Quarterly Update

25 AUG 2016

AUROBINDO PHARMA

BUY

PHARMACEUTICALS

Target Price: Rs 970

In line;strongUS growth visibility remains

Aurobindos (ARBP) 21% YoY growth in Q1 PAT was largely inline with
our estimate (lower by 3%). US business grew 15% YoY to USD 255 mn
(up 3% QoQ) led by new launches (20 final approvals; 7 launches)and
injectables. It expects growth momentum and EBITDA margin (+190bps
YoY at 23.9%) to improve given visibility of launches (19 orals & 9
injectables)in 9MFY17.While net debt (adj. for debt factoring) increased
by USD 35mn QoQ on higher chargebacks on new
launches,ARBPexpectsit to normalize to ~USD 500mn in FY17.
We highlight our FY17/18EPS is 4-7% higher than consensus as we
expect stronger pick-up in launch momentum.Maintain BUY withTP of Rs
970 (18x FY18E EPS). Strong US pipeline and gradual turnaround in
EU place ARBP in a sweet spot.

CMP
Potential Upside

: Rs 736
: 32%

MARKET DATA
No. of Shares
Free Float
Market Cap
52-week High / Low
Avg. Daily vol. (6mth)
Bloomberg Code
Promoters Holding
FII / DII

: 585 mn
: 46%
: Rs 431 bn
: Rs 892 / Rs 582
: 2.0 mn shares
: ARBP IB Equity
: 54%
: 26% / 7%

US (45% of sales) growth of 15% YoY (in USD terms):despite 4-6% price erosion in base businesswas led by strong
growth in injectables (> 100% YoY growth) and improved market share in new launches (gValcyte, etc). Natrol had
flat salesat USD 28.3mn. EU business (22% of sales)grew 11% YoY (flat QoQ),driven by 8% YoY increase in
Euro/INR in Q1.EU profitability has improved to single digit as cost reduction initiatives continue; on track to achieve
7-8% margin by FY18. RoW markets growth was18% YoY. Muted growth in API (2% YoY) and ARV#(3% YoY) led to
improvement in gross margin by 190bps to 56.1%

Strong growth in US to continue; margin to improve: We expect US growth momentum to improve led by gaining
market share in recently launched products (gValcyte, gAbilify), new launches (gZegrid, gNexium), scale up in niche
injectables (gIsosulfan blue, gVancomycin, gInteriglin) coupled with new launches (19 orals and 9 injectables) in
9MFY17. It has 22 TAD^ for which approvals are expected over FY17. With 134 ANDAs pending (39 injectables),
we expect 21% CAGR over FY16-18 in US. This coupled with turnaround in EU would improve EBITDA margin from
23.1% in FY16 to 24.5/25.4% in FY17/18
(Continued on page 2)

Financial summary (Consolidated)

Y/E March

Key drivers

FY15

FY16

FY17E

121,128

138,887

162,370

187,576

16,190

20,300

25,807

31,551

42.4

50.5

EBITDA margin

EPS (Rs)

27.7

34.7

44.1

53.9

core-EPS

Change YOY (%)

21.7

25.1

27.1

22.3

P/E (x)

26.5

21.2

16.7

13.7

Price performance

RoE (%)

36.4

33.2

31.7

29.5

140

RoCE (%)

27.1

27.6

28.9

29.4

120

EV/E (x)

18.2

14.5

11.8

9.5

100

DPS (Rs)

4.5

2.5

2.5

2.5

80

Sales (Rs mn)

Adj PAT (Rs mn)
Con. EPS* (Rs)

Source: *Consensus broker estimates, Company, Axis Capital

^Target Action Date

# ARV: Anti-retroviral

FY18E

Gr owt h (% )
US (USD)
Europe

FY 16

FY 17E

FY 18E

20

21

20

(2)

23.1

24.5

25.4

25

27

22

Sensex

Aurobindo Pharma

60
Jul-15

Oct-15

Jan-16

Apr-16

Jul-16

01

Quarterly Update

25 AUG 2016

AUROBINDO PHARMA
PHARMACEUTICALS

(continued from page 1)

