Aurobindo Pharma (AURPHA) | 685content.icicidirect.com/mailimages/IDirect_AurobindoPharma_Q1FY1… · commissioning of new plants in India Other Income 33.3 7.3 22.9 40.8 45.1 -18.4

August 10, 2017

ICICI Securities Ltd | Retail Equity Research

Result Update

Europe, US launches support numbers…

Revenues remained flat YoY at | 3679 crore (I-direct estimate: | 3671

crore) driven by 10% growth in the Europe to | 918 crore (I-direct

estimate: | 839 crore). US growth was flat at | 1695 crore (I-direct

estimate: | 1661 crore) despite strong headwinds. ARV business

declined 19% to | 245 crore (I-direct estimate: | 318 crore) whereas

APIs declined 15% to | 625 crore

EBITDA margins declined 72 bps YoY to 22.9% (I-direct estimate:

20.9%) due to higher employee and other expenditure

Adjusted net profit (ex forex gain/loss) declined 8% YoY to | 537

crore (I-direct estimates: | 466 crore)

US key growth driver despite imminent pricing pressure

After filing ANDA in the US in 2003, the company has come a long way as

current ANDA filings are at 429. The US revenue run rate has grown from

~US$100 million in 2009 to crossing $1 billion sales as on 2017. Note that

this was despite the USFDA embargo in FY12-13 on unit VI and unit III. In

rupee term, US sales have grown at 42% CAGR to | 6827 crore in FY12-

17. US formulations now constitute 46% of total turnover, up from 26% in

FY12. US traction has also boosted investor’s confidence, which was

impacted by warning letters, piling up debts besides non-business

political adversaries. We expect US sales to grow at 6% CAGR on a

higher base to | 7631 crore in FY17-19E.

Transformation, capacity optimisation to improve margins, cash flows

The API: formulations ratio has improved from 43:57 in FY12 to 21:79 in

FY17. Another USP of the company is its vertically integrated model with

huge capacity, unmatched by most peers. The company owns 22

manufacturing facilities, including eight key formulations facilities in India

and abroad. These can be optimised by 1) continuous US filings and

launches, 2) incremental launches and filings in the RoW markets and 3)

site transfers and supplies for products covered under the Actavis deal.

Higher capacity utilisation is likely to improve operating leverage thereby

maintaining the margin improvement trend.

Debt no more fear factor

The company’s debts kept on piling up over the last few years as the

capacity built up was in full flow and rupee depreciation. Working capital

loans are now 85% of overall debts from 65-70% earlier. However, with

consistent and incremental US cash flows the situation improved

markedly. While D/E ratio improved from 1.9x to 0.3x, the debt/EBITDA

improved from 4.5x to 0.9x in FY09-17. As the capex cycle moderates by

FY18, the company expects to utilise maximum FCF for debt repayment.

Launches continuum in US to mitigate pricing pressure

Unlike other peers, the Aurobindo management has asserted confidence

on the US near term prospect despite strong pricing headwinds. This is

on the back of lower product concentration as top 25 products are now

contributing 35% of the US portfolio against 45% in Q1FY17. Moreover,

we expect the percentage of injectables, which are relatively insulated

from pricing pressure, in the US portfolio, to grow from 14% in FY17 to

20-25% by FY19. We believe launches continuum, especially in the

injectable space, can effectively neutralise channel consolidation and

pricing pressure headwinds. Other important segment i.e. Europe is likely

to fetch better margins on the back of product transfers to India and a

focused approach. We have ascribed a target price of | 745, based on 18x

FY19E EPS of | 41.4.

Rating matrix

Rating : Hold

Target : | 745

Target Period : 15-18 months

Potential Upside : 9%

What’s Changed?

Target Changed from | 755 to | 745

EPS FY18E Changed from | 37 to | 46.5

EPS FY19E Changed from | 41.8 to | 41.4

Rating Changed from Buy to Hold

Quarterly Performance

Q1FY18 Q1FY17 YoY (%) Q4FY17 QoQ (%)

Revenue 3,678.8 3,766.6 -2.3 3,641.6 1.0

EBITDA 841.6 889.0 -5.3 721.2 16.7

EBITDA (%) 22.9 23.6 -72.4 19.8 307.2

Net Profit 518.5 585.0 -11.4 532.5 -2.6

Key Financials

(| Crore) FY16 FY17 FY18E FY19E

Revenues 13831.2 15089.9 16253.4 16990.2

EBITDA 3140.7 3434.3 4143.7 3737.9

Net Profit 1915.6 2301.6 2706.0 2411.3

Adjusted PAT 1981.6 2265.7 2724.8 2411.3

EPS (|) 32.8 39.4 46.5 41.4

Adjusted EPS (|) 33.9 38.8 46.8 41.4

Valuation summary

FY16 FY17 FY18E FY19E

PE (x) 20.9 17.4 14.7 16.5

Target PE (x) 22.7 18.9 16.0 18.0

EV to EBITDA (x) 14.0 12.4 10.1 11.1

Price to book (x) 5.5 4.3 3.4 2.8

RoNW (%) 27.2 24.2 22.9 17.1

RoCE (%) 23.1 24.4 25.5 19.6

Stock data

Particular

Market Capitalisation

Debt (FY16)

