Aurobindo Pharma Shares Gain For Second Straight Day On Upbeat Analyst Calls
Shares of Aurobindo Pharma Ltd. gained for the second straight session as brokerages lauded the improved sales in the U.S., which contributed half of the drugmaker's revenue in the second quarter, and a healthy product pipeline.
That too when the company's profit missed analysts' estimates as its bulk drug revenue contracted and sales of Covid-19-related treatments fell sequentially.
Earnings Highlights (QoQ)
Net profit fell 9% to Rs 697 crore, compared with the Rs 786-crore estimate.
Revenue fell 4% to Rs 5,942 crore, against a forecast of Rs 6,094 crore.
Ebitda fell 2% to Rs 1,187 crore, against the estimated Rs 1,293 crore.
Margin contracted 120 basis points to 20%, against the estimated 21.2%.
The U.S. sales registered a 10.7% growth, mainly led by volume growth in oral solids. That was despite the presence of a high-digit price erosion.
Revenue from Europe and other markets rose 5% and 17.3%, respectively.
Revenue from antiretrovirals and bulk drugs fell 51.1% and 3.9%, respectively.
Shares of Aurobindo Pharma rose more than 4.4% as of 11 a.m. on Wednesday. The stock had advanced 6% on Tuesday but pared some of the gains, leading to a cumulative rise of 3.63% in the last two sessions. Of the 31 analysts tracking the company, 25 maintained a 'buy' and three each suggest a 'hold' and a 'sell', according to Bloomberg data. The 12-month consensus price target implies an upside of 26.9%.
Here's what brokerages had to say about Aurobindo's Q2 results:
Recommends 'buy' with a target price of Rs 800 apiece, implying an upside of 18%.
Results came in below estimates, weighed by decline in antiretroviral and active pharmaceutical ingredient sales, and an increase in raw material costs.
Compared with the steady-to-declining U.S. sales of peers for the quarter, Aurobindo’s U.S. sales grew.
Brokerage positive on:
1. The strong abbreviated new drug application filing trend with a higher proportion of complex product (respiratory products/ injectables/ biosimilars) filings.
2. A wide product portfolio supported by backward integration.
3. Improving margins in the European Union business.
Additionally, current valuations largely factor in the near-term pressure on the business.
Near-term headwinds are expected in the business, led by higher raw material costs and higher inventory in the channel at the industry level.
Brokerage cut EPS estimates factoring in:
1. Lower injectables sales in the U.S. due to a gradual increase in elective surgeries,
2. Increased raw material prices led by supply disruption from China, higher inventory in the channel, delaying the off-take of antiretrovirals/APIs,
3. Higher development costs related to complex products.
The management guided for $ 650–700 million (Rs 4,800-5,200 crore) in global injectables sales (ex-biosimilars) by FY24.
The company has settled the lawsuit with the innovator for g-Revlimid and would launch in FY23.
Recommends 'accumulate' with a target price of Rs 780 apiece, implying an upside of 15%.
The U.S. sales improved quarter on quarter. Sustainability of current run-rate of the U.S. sales is key, which hinges on timely niche approvals along with stabilisation of pricing pressure in base business.
Antiretroviral sales declined as Q2 FY21 had higher restocking on advance procurement due to Covid-19.
The company has multiple growth drivers in place with investments in vaccines, injectables, biosimilars and API, which are expected to be reflected from second half of FY23.
In the near term, cost headwinds will continue to drag profitability.
Pricing pressure in the U.S. was in high single digit which should stabilise in the coming quarters, said the management.
Net cash increased quarter on quarter, aided by better working capital with reduction in inventory.
Maintains 'buy' with a target price of Rs 900 apiece, implying an upside of 34%.
The demerger of injectables business will unlock meaningful value.
Although the company’s profit and loss performance was soft, it continued to make strides in strengthening the balance sheet.
Reduced total debt and release in working capital led to a net cash position.
While management erred on the side of caution on near-term revenue guidance, it reaffirmed the injectables business revenue guidance.
Injectables business separation, resolution of regulatory issues.
Adverse regulatory outcomes, higher-than-expected price erosion in the U.S.
Recommends 'buy' with a target price of Rs 865 apiece implying an upside of 28%.
Growth on existing earning base in the near term is contingent on execution around its injectables business and recovery in ARV sales.
Successful execution around the injectables revenue guidance should aid margin expansion.
The growth in injectables business is expected to come on the back of:
1. A large pool of injectable ANDAs (54) that are pending approval in the U.S.,
2. Commercialization of its Vizag injectables capacities.
Medium to long term growth opportunities for the company:
1. Execution in China (monetisation of filings).
2. Commercialisation of biosimilar pipeline.
3. Potential investments in fermentation capacities for antibiotic.
4. Key starting materials under the production linked incentive scheme.
Revised estimates to factor in lower ARV sales during the year and pressure on margins (on account of raw material inflation and potentially higher upfront investment in biosimilar commercialisation)