Key concall highlights: (1) Net debt reclassified for bill-discounting as per IndAS was USD 640 mn (vs. 584 mn earlier), which reduced to USD 525 mn
aided from USD 150 mn of debt factoring (non-recourse) as at Q117; expects
net debt to reduce to 500 mn (or lower) by Mar17; Comfortable at net debt to
equity of 0.5x (could go upto maximum 1x for interim period in case of any
good opportunity); (2) Capex to moderate in FY18: Capex of USD 56mn in
Q1; expects capex of USD 200mn in FY17 and USD 100 mn in FY18; (3) R&D
expense to increase: to 4-4.5% of sales in FY17 and rise further given
increasing complexity as developing niches (oncology, hormones, complex
injectables like microsphere, liposomals, etc); (4) Scaling up EU: Moved
production of 4 products to India (cumulatively moved 36 products); launched
Meropenem in UK & Germany and will launch in Italy soon. Focus on
improving profitability & scalability (200 products under development) and
increased capacity from Vizag facility (received regulatory approvals; expects
commercialization from Jan 17)

Exhibit 1: ARBPs growth continues to be led by US business

(Rs mn)
US (USD mn)
US

Q1'16

Q4'16

Q1'17

YoY (%)

QoQ (%)

222

247

255

15

14,137

16,663

17,039

21

Europe

7,418

8,407

8,312

12

(1)

ARV

2,953

3,284

3,030

(8)

RoW

1,649

1,756

1,940

18

10

26,157

30,110

30,321

16

7,230

7,746

7,346

(5)

33,387

37,909

37,667

13

(1)

Formulations
API
Gross revenue
Source: Company

Exhibit 2: Despite lower EBITDA, EBITDA margin improved with better product mix
(Rs mn)

Q1'16

Q1'17

YoY (%)

Net revenue

32,989

37,259

13

Gross margin (%)

54.2

56.1

191 bps

Employee Expenses

3,612

4,321

20

Other Expenses

7,003

7,679

10

EBITDA

7,251

8,890

23

22.0

23.9

188 bps

Forex (gain)/ loss

EBITDA margin (%)

106

(70)

N.A

Depreciation

890

1,062

19

Interest

208

206

(1)

6,340

7,850

24

26

26

-19 bps

Reported PAT

4,725

5,850

24

Adj. PAT*

4,807

5,800

21

PBT
Tax rate

Source: Company As per Ind-AS

*PAT adjusted for forex (Rs. 70 mn in Q117)

02

25 AUG 2016

Quarterly Update

AUROBINDO PHARMA
PHARMACEUTICALS

Exhibit 3: ARBP expects net debt to be ~USD 500 mn by Mar17

700

682

(USD mn)

638

650
600

640

594

550

525

500
450
400

FY13

FY14

FY15

FY16*

Q1FY17*

*Note FY16 debt adjusted for bill-discounting (as per Ind-As); Q1FY17
adjusted for debt factoring of USD 150 mn
Source: Company, Axis Capital

Conference call highlights

US business (45% of sales; USD 255 mn): ARBP has an existing launch pipeline
(7 launches in Q1; 4 OS & 3 injectables) of19 products approved (oral solids) and
9 injectables (including Vancomycin) whichare ready for launch through 9MFY17,
with an addressable market of USD 6.8 bn (includes esomeprazole of 3.8 bn).
Expects another 22 TADs to come through in FY17 (timeline varies from product to
product)

Injectables: (+95% YoY to USD 34.3mn) was flat QoQ as launch of key
injectable product was only towards the end of the quarter. ARBP is seeing a
pick-up in sales of isosulfan blue and pantoprazole. Will launch 9 new products
in the next 60 to 90 days, including vancomycin, esomeprazole & ropivacaine
injectable (launched 3 in Q1). Expects significant growth in FY17 YoY above
last year (+39% YoY in FY16) and will be able to maintain this beyond FY17
given microsphere products that will come in by FY18/19 (addressable market
of ~ USD 3 bn with limited players)

gCrestor: Has good market share despite significant price erosion post generic
launches (ARBP launched in July 16)

gNexium: Will launch in Q3FY17

Aurolife: Has undertaken additional capacity expansions which will come

online by the end of CY17

Natrol: USD 28.3 mn in revenue during Q117. Margin has been maintained

Price erosion: Has seen 4 to 6% erosion in base business (oral solids segments)
which has been offset by gains in volume and improved product mix. Expects
this to remain going forward; however Walmart-Mckesson deal could contribute
to further erosion (though not significantly more)

