Aurobindo Pharma

Aurobindo Pharma

Aurobindo Pharma - Sep 7 2010

Aurobindo Pharma - Sep 7 2010

Aurobindo Pharma

Aurobindo Pharma

Aurobindo Pharma, ENIL

Aurobindo Pharma, ENIL

Aurobindo Pharma - rerating on the cards ?

Aurobindo Pharma - rerating on the cards ?

Aurobindo Pharma

Long-term investments can be considered in the stock of Aurobindo Pharma, a leading API (active pharmaceutical ingredient) and formulations manufacturer.

Improving financial performance, likely ramp-up in MNC contracts including the long-term supply agreement with Pfizer and a sales mix tilted towards high-margin formulations business, suggest healthy growth potential for the company.

Aurobindo Pharma

Aurobindo Pharma

Aurobindo gets USFDA nod for cholesterol drug

Aurobindo Pharma today announced that it has received tentative approval for Resuvastatin Calclum tablets - 5mg, 10mg, 20mg and 40mg - from the Unites States Food and Drug Administration (USFDA).

Resuvastatin Calclum tablets are indicated for the treatment of high LDL cholesterol, total cholesterol and falls under cardio vascular (CVS) therapeutic category.

The tablets are generic equivalent of IPR Pharmaceutical Inc's Crestor tablets.

The product has a market size of nearly $2.9 billion for the twelve-month ending December 2009.

Aurobindo has a total of 116 abbreviated new drug application (ANDA) approvals from the USFDA.

In today's trade, the stock closed at Rs895.60, up by 2.38%, with a volume of 8220 shares on the BSE.

Aurobindo Pharma

Aurobindo Pharma

Aurobindo Pharma

Investors with a long-term perspective can consider taking exposure in the stock of Aurobindo Pharma, a leading API and formulations manufacturer. Our recommendation stems from the company's improving sales mix and margins, improving cash flows and long-term revenue visibility from its supply agreement with Pfizer Inc.

What also underscores our optimism is the company's expanding presence in the export market and the fast-growing chronic therapy segments. At the current market price of Rs 916, the stock trades at about 10 times its likely FY-10 per share earnings. However, since the stock price has run up significantly in the last couple of months, returns from hereon may only be moderate.

Improving mix and margins

Traditionally a strong player in semi-synthetic penicillins (SSP) and cephalosporins, Aurobindo has over the years built up its strength in the formulations business too. From just about 11 per cent in FY05, the formulations business has scaled up its revenue contribution to more than half the sales revenue pie.

With manufacturing capacities in place, having invested close to Rs 1,000 crore in setting up infrastructure, the management expects the contributions of formulation to total sales to go up to more than 80 per cent in the next four-five years.

Though this may appear a tad too ambitious, it may not be unachievable given the company's historic growth rates and increasing focus of high-margin products in regulated markets. The supply agreement drafted earlier with Pfizer Inc will also fuel the growth in formulation business. The improving product mix in favour of formulations will also help the company etch a better margin picture as formulations enjoy higher margins than active pharmaceutical ingredients. Margins may also get a lift from better utilisation of its capacities.

For almost half a decade, Aurobindo had undertaken a massive expansion in capacities; with that in place now, the company may be able to improve its capacity utilisation. Here again, the long-term Pfizer supply agreement would help the company better utilise its assets.

Pfizer deal, a winner

Earlier last year, Aurobindo had entered into an in-licensing and supply agreement with Pfizer Inc to supply solid dosages and sterile products. Pfizer had acquired the rights to 39 generic solid oral dose products in the US and 20 in Europe, plus 11 in France.

The ambit was later expanded to include 55 solid oral dose products and five sterile injectable products for several countries throughout Asia, Latin America, Africa and West Asia. Apart from providing a long-term revenue stream for Aurobindo, the deal would also help improve its cash flows given the licensing and milestone-based inflows involved. While the revenue contribution from the deal is still not very significant, given Pfizer's marketing reach and the growing acceptance of generics worldwide it can scale up to more than 20 per cent levels in the coming four-five years.

Results

The company's consolidated sales for the three months ended Sept-09 grew by 24.6 per cent over the year. The formulations business remained the lead revenue generator, making up over 49 per cent of gross sales, helped by a strong growth in the US market with new product approvals and gains in market share. APIs made up over 49 per cent, with the rest coming from the company's dossier income.

The company also improved its operating margins by over 320 basis points to 19.8 per cent (net of dossier income). In terms of product approvals, the company continued to spread it wings across markets.

In the US itself, the quarter saw the company receive 10 approvals. It currently has a total of 110 ANDA approvals (82 final approvals and 28 tentative approvals) from the USFDA. On the whole, it posted a consolidated net profit of Rs 103 crore as against the loss of Rs 38.5 crore incurred in the corresponding quarter last year (due to forex losses).