Cash (FY16)

EV

52 week H/L (|) 895/503

Equity capital

Face value | 1

| 58.6 crore

Amount

| 40148 crore

| 42998 crore

| 3364 crore

| 513 crore

Price performance (%)

1M 3M 6M 1Y

Aurobindo Pharma -3.9 10.5 0.6 -8.1

Sun Pharma -18.3 -28.3 -29.7 -43.6

Lupin -18.1 -25.3 -35.8 -39.1

Dr Reddy's -28.3 -24.9 -34.3 -34.8

Aurobindo Pharma (AURPHA) | 685

Research Analyst

Siddhant Khandekar

[email protected]

Mitesh Shah

[email protected]

Harshal Mehta

[email protected]

ICICI Securities Ltd | Retail Equity Research Page 2

Variance analysis

| cr Q1FY18 Q1FY18E Q1FY17 Q4FY17 YoY (%) QoQ (%) Comments

Revenue 3,678.8 3,670.7 3,766.6 3,641.6 -2.3 1.0 YoY decline mainly on account of pricing pressure in the US, adverse

currency movement and GST impact in API segment

Raw Material Expenses 1,497.8 1,606.5 1,637.0 1,502.8 -8.5 -0.3 Gross margins improved 274 bps YoY mainly due to better product mix

Employee Expenses 490.2 467.2 432.1 463.5 13.4 5.8

Other Expenditure 849.2 831.3 808.6 954.1 5.0 -11.0

EBITDA 841.6 765.7 889.0 721.2 -5.3 16.7

EBITDA (%) 22.9 20.9 23.6 19.8 -72 bps 307 bps YoY contraction mainly due to higher other expenses and employee cost,

which was largly offset by improvement in gross margins. Beat vis-à-vis I-

direct estimates was mainly due higher than expected gross margins

Interest 16.9 14.9 20.6 14.3 -18.3 18.1

Depreciation 131.2 124.4 106.2 100.1 23.5 31.1 Increased due to consolidation of Generis group in Portugal and

commissioning of new plants in India

Other Income 33.3 7.3 22.9 40.8 45.1 -18.4

PBT before EO & Forex 726.8 633.8 785.0 647.7 -7.4 12.2

Forex & EO 18.8 -19.0 0.0 0.0 #DIV/0! #DIV/0!

PBT 708.0 652.8 785.0 647.7 -9.8 9.3

Tax 191.0 169.7 200.8 117.2 -4.9 63.0

Tax Rate (%) 27.0 26.0 25.6 18.1 139 bps 889 bps

PAT before MI 517.0 483.1 584.2 530.5 -11.5 -2.6

MI -0.2 -0.3 -0.1 -0.2 200.0 -21.7

Net Profit 518.5 485.0 585.0 532.5 -11.4 -2.6

Adj. Net Profit (Ex forex) 537.3 466.0 585.0 532.5 -8.1 0.9 YoY decline due to lower operational performance and higher depreciation,

which was partly offset by higher other income

Key Metrics

US 1,694.9 1,661.1 1,703.9 1,643.2 -0.5 3.1 YoY muted growth was mainly due to price erosion in select products

Europe 917.6 839.0 831.2 777.2 10.4 18.1 Beat vis-à-vis I-direct estimates was mainly due to before than expected

addition of acquired Generis group in Portugal

RoW 193.9 223.1 194.0 197.1 -0.1 -1.6

ARV 244.6 318.2 303.0 261.9 -19.3 -6.6 Decline mainly due to volatility in tender business

API 625.0 624.3 734.5 762.8 -14.9 -18.1 YoY decline mainly due to impact of GST transition in India

Source: Company, ICICIdirect.com Research

Change in estimates

(| Crore) Old New % Change Old New % Change

Revenue 15,845.0 16,253.4 2.6 17,124.3 16,990.2 -0.8

EBITDA 3,477.1 4,143.7 19.2 3,927.6 3,737.9 -4.8

EBITDA Margin (%) 21.9 25.5 359 bps 22.9 22.0 -90 bps FY18 margins improved mainly due to gRenvela approval

Adj. PAT 2,157.1 2,724.8 26.3 2,435.3 2,411.3 -1.0 Changed mainly in sync with EBITDA

EPS (|) 37.0 46.8 26.5 41.8 41.4 -0.9

FY18E FY19E


Assumptions

(| crore) FY16 FY17 FY18E FY19E FY18E FY19E

US 6,143.8 6,827.3 7,462.4 7,630.5 7,000.7 7,748.2

Europe 3,125.3 3,277.2 3,791.9 3,992.2 3,744.9 3,942.9

ARV 1,199.9 1,185.3 1,171.0 1,229.6 1,244.6 1,306.8 Reduced mainly due to lower-than-expected Q1 sales

RoW 646.0 755.7 839.9 965.8 869.1 999.4

API 2,883.9 3,042.0 2,978.7 3,163.2 3,194.1 3,353.8 Reduced mainly due to increase in captive consumption

Current Earlier



Company Analysis

Aurobindo Pharma was set up by first generation entrepreneurs PV

Ramprasad Reddy and K Nithyananda Reddy in 1986. Based in

Hyderabad, the company is an integrated pharmaceutical company,

which started as an API manufacturer. In 2001, it moved up the value

chain by foraying into formulations while from 2007 onwards it started

scaling up the formulation business. APL's manufacturing facilities have

been approved by several leading regulatory agencies like USFDA,

UKMHRA, WHO, Health Canada, MCC South Africa and Anvisa Brazil. The

company owns 22 manufacturing facilities, including eight key

formulations facilities in India and abroad. The company owns three R&D

centres. The current employee strength is more than 8000, which

includes more than 750 scientists.