Expects oncology, vaccines, microsphere & liposomal injections assets will only
generate revenue post FY18

03

Quarterly Update

25 AUG 2016

AUROBINDO PHARMA
PHARMACEUTICALS

EU business (22% of revenue): Hastransferred manufacturing of 4 products to India

in Q1 (cumulatively transferred 36 products). Business has turned PAT positive in
FY16 and is ahead of guidance of 7 to 8% EBITDA margin by FY18

Focus is now on improving profitability which will come from new products
being developed (has 200 under development) which will be launched over
next 2 to 3 years

Launched Meropenem in UK & Germany during Q1 and expects to launch in

Italy soon

Has received EU regulatory at Vizag facility and is in the process of getting

product by product approval. ARBP hopes to start commercialization by Jan17

USFDA updates: Has receivedEIRs at Unit VII & Unit XII. Other facilities are under
audit with no material observations being raised. Expect inspection at Unit IV
(anytime now) as the previous one was two years ago.
R&D: R&D expenses were at 3.2% of sales in Q1 [vs. 3.8% of sales (Rs 4.7 bn) in
FY16]. R&D spend should be ~4 to 4.5% by the end of the year, given increased
complexity of product filings. FY18 R&D should be higher but does not expect it to
reach as high as 8 to 9% (although clinical trials or advancements in biosimilars
could see spike for a period). Expects to see increased rate of approvals going
forward (received 20 ANDA approvals in Q1).
Tax rate: Expects to be at ~27% for FY17.
Capex: Total capex for Q1 was USD 56 mn; FY17 to be around USD 200mn.
Maintained guidance for overall capex of USD 100 mn in FY18 including Aurolife
expansion.

Exhibit 4: R&D expenses to increase to ~4-4.5% in FY17

5
4

R&D cost

% of revenue (RHS)
(%)

4.6

(Rs bn)
4.4

Exhibit 5: Approval momentum to continue with 22 TADs in

9MFY17
5

80
3.9

3.4

2.9

2.0

2.3

3.7

3.5

FY12

FY13

FY14

FY15

4.7

67

60

49

1.2

FY16 Q1FY17

40
20

30

27

40

34

22

19

12

20
5

FY12
Source: Company, Axis Capital

Approved

3.2

Filed

(Nos.)

FY13

FY14

FY15

FY16 Q1FY17

Source: Company, Axis Capital

04

Quarterly Update

25 AUG 2016

AUROBINDO PHARMA
PHARMACEUTICALS

Exhibit 6: Facility-wise ANDA filings

Filed

Approved

Pending

Mar-15

Mar-16

Jun-16

Mar-15

Mar-16

Jun-16

Mar-15

Mar-16

Jun-16

289

309

312

166

202

217

123

107

95

138

148

151

37

69

81

101

79

70

Total Injectables

79

81

83

18

41

44

61

40

39

Unit IV

66

67

68

30

33

58

37

35

368

390

403

184

243

269

184

147

134

Total Orals
Unit VII (SEZ)

Total
Source: Company

Note 269 FAs includes 41 TAs

Exhibit 7: Market share trends in key products

Generic name

Brand

Brand sales / market size

#No. of

name

(USD mn)

players

Mar'15

Jun'15

Sep'15

Market share
Dec'15

Mar'16

Jun'16

440

7%

57

15%

46%

Valganciclovir

Valcyte

Isosulfan Blue

Lymphazurin

Aripiprazole

Abilify

4,764

3%

6%

7%

Entecavir

Baraclude

294

5%

6%

18%

44%

Eptifibatide Inj.