FCCB trigger

The company's cumulative $154 million outstanding FCCBs may hold the trigger to further upside. Given the improving financials and current market price, while the first tranche ($39 million due for conversion at Rs 522) may, likely, get converted into equity, the remaining debt, convertible in two tranches in May 2011 at Rs 879.1 ($33 million) and Rs 1014.1 ($106.2 million) could pose some challenge.

Here again, while the $33 million debt has a high probability of getting converted, the bonds convertible at Rs 1,014.1 could come up for redemption. While the company is not exactly cash-rich now, the accruals from the Pfizer deal could help it create a cash bank towards such an eventuality. Even so, if forced to tap other financing options to partly fund the redemptions (if any), Aurobindo may not have a problem, given its improving balance-sheet.

via BL

Aurobindo Pharma - (Q2FY08 Result Review): Reduce

Aurobindo Pharma - (Q2FY08 Result Review): Reduce

Sharekhan Investor's Eye dated June13 , 2007

Cadila Healthcare
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs425
Current market price: Rs338

Three product approvals in succession

Key points

• Cadila Healthcare (Cadila) has received three product approvals from the US Food and Drug Administration (USFDA) in quick succession. These are the final approvals for Benzonatate tablets, and Naproxen tablets and the tentative approval for Amlodipine Besylate.
• Benzonatate and Naproxen are already off patent products and have market sizes of $143 million and $53 million respectively. On the other hand, Amlodipine is current under exclusivity, which is set to expire in September 2007. The annual market size for amlodipine stands at $2.7 billion.
• Based on our calculations, we believe the three products together would generate combined revenues and profits of $18.5 million and $3.7 million respectively for Cadila in FY2009, translating into incremental earnings of Rs1.2 per share.
• At the current market price of Rs338, the stock discounts its FY2009E earnings by 12.7x. With a strong momentum in the US generic market, a ramp-up in the contract manufacturing business and the turn-around of the French business, we believe Cadila has a bright future and hence maintain our Buy recommendation on the stock, with a price target of Rs425.

Aurobindo Pharma
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs914
Current market price: Rs728

Denies any stake sale plan
Reacting to a media report that said Aurobindo Pharma is open to a partial stake sale, the management of the company has clarified that the company has no such plans. On the other hand, the management has indicated that the company is doing well in all its business segments including formulation exports, anti-retroviral (ARV) business and bulk business.

ICICI Bank
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,173
Current market price: Rs913

Valuation of key subsidiaries above market estimates

Key points

• India's largest private sector lender ICICI Bank has announced plans to raise Rs20,000 crore ($5 billion) through a follow-on public offer (FPO). The FPO is likely to be equally distributed in the domestic and foreign markets. It is expected to open in the third week of this month. The price band and other issue details are awaited.
• The bank's management has indicated that the pace of growth in the economy as well as the bank's business in the past few years is unprecedented and the FPO tries to address the increased capital requirements of the bank for the next three years.
• The life insurance sector has been growing at a scorching pace for the past few years and ICICI Prudential Life Insurance is the private sector leader with a 30% market share among the private players and a 10% market share in the overall insurance market. The insurance sector is considered to be a sunrise sector and currently there are no listed insurance companies to play on the boom in the insurance sector. Hence, ICICI Bank, which has a 74% stake in ICICI Prudential Life Insurance, remains our preferred choice to play on the insurance story.
• In the past the bank has had to divert a significant amount of the capital raised through its earlier issues to fund its insurance subsidiaries. However this time we feel the difference is that ICICI Bank has already made arrangements for continuous funding of its insurance businesses. Thus with the funding of the insurance businesses taken care of, we feel, there will be more capital available to the bank to grow its core banking business without frequent dilutions in future. However, the huge FPO would take its toll on the return on equity (RoE), which is expected to come down to 10.3% and 10.5% in FY2008 and FY2009 respectively from 13.3% in FY2007.
• We feel one of the concerns pertaining to the bank remains in the form of the delay in obtaining the regulatory approval for the entire ICICI Financial Services (IFS) deal. The fact that the valuation of IFS is much higher than market estimates is a positive development. However the regulatory approval is very important, as it will set the precedence based on which the market would assign improved valuation to the bank. An uptick in the non-performing assets (NPAs) and related provisions remains the other concern.
• We feel the stock will continue to consolidate around the current levels, as has been the case in the past after the announcement of any equity issuance. This provides a good opportunity to buy the stock. At the current market price of Rs913, the stock is quoting at 20.2x its FY2009E earnings per share (EPS), 9x its pre-provision profits (PPP) and 2.1x FY2009E book value (BV). We maintain our Buy recommendation on the stock with the price target of Rs1,173.

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Sharekhan Investor's Eye dated June 13, 2007

HDFC Sec - Aurobindo

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