In FY17, the API: formulations ratio was at 21:79. US formulations

constitute 45% of revenues followed by APIs & RoW formulations (25%),

Europe (22%) and ARV formulations (8%).

The company faced a USFDA embargo in 2011 for two of its units for

non-compliance with cGMP. It also went through political turmoil due to

the Telangana issue and alleged favours received by promoters through

political connections. Aurobindo acquired commercial operations in

seven Western European countries from Actavis. The company has

acquired personnel, commercial infrastructure, products, marketing

authorisation and dossier license rights in these seven countries. The

acquisition brought in a pipeline of ~1200 products from different

segments and an additional pipeline of over 200 products under its aegis.

Net sales for acquired businesses were ~€320 million. GPMs were ~30%.

They were fetching losses of ~€23 million at the EBITDA level.

Aurobindo Pharma also acquired the Generis group in Portugal in Q4FY17

through its step down subsidiary Agile Pharma (Netherlands) for a

consideration of ~€135 million (~| 985 crore). Generis’ CY16 revenues

were €64.8 million and EBITDA was €12.7 million.

The company also acquired the assets of nutritional supplement maker

Natrol Inc for a consideration of ~US$132.5 million. With this acquisition,

the company has forayed into the nutritional OTC business in the US and

other international markets. Overall, we expect revenues to grow at 6%

CAGR in FY17-19E to | 16990 crore on the back of Actavis consolidation

and incremental US launches.

Exhibit 1: Revenues to grow at CAGR of 6% in FY17-19E

4627.4

5855.3

8099.9

12120.5

13831.2

15089.9

16253.416990.2

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E

(| crore)

Total Operating Income


26.6% CAGR

6.1% CAGR


After filing ANDA in the US in 2003, the company has come a long way as

current ANDA filings are at 442. The US revenue run rate has grown from

~US$100 million in 2009 to crossing $1 billion sales as on 2016. Note that

this was despite the USFDA embargo in FY12-13 on unit VI and unit III.

The much hyped Pfizer deal, which eventually fell apart, also had an

impact on US sales as the company had to invest in the front end

network. In rupee terms, US sales have grown at 42% CAGR to | 6827

crore in FY12-17. US formulations now constitute 46% of total turnover,

up from 26% in FY12. The US traction has also boosted investors’

confidence, which was affected by warning letters, piling debts besides

non-business political adversaries. We expect US sales to grow at a CAGR

of 6% on a higher base to | 7631 crore in FY17-19E.

Exhibit 2: US growth on the back of robust pipeline and Natrol acquisition

1183.6

1752.6

3446.8 3446.8

6143.8

6827.3

7462.47630.5

0

1000

2000

3000

4000

5000

6000

7000

8000

9000


(| crore)

US


From a prominent API supplier and participant in the global ARV tenders

to a leading formulations vendor, the company has virtually changed its

identity. The API: formulations ratio has improved from 43:57 in FY12 to

21:79 in FY17. Another USP of the company is its vertically integrated

model with huge capacity, unmatched by most peers. The company owns

22 manufacturing facilities, including eight key formulations facilities in

India and abroad. These can be optimised by 1) continuous US filings and

launches 2) incremental launches and filings in the RoW markets and 3)

site transfers and supplies for products covered under the Actavis deal.

Higher capacity utilisation is likely to have a positive impact on margins,

which are likely to be under some pressure after the Actavis deal.

Exhibit 3: Acquisition of Actavis Europe business boosts sales in Europe

647.48467.9

672.1 672.1

3125.33277.2

3791.93992.2

0

1000

2000

3000

4000

5000


(| crore)

Europe


42% CAGR

5.7% CAGR

38.3% CAGR

10.4% CAGR


Exhibit 4: Aurobindo to concentrate on high margins tender business

766.7 750.3

840.2 840.2

1199.9 1185.3 1171.01229.6

0

200

400

600

800

1000

1200

1400


(| crore)

ARV


Exhibit 5: API business to see muted growth due to higher captive consumption

2067.6

2536.2

2828.9 2828.9 2883.93042.0 2978.7

3163.2

0

1000

2000

3000

4000


(| crore)

Total API


Exhibit 6: Impact on margins due to acquisitions to be neutralised by US growth

610.1

889.2

2132.9

2563.6

3140.7

3434.3

4143.7

3737.9

13.2

15.2

26.3

21.2

22.7 22.8

25.5 22.0

0

500

1000

1500

2000

2500

3000

3500

4000

4500


(|

crore)

0

5

10

15

20

25

30(%

)

Operating Profit (EBITDA) EBITDA Margins (%)


9.1% CAGR

1.9% CAGR

8% CAGR

-3.5% CAGR


Exhibit 7: Net profit to grow at CAGR of 3% in FY17-19E

1173.0

1915.6

2301.6

2706.0

2411.3

-123.5

293.9

1575.8

-500

0

500

1000

1500

2000

2500

3000


(|

crore)