Interiglin

137

1%

68%

59%

Cefixime OS

Suprax

80

12%

18%

21%

24%

26%

Tazo-pip

Zosyn

635

38%

22%

35%

20%

14%

10%

Duloxetine

Cymbalta

5,100

11

19%

22%

20%

24%

24%

24%

Valsartan+HCTZ

Diovan HCT

1,700

18%

25%

28%

29%

30%

29%

Lamivudine+
Zidovudine

Combivir

275

19%

20%

21%

23%

16%

8%

Metformin

Glucophage

>10

17%

16%

17%

25%

25%

17%

Source: Bloomberg, Company, Axis Capital

Exhibit 8: R&D investments for the future

Key areas of Investments

Key initiatives

No of Products

Filings

OTC (Over the counter) & softgel

products
Peptides

Acquired production facility in Lawrenceville, NJ US

35

Yes (ANDA filings)

- Commercial facility with 2 modules

- Filed 2 DMFs and expect one filing in Q4FY16
Dedicated R&D centre to develop solid and
parenteral dosages- ARBP completed exhibit batches
for 3 hormones with expected filings in FY16
- Filings of all products to complete in near term
- ARBP filed 3 products and expects 1 filing by
FY17
Process development work completed
Under development

More than 10

2015 (DMF filings)

15

2015-16 (DMF
filings)

ANDA filings

Oncology & Hormonal products

Penems (injectables)

Synthetic nutraceuticals
Dry Powder Inhalers (DPI), Patches,
Films and Depot injections
Source: Company

05

25 AUG 2016

Quarterly Update

AUROBINDO PHARMA
PHARMACEUTICALS

Exhibit 9: ARBP has received 20 ANDA approvals in Q117

Date of
Approval

Generic

IMS Sales
(USD mn)

Facility/
Unit

5.4.16
15.4.16

Polymyxin B for Injection

Olmesartan Medoxomil

7.6
1005

Unit IV
-

22.4.16

Esomeprazole Magnesium

4200

Unit VII

26.4.16
27.4.16
27.4.16
29.4.16

Amlodipine and Valsartan

Oxymorphone Hydrochloride
Famotidine Tablets (OTC)
Lacosamide Tablets

123
55.5
31
~782

Unit VII
Aurolife
Unit VII
Unit VII

29.4.16
6.5.16
13.5.16
13.5.16

Fesoterodine fumarate tablets

Fenofibrate Tablets
Zolmotripitan Tablets
Dalfampridine

~215
~412
47
-

Unit VII
Unit VII
-

16.5.16
17.5.16
27.5.16
2.6.16

5.6
50
52

Unit IV
Aurolife
Aurolife

3.6.16
15.6.16
16.6.16

Bupivacaine Hydrochloride
Hydromorphone HCL
Methocarbamol Solution
Hydrocodone Bitartrate and
Ibuprofen
Amiodarone Hydrochloride
Minocycline Hydrochloride
Pregabalin Capsules

~500
~3900

17.6.16

Efavirenz tablets

195

16.6.16

Omeprazole Magnesium

No. of Players / Competition

4 generic players. To be launched in Q2FY17
12 other TAs received. Diaichi Sanyo has patents from April 2016 to May
2022
6 generic players. Launch based on the settlement terms/litigation with
AstraZeneca
9 generic players. Expect launch in Q1FY17
5 generic players
10 generic players. product is expected to be launched in Q2 FY16-17
UCB only player (patents expire in 2022). Launch dependent on outcome
of litigation with UCB
9 other TAs. Patent expiries range from 2019-2027
7 generic players including ARBP. Expects to launch in Q1FY17
10 generic players. Product is expected to launch in Q2 FY16-17
2 other TAs. Acorda (innovator) in settlement with Aurobindo, launch
details TBD based on settlement
2 other players. Product is expected to launch in Q2 FY16-17
6 generic players.
3 generic players including ARBP. Product launch details awaited
7 generic players including ARBP. Abbvie Patent expires Jun 10th 2017
10 generic players including ARBP. Product launch details awaited
13 generic players including ARBP. Has TAs for 55/65/115 mg dosages
Pfizer has exclusivity till 2018 (as per news sources). 11 TAs including
ARBP
Mylan only generic player. 9 other TAs received. Patent expiry Feb -August
2018
DRRD and Perrigo are only other players.

