved an interim dividend at the rate of 125 per cent, i.e., Rs 1.25 per equity share of Re 1 for the year 2018-19.

Despite a fall in net profit, foreign brokerages Credit Suisse and Citi are bullish on the stock, saying strong US sales trends and a conscious strategy to keep higher inventory are delivering results for the company. 

2Q19 is a strong result with US sales increasing by 13 per cent q/q and EBITDA margin expanding by 200 basis points (bps) q/q (pre R&D). The beat was largely driven by volume gains in existing products which is likely to sustain, says Credit Suisse in its note. "Net debt reduction by $20mn q/q was lower than expected as inventory cycle continues to increase. This is a conscious strategy by Aurobindo to keep higher inventory to gain contracts when a competitor exits a product," the brokerage added. It has 'Outperform' rating on the stock with the target price of Rs 840. 

Citi says the second quarter results validate it's view that Aurobindo Pharma is best placed to navigate the fast-changing landscape for generics in developed markets. The company’s ability to grow US revenues and gain market share is in stark contrast to challenges being faced by peers in this market. "We believe this remains underappreciated by the Street. We believe 2Q is just the start of an earnings ramp up phase over the next few quarters as injectables constraints fall off and NBO sales are realized. Remains a top pick," Citi added. The brokerage has 'buy' rating on the stock with the target price of Rs 1,030.

At 10:46 am, the stock was trading at Rs 766 apiece on BSE, down 4 per cent. 

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