PAT


Exhibit 8: Trends in return ratios

16.3

7.9

10.9

23.8 24.123.1

24.4

21.5

18.0 17.6

36.7

27.2

25.5

30.4

24.2

22.9

0

5

10

15

20

25

30

35

40


(%

)

RoCE (%) RoNW (%)


2.4% CAGR


Exhibit 9: Trends in quarterly financials

(| Crore) Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 YoY (%) QoQ(%)

Total Operating Income 2911.1 2881.2 3166.2 3162.1 3298.9 3365.1 3505.6 3745.9 3766.6 3775.5 3906.2 3641.6 3678.8 -2.3 1.0

Raw Material Expenses 1380.6 1264.7 1538.5 1373.6 1512.4 1512.1 1550.8 1625.9 1637.0 1629.9 1709.7 1502.8 1497.8 -8.5 -0.3

% of revenue 47.4 43.9 48.6 43.4 45.8 44.9 44.2 43.4 43.5 43.2 43.8 41.3 40.7 -274 bps -55 bps

Gross Profit 1530.4 1616.5 1627.6 1788.5 1786.6 1853.0 1954.8 2120.0 2129.6 2145.6 2196.5 2138.8 2180.9 2.4 2.0

GPM (%) 52.6 56.1 51.4 56.6 54.2 55.1 55.8 56.6 56.5 56.8 56.2 58.7 59.3 274 bps 55 bps

Employee Expenses 308.4 337.0 368.0 373.3 361.2 373.0 401.6 406.8 432.1 426.6 445.6 463.5 490.2 13.4 5.8

% of revenue 10.6 11.7 11.6 11.8 10.9 11.1 11.5 10.9 11.5 11.3 11.4 12.7 13.3 185 bps 60 bps

Other Manufacturing Expenses563.9 642.4 647.4 759.1 700.3 700.9 735.5 852.1 808.6 789.8 856.0 954.1 849.2 5.0 -11.0

% revenues 19.4 22.3 20.4 24.0 21.2 20.8 21.0 22.7 21.5 20.9 21.9 26.2 23.1 162 bps -312 bps

Total Expenditure 2252.9 2244.0 2554.0 2506.0 2573.9 2586.1 2687.9 2884.8 2877.6 2846.2 3011.3 2920.4 2837.2 -1.4 -2.9

% of revenue 77.4 77.9 80.7 79.3 78.0 76.9 76.7 77.0 76.4 75.4 77.1 80.2 77.1 72 bps -307 bps

EBITDA 658.2 637.2 612.2 656.1 725.1 779.0 817.7 861.1 889.0 929.2 894.8 721.2 841.6 -5.3 16.7

EBITDA Margins (%) 22.6 22.1 19.3 20.7 22.0 23.1 23.3 23.0 23.6 24.6 22.9 19.8 22.9 -72 bps 307 bps

Depreciation 90.8 89.9 67.3 84.7 89.0 92.6 99.4 111.4 106.2 110.2 111.1 100.1 131.2 23.5 31.1

Interest 18.9 21.0 21.9 22.6 20.8 24.1 22.7 25.1 20.6 17.5 14.3 14.3 16.9 -18.3 18.1

Other Income 10.8 27.3 35.9 6.7 29.4 12.2 7.5 21.0 22.9 8.3 7.9 40.8 33.3 45.1 -18.4

Less: Forex & Exceptional Items-1.4 42.0 20.2 -1.2 10.6 43.9 -14.0 -15.3 0.0 -20.2 -15.8 0.0 18.8

PBT 560.7 511.7 538.7 556.8 634.0 630.6 717.2 761.0 785.0 829.9 793.2 647.7 708.0 -9.8 9.3

Total Tax 146.4 140.4 156.3 153.4 163.4 176.7 174.2 206.4 200.8 224.0 217.7 117.2 191.0 -4.9 63.0

Tax rate (%) 26.1 27.4 29.0 27.6 25.8 28.0 24.3 27.1 25.6 27.0 27.4 18.1 27.0 139 bps 889 bps

PAT 414.3 371.2 382.4 403.4 470.6 453.9 543.0 554.6 584.2 606.0 575.5 530.5 517.0 -11.5 -2.6

Minority Interest -1.2 -1.0 -2.0 -0.5 -1.9 -1.1 0.4 -0.3 -0.1 -0.1 -0.1 -0.2 -0.2 200.0 -21.7

Net Profit 415.4 372.2 384.4 403.8 472.5 455.0 542.6 554.9 584.2 606.0 575.6 530.8 517.2 -11.5 -2.6

EPS (|) 7.1 6.4 6.6 6.9 8.1 7.8 9.3 9.5 10.0 10.4 9.9 9.1 8.9


SWOT Analysis

Strengths - US product pipeline, huge capacity, vertically integrated

business model

Weakness - No presence in Indian domestic formulations, substantial debt

Opportunities - US generics space, foray into oncology

Industry specific threats- Increased USFDA scrutiny across the globe

regarding cGMP issues, pricing pressure due to client consolidation.