Source: Company

06

Quarterly Update

25 AUG 2016

AUROBINDO PHARMA
PHARMACEUTICALS

Financial summary (Consolidated)

Cash flow (Rs mn)

Profit &loss (Rs mn)

Y/E March
Net sales

FY15

FY16

FY17E

FY18E

Y/E March

FY15

FY16

FY17E

FY18E

Profit before tax

22,111

27,704

35,352

43,162

Depreciation & Amortisation

(3,326)

(3,926)

(4,432)

(4,815)

(17,181)

(5,558)

(16,526)

(8,546)

2,119

19,223

17,222

31,774

121,128

138,887

162,370

187,576

77

74

100

100

Total operating income

121,205

138,961

162,470

187,676

Chg in working capital

Cost of goods sold

(55,056)

(61,575)

(69,755)

(79,010)

Cash flow from operations

66,149

77,386

92,715

108,666

Capital expenditure

(7,683)

(15,682)

(13,000)

(6,500)

Cash flow from investing

(7,683)

(15,682)

(13,000)

(6,500)

Other operating income

Gross profit

Gross margin (%)

Total operating expenses
EBITDA

EBITDA margin (%)

Depreciation
EBIT
Net interest
Other income

54.6

55.7

57.1

57.9

(40,513)

(45,330)

(52,969)

(61,068)

25,636

32,056

39,745

47,598

21.2

23.1

24.5

25.4

(3,326)

(3,926)

(4,432)

(4,815)

Cash flow from financing

Net chg in cash

22,310

28,130

35,314

42,783

(843)

(927)

(815)

(755)

808

682

853

1,134

Profit before tax

22,111

27,704

35,352

43,162

Total taxation

(5,966)

(7,444)

(9,545)

(11,611)

27.0

26.9

27.0

26.9

16,145

20,261

25,807

31,551

Tax rate (%)

Profit after tax

Equity raised/ (repaid)

Debt raised/ (repaid)
Dividend paid

(2,399)

(5,339)

1,824

19,935

FY15

FY16

FY17E

FY18E

FDEPS (Rs)

27.7

34.7

44.1

53.9

CEPS (Rs)

32.7

40.6

51.7

62.1

4.5

2.5

2.5

2.5

16.7

7.4

5.7

4.6

Net sales (%)

49.8

14.7

16.9

15.5

EBITDA (%)

20.1

25.0

24.0

19.8

Adj net profit (%)

21.9

25.4

27.1

22.3

FDEPS (%)

21.7

25.1

27.1

22.3

RoE (%)

36.4

33.2

31.7

29.5

RoCE (%)

27.1

27.6

28.9

29.4

Key ratios
Y/E March
OPERATIONAL

Dividend payout ratio (%)

16,190

20,300

25,807

31,551

Adj. PAT margin (%)

13.4

14.6

15.9

16.8

Net non-recurring items

(432)

(480)

15,758

19,820

25,807

31,551

Balance sheet (Rs mn)

Y/E March
Paid-up capital

(1,584)

(11,332)

Reported net profit

(3,000)

(1,584)

(14,874)

39

Adjusted net profit

(1,342)

3,607

45

Profit/ Loss associate co(s)

(5,173)

(1,957)

DPS (Rs)

Minorities

3,881
(1,805)

GROWTH

PERFORMANCE

FY15

FY16

FY17E

FY18E

292

585

585

585

Reserves & surplus

51,267

69,982

91,430

121,620

EFFICIENCY

Net worth

51,559

70,567

92,015

122,206

Asset turnover (x)

1.5

1.5

1.4

1.4

Borrowing

40,321

40,762

40,762

37,762

Sales/ total assets (x)

1.1

1.0

1.0

1.0

2,058

2,364

2,364

2,364

Working capital/ sales (x)