Conference call highlights

As per the management, the price erosion in the US business was

at low double digits (11-12% YoY) in Q1FY18. The scenario is

likely to continue in the remaining three quarters of FY18

(fluctuating between high single digits and low double digits).

However, sequentially the price erosion on the base business was

flat QoQ

Despite the price erosion, the management has guided for

positive growth in the US in FY18

Aurobindo’s cumulative filings were at 442 ANDAs including 292

final approvals, 37 tentative approvals and 113 pending approvals.

The company’s US base business grew 3% YoY in Q1FY18

During Q1FY18, the company filed 13 ANDAs with USFDA

including nine in oral and four in injectable category. It has

launched 15 products in the US including 16 in oral and one in

injectable category in Q1FY18

In Q1FY18, R&D spend was at | 162 crore, 4% of revenues. The

company expects percentage of R&D spending to remain in the

range of 5-6% for FY18 and FY19

Capex spend during the quarter was at US$40 million

For FY18, the effective tax rate will be ~27%


The acquired Generis group (Portugal), EBITDA margins were in

double digits during the quarter

The company has to date transferred manufacturing of 71

products from Europe (Actavis) to India

On the M&A strategy, the company intends to focus on market

penetration and newer technologies

On the launches front, gMucinex has already been launched while

volumes are getting ramped up. gVancomycin is expected to be

launched in FY18 while gDarunavir is expected to be filed in the

next few quarters

Unit 10 facility (SEZ) is expected to be commercialised on April 1,

2018. Unit 16 facility (injectable) has already received EIR and has

started exporting

On the debt front, the company reported a net debt of $560

million in Q1FY18. The net debt is currently at $605 million, which

is expected to reduce to $475 million in FY18 end

Exhibit 11: Major facilities

Unit No. Segment Approvals Type Location

Aurolife Formulations USFDA Non antibiotic & Controlled substances USA

Unit-I API CVS, CNS, Anti-Allergics, Non-Sterile India

Unit-II API Intermediates for non antibiotics, Penems India

Unit-III Formulations USFDA Non antibiotics, ARVs / Orals India

Unit-IV Formulations USFDA Injectables (Non-antibiotics) & Ophthalmics India

Unit-V API Antibiotics (Sterile & Non-sterile) India

Unit-VI Formulations USFDA Cephalosporins Orals India

Unit-VII (SEZ) Formulations USFDA Oral dosage India

Unit-VIII API ARV, CVS, CNS (Non-sterile) India

Unit-IX API Intermediates India

Unit-X * Formulations Facilities under construction/development India

Unit-XI API India

Unit-XII Formulations USFDA Antibiotics, injectables, Orals India

Unit-XIV * Facilities under construction/development India

Unit-XV India

Unit-XVI * Facilities under construction/development India

Unit-XVII * Facilities under construction/development India

APLRC-I @ R&D Center Research and Development Centers India

APLRC-II @ R&D Center Research and Development Centers India

Bhiwadi Unit Formulations USFDA Penem Injecables India


Exhibit 10: US pipeline

Units Therapies Tentative Approvals Final Approvals Pending Total

Unit III Oral Formulations 14 102 10 126

Unit IV Injectables & Ophthalmics 2 42 39 83

Unit VIB Cephalosphorins Oral 11 11

Unit VII (SEZ) Oral Formulations 21 101 37 159

Unit X Oral Formulations 10 10

Unit XII Penicillin Oral & Injectables 19 1 20

Aurolife USA Oral Formulations 16 10 26

AuroNext Penem Injectables 1 3 4

Eugia Oral &Injectable Formulations 3 3

Total 37 292 113 442



Valuation

Unlike other peers, the Aurobindo management has asserted its

confidence on the US near term prospect despite strong pricing

headwinds. This is on the back of lower product concentration as top 25

products are now contributing 35% of the US portfolio against 45% in

Q1FY17. Moreover, we expect the percentage of injectables, which are

relatively insulated from pricing pressure, in the US portfolio, to grow

from 14% in FY17 to 20-25% by FY19. We believe launches continuum,

especially in the injectable space, can effectively neutralise channel

consolidation and pricing pressure headwinds. Other important segment

i.e. Europe are likely to fetch better margins on the back of product

transfers to India and a focused approach. We have ascribed a target

price of | 745, based on 18x FY19E EPS of | 41.4.

Exhibit 12: One year forward PE

0.0

200.0

400.0

600.0

800.0

1000.08/10/2011

2/10/2012

8/10/2012

2/10/2013

8/10/2013

2/10/2014

8/10/2014

2/10/2015

8/10/2015

2/10/2016

8/10/2016

2/10/2017

8/10/2017

|

Aurobindo 18.1x 15.0x 8.9x 5.8x

[


Exhibit 13: One year forward PE of company vs. CNX Pharma

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

8/10/2011

2/10/2012

8/10/2012

2/10/2013

8/10/2013

2/10/2014

8/10/2014

2/10/2015

8/10/2015

2/10/2016

8/10/2016

2/10/2017

8/10/2017

x

Aurobindo CNX Pharma

14% Discount


Exhibit 14: Valuation

Revenues Growth Adj. EPS Growth P/E EV/EBITDA RoNW RoCE

(| crore) (%) (|) (%) (x) (X) (%) (%)

FY16 13831 14.1 32.8 21.2 20.9 14.0 27.2 23.1

FY17 15090 9.1 39.4 14.3 17.4 12.4 24.2 24.4

FY18E 16253 7.7 46.5 20.3 14.7 10.1 22.9 25.5

FY19E 16990 4.5 41.4 -11.5 16.5 11.1 17.1 19.6



Recommendation history vs. Consensus

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Aug-17May-17Mar-17Jan-17Oct-16Aug-16May-16Mar-16Dec-15Oct-15Aug-15

(%

)(|)

Price Idirect target Consensus Target Mean % Consensus with BUY

Source: Reuters, Company, ICICIdirect.com Research

Key events

Date Event

Mar-10 Starts contract manufacturing business Aurolife

Sep-10 Signs an agreement with AstraZeneca to supply generic drugs for emerging markets

Jan-11 Sells stake in API unit of China for US$23 million

Feb-11 USFDA issues import alert for Unit VI

May-11 Redeems FCCB bonds

May-11 Receives warning letter for Unit VI & concerns on packing division of Unit III

Apr-12 CBI raids company premises

May-12 Ramprasad Reddy & Nithyananda Reddy step down from CEO and MD posts. Govindarajan appointed Managing Director

Mar-13 USFDA withdraws import alert for Unit VI

Jan-14 Acquires Actavis's Western European operations in 7 countries for ~EUR 30 million

Nov-14 Highest bidder for US nutritional supplement market Natrol with a bid of US$ 132.5 million

Dec-14 Acquires manufacturing assets, personnel, commercial infrastructure including the well established nutraceuticals brands in USA of Natrol along with an agreement

to take on certain liabilities, with a bid of $ 132.5 million

Feb-15 Gets approval for setting up JV with Tergene Biotech Pvt Ltd for development of Pneumococcal Conjugate Vaccine with a global market of more than US$5 billion.

The company holds majority stake in the JV

Feb-16 The USFDA inspects Unit III and Unit VII facilities of the company. Unit III was cleared without observations while unit VII received four 483 observations.

Feb-17 Forays into biosimilars development through an acquisition of four products from TL Biopharmaceutical AG


Top 10 Shareholders Shareholding Pattern

Rank Investor Name Latest Filing Date % O/S Position (%) Position Change

1 RPR Sons Advisors Pvt. Ltd. 31-Mar-17 33.5 196.38m 0.00m

2 Reddy (Nityananda K) 31-Mar-17 4.3 25.36m 0.00m

3 HDFC Asset Management Co., Ltd. 31-Mar-17 4.3 24.94m 3.76m

4 Kambam (Kirthi Reddy) 31-Mar-17 3.5 20.70m 0.00m

5 Reddy (Ramaprasad P V) 31-Mar-17 3.1 18.00m 0.00m

6 Sivakumaran (M) 31-Mar-17 2.5 14.49m (0.20)m

7 Reliance Nippon Life Asset Management Limited 31-Mar-17 1.7 9.99m 2.90m

8 The Vanguard Group, Inc. 30-Jun-17 1.5 8.62m (0.00)m

9 Birla Sun Life Asset Management Company Ltd. 31-Mar-17 1.4 8.38m 0.87m

10 SBI Funds Management Pvt. Ltd. 30-Sep-16 1.4 8.03m 1.29m

(in %) Jun-16 Sep-16 Dec-16 Mar-16 Jun-16

Promoter 53.8 53.8 53.8 51.9 51.9

Others 46.2 46.2 46.2 48.1 48.1

Source: Reuters, ICICIdirect.com Research

Recent Activity

Investor name Value ($) Shares Investor name Value ($) Shares

Stichting Depositary APG Emerging Markets Equity Pool 67.1m 6.4m Trident Chemphar, Ltd. -126.5m -12.1m

HDFC Asset Management Co., Ltd. 39.2m 3.8m Invest AD -22.3m -2.1m

Reliance Nippon Life Asset Management Limited 30.2m 2.9m APG Asset Management -17.8m -1.7m

Birla Sun Life Asset Management Company Ltd. 9.1m 0.9m Artisan Partners Limited Partnership -14.9m -1.4m

Govindarajan (Hema) 7.6m 0.7m Lyxor Asset Management -8.3m -0.9m

Buys Sells

Source: Reuters, ICICIdirect.com Research


.

Financial summary

Profit and loss statement | Crore

(Year-end March) FY16 FY17 FY18E FY19E

Revenues 13,831.2 15,089.9 16,253.4 16,990.2

Growth (%) 14.1 9.1 7.7 4.5

Raw Material Expenses 6,157.5 6,479.4 6,527.7 7,135.9

Employee Expenses 1,550.8 1,767.8 2,029.3 2,293.7

Other Manufacturing Expenses 2,982.1 3,408.5 3,552.7 3,822.8

Total Operating Expenditure 10,690.5 11,655.6 12,109.7 13,252.4

EBITDA 3,140.7 3,434.3 4,143.7 3,737.9

Growth (%) 22.5 9.3 20.7 -9.8

Interest 92.7 66.7 63.1 63.1

Depreciation 392.6 427.6 434.6 479.8

Other Income 68.2 79.9 81.3 85.0

PBT before Exceptional Items 2,723.6 3,019.8 3,727.3 3,280.0

Less: Forex & Exceptional Items 66.0 -36.0 18.8 0.0

PBT 2,657.6 3,055.8 3,708.5 3,280.0

Total Tax 744.4 759.7 1,004.4 869.2

PAT before MI 1,913.2 2,296.2 2,704.0 2,410.8

Minority Interest -2.4 -0.5 -0.6 -0.6

PAT 1,915.6 2,301.6 2,706.0 2,411.3

Adjusted PAT 1,981.6 2,265.7 2,724.8 2,411.3

Growth (%) 21.2 14.3 20.3 -11.5

EPS (Diluted) 32.8 39.4 46.5 41.4


Cash flow statement | Crore


Profit/(Loss) after taxation 1,986.7 2,301.6 2,706.0 2,411.3

Add: Depreciation & Amortization 392.6 427.6 434.6 479.8

Net Increase in Current Assets -1,583.4 801.4 -864.3 -536.8

Net Increase in Current Liabilities 545.1 -102.4 382.1 235.7

CF from operating activities 605.2 3,428.3 2,658.4 2,590.0

(Purchase)/Sale of Fixed Assets -1,411.3 -1,675.6 -1,701.5 -900.0

(Inc)/dec in Investments -39.0 -122.9 -100.0 -1,000.0

Others 683.1 -102.5 -86.3 -50.0

CF from investing activities -767.2 -1,901.1 -1,887.8 -1,950.0

Issue of Equity Shares 29.3 0.1 0.0 0.0

Inc / (Dec) in Debt 645.3 -1,676.9 -280.0 0.0

Dividend & Dividend Tax -161.6 -137.2 -197.2 -175.7

others 0.0 0.0 0.0 0.0

CF from financing activities 513.1 -1,814.0 -477.2 -175.7

Net Cash flow 351.2 -286.8 293.3 464.2

Opening Cash 449.1 800.3 513.5 806.8

Closing Cash 800.3 513.5 806.8 1,271.0

Free Cash Flow -806.1 1,752.7 956.9 1,690.0


Balance sheet | Crore


Equity Capital 58.5 58.6 58.6 58.6

Reserve and Surplus 7,228.8 9,313.3 11,822.2 14,057.8

Total Shareholders funds 7,287.3 9,371.9 11,880.7 14,116.4

Total Debt 5,041.1 3,364.1 3,084.1 3,084.1

Deferred Tax Liability 24.0 49.3 59.2 66.3

Minority Interest 2.6 2.1 2.5 2.8

Long term Provisions 23.4 22.4 26.9 30.1

Source of Funds 12,378.2 12,809.8 15,053.4 17,299.7

Gross Block - Fixed Assets 3,725.9 4,799.8 5,668.4 6,318.4

Accumulated Depreciation 345.5 716.8 1,082.7 1,490.7

Net Block 3,380.4 4,083.1 4,585.7 4,827.7

Capital WIP 835.9 1,237.4 1,437.4 1,637.4

Net Fixed Assets 4,216.3 5,320.4 6,023.0 6,465.1

Total Intangible Assets 405.2 565.2 1,129.5 1,107.7

Goodwill on Consolidation 406.3 406.3 406.3 406.3

Investments 123.0 245.9 345.9 1,345.9

Inventory 4,056.1 4,330.5 4,664.5 4,875.9

Cash 800.3 513.5 806.8 1,271.0

Debtors 4,606.7 2,765.3 2,978.6 3,113.6

Loans & Advances & Other CA 831.3 1,596.8 1,914.0 2,104.3

Total Current Assets 10,294.3 9,206.2 10,363.8 11,364.8

Creditors 2,457.0 2,488.3 2,680.1 2,801.6

Provisions & Other CL 1,084.9 951.3 1,141.6 1,255.7

Total Current Liabilities 3,542.0 3,439.6 3,821.7 4,057.4

Net Current Assets 6,752.4 5,766.6 6,542.1 7,307.5

LT L& A, Other Assets 268.8 337.8 405.3 445.9

Deferred Tax Assets 206.3 167.8 201.3 221.4

Application of Funds 12,378.2 12,809.8 15,053.4 17,299.7


Key ratios


Per share data (|)

Adjusted EPS (Diluted) 33.9 38.8 46.8 41.4

BV per share 124.8 160.5 204.1 242.4

Dividend per share 2.8 2.3 3.4 3.0

Cash Per Share 13.7 8.8 13.9 21.8

Operating Ratios (%)

Gross Profit Margins 55.5 57.1 59.8 58.0

EBITDA margins 22.7 22.8 25.5 22.0

Net Profit margins 14.3 15.0 16.8 14.2

Inventory days 107.0 104.7 104.7 104.7

Debtor days 121.6 66.9 66.9 66.9

Creditor days 64.8 60.2 60.2 60.2

Asset Turnover 1.1 1.2 1.1 1.0

EBITDA Conversion Rate 19.3 99.8 64.2 69.3

Return Ratios (%)

RoE 27.2 24.2 22.9 17.1

RoCE 23.1 24.4 25.5 19.6

RoIC 26.1 28.8 30.5 23.8

Valuation Ratios (x)

P/E 20.9 17.4 14.7 16.5

EV / EBITDA 14.0 12.4 10.1 11.1

EV / Net Sales 3.2 2.8 2.6 2.4

Market Cap / Sales 2.9 2.6 2.5 2.3

Price to Book Value 5.5 4.3 3.4 2.8

Solvency Ratios

Debt / Equity 0.7 0.4 0.3 0.2

Debt / EBITDA 1.6 1.0 0.7 0.8

Current Ratio 2.7 2.5 2.5 2.5



ICICIdirect.com coverage universe (Healthcare)

Company I-Direct CMP TP Rating M Cap

Code (|) (|) (| Cr) FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E

Ajanta Pharma AJAPHA 1211 1,420 Buy 10655.8 110.0 56.6 57.1 71.0 11.0 21.4 21.2 17.1 46.2 41.8 33.1 32.4 37.3 33.2 26.5 26.0

Alembic Pharma ALEMPHA 524 570 Hold 9881.1 38.2 21.2 19.1 28.6 13.7 24.7 27.4 18.3 52.2 25.3 18.7 23.9 45.1 21.0 16.5 20.8

Apollo Hospitals APOHOS 1210 1,400 Buy 16836.2 13.2 12.8 16.5 33.3 91.7 94.3 73.2 36.3 6.6 6.0 6.7 10.8 5.3 4.9 5.9 10.9

Aurobindo Pharma AURPHA 685 745 Hold 40147.6 33.9 38.8 46.8 41.4 20.2 17.7 14.6 16.5 23.1 24.4 25.5 19.6 27.2 24.2 22.9 17.1

Biocon BIOCON 331.1 380 Hold 19866.0 7.7 11.0 7.8 13.5 42.9 30.2 42.6 24.6 9.3 11.9 10.1 15.9 11.5 13.6 9.0 13.9

Cadila Healthcare CADHEA 466 420 Hold 47721.8 15.0 14.5 15.4 20.5 31.2 32.1 30.2 22.7 24.9 13.1 15.2 18.5 34.4 21.4 19.4 21.6

Cipla CIPLA 548.2 470 Hold 44112.2 18.5 12.9 17.8 25.3 29.6 42.6 30.7 21.7 12.0 8.0 11.0 14.5 12.5 8.1 10.4 13.1

Divi's Lab DIVLAB 626 665 Hold 16621.0 41.5 39.3 34.6 41.5 15.1 15.9 18.1 15.1 30.5 25.0 20.3 21.5 25.7 19.5 15.4 16.4

Dr Reddy's Labs DRREDD 1949 2,400 Hold 32305.0 141.4 70.6 72.4 126.2 13.8 27.6 26.9 15.4 15.3 6.1 6.8 11.9 19.2 9.5 9.0 13.9

Glenmark Pharma GLEPHA 613 730 Hold 17289.9 32.2 46.0 38.7 40.6 19.0 13.3 15.8 15.1 16.2 18.9 15.9 15.5 21.2 25.5 17.9 15.9

Indoco Remedies INDREM 192.8 180 Hold 1776.7 9.4 8.4 7.3 14.9 20.5 23.1 26.5 12.9 12.9 8.4 6.8 12.0 14.8 12.0 9.6 17.1

Ipca Laboratories IPCLAB 420 525 Hold 5297.3 7.4 15.4 17.6 27.9 56.9 27.2 23.8 15.0 4.5 8.7 9.3 13.2 4.1 7.9 8.4 12.0

Jubilant Life JUBLIF 642.7 845 Buy 10236.2 26.0 36.1 44.3 59.1 24.7 17.8 14.5 10.9 12.0 13.3 14.8 17.6 14.2 16.8 17.3 19.0

Lupin LUPIN 937 1,070 Hold 42315.2 50.4 56.6 41.4 53.4 18.6 16.5 22.6 17.5 17.8 16.6 12.4 15.5 20.3 18.9 12.4 14.2

Natco Pharma NATPHA 696.7 955 Hold 12143.2 9.0 27.0 25.5 16.0 77.0 25.8 27.3 43.5 16.0 33.0 27.6 16.2 12.2 28.8 22.6 12.8

Sun Pharma SUNPHA 461 550 Hold 110557.3 23.4 29.0 20.3 25.5 19.7 15.9 22.7 18.1 18.6 19.8 13.5 15.0 18.0 19.0 12.0 13.4

Syngene Int. SYNINT 439 490 Hold 8789.0 11.1 14.3 14.3 17.4 43.6 33.6 33.6 27.7 14.1 16.8 16.2 17.8 21.6 20.3 17.2 17.4

Torrent Pharma TORPHA 1229 1,250 Hold 20795.0 110.9 55.2 48.3 65.8 11.1 22.3 25.4 18.7 46.5 18.9 17.6 20.7 53.7 21.5 16.5 19.2

Unichem Lab UNILAB 245 235 Hold 2227.1 12.3 12.0 17.3 23.6 19.9 20.4 14.2 10.4 13.8 11.8 11.6 13.9 11.7 10.2 13.1 15.5

RoE (%)EPS (|) PE(x) RoCE (%)



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Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;

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Documents

Aurobindo Pharma (AURPHA) | 685content.icicidirect.com/mailimages/IDirect_AurobindoPharma_Q1FY1… · commissioning of new plants in India Other Income 33.3 7.3 22.9 40.8 45.1 -18.4