0.4

0.4

0.4

0.4

Other non-current liabilities

129,097

156,993

171,146

203,834

Receivable days

106.6

109.6

102.0

102.0

Gross fixed assets

56,765

62,110

75,110

81,610

Inventory days

137.9

139.6

138.9

140.6

Less: Depreciation

(17,697)

(19,713)

(24,144)

(28,959)

Payable days

78.3

86.3

86.0

87.0

39,068

42,398

50,966

52,651

FINANCIAL STABILITY

2,185

10,238

10,238

10,238

Total debt/ equity (x)

0.9

0.7

0.5

0.4

41,253

52,635

61,204

62,889

Net debt/ equity (x)

0.8

0.5

0.5

0.2

198

Current ratio (x)

2.5

2.4

3.1

3.4

Inventory

36,113

40,881

46,709

53,960

Interest cover (x)

26.5

30.3

43.3

56.6

Debtors

35,392

41,719

45,375

52,418

VALUATION

4,691

8,344

2,251

16,942

PE (x)

26.5

21.2

16.7

13.7

Loans & advances

10,539

10,795

12,990

15,006

EV/ EBITDA (x)

18.2

14.5

11.8

9.5

Current liabilities

34,902

42,704

35,410

40,907

EV/ Net sales (x)

3.8

3.3

2.9

2.4

Net current assets

52,745

61,652

74,531

100,036

PB (x)

8.3

6.1

4.7

3.5

0.6

0.3

0.3

0.3

(1.3)

0.8

1.0

5.9

Total liabilities

Net fixed assets

Add: Capital WIP
Total fixed assets
Total Investment

Cash & bank

Other non-current assets

Total assets
Source: Company, Axis Capital

129,097

156,993

171,146

203,834

Dividend yield (%)

Free cash flow yield (%)
Source: Company, Axis Capital

07

25 AUG 2016

Quarterly Update

AUROBINDO PHARMA
PHARMACEUTICALS

Disclosures:
The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
1. Axis Securities Ltd. (ASL) is a SEBI Registered Research Analyst having registration no. INH000000297. ASL, the Research Entity (RE) as defined in the
Regulations, is engaged in the business of providing Stock broking services, Depository participant services & distribution of various financial
products. ASL is a subsidiary company of Axis Bank Ltd. Axis Bank Ltd. is a listed public company and one of Indias largest private sector bank and
has its various subsidiaries engaged in businesses of Asset management, NBFC, Merchant Banking, Trusteeship, Venture Capital, Stock Broking, the
details in respect of which are available on www.axisbank.com.
2. ASL is registered with the Securities & Exchange Board of India (SEBI) for its stock broking & Depository participant business activities and with the
Association of Mutual Funds of India (AMFI) for distribution of financial products and also registered with IRDA as a corporate agent for insurance
business activity.
3. ASL has no material adverse disciplinary history as on the date of publication of this report.
4. I/We, authors (Research team) and the name/s subscribed to this report, hereby certify that all of the views expressed in this research report accurately
reflect my/our views about the subject issuer(s) or securities. I/We also certify that no part of my/our compensation was, is, or will be directly or
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subject company. Also I/we or my/our relative or ASL or its Associates may have beneficial ownership of 1% or more in the subject company at the
end of the month immediately preceding the date of publication of the Research Report. Since associates of ASL are engaged in various financial
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/ officer, etc. in the subject company in the last 12-month period.
Research Team
Sr. No

Name

Designation

E-mail

Sunil Shah

Head of Research

sunil.shah@axissecurities.in

PankajBobade

Research Analyst

pankaj.bobade@axissecurities.in

Priyakant Dave

Research Analyst

priyakant.dave@axissecurities.in

Akhand Singh

Research Analyst

akhand.singh@axissecurities.in

BuntyChawla

Research Analyst

bunty.chawla@axissecurities.in

Hiren Trivedi

Research Associate

hiren.trivedi@axissecurities.in

Kiran Gawle

Associate

kiran.gawle@axissecurities.in

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its associates may have:
i.
ii.
iii.

Received compensation for investment banking, merchant banking or stock broking services or for any other services from the subject
company of this research report and / or;
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company of this research report;

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in connection with this report
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25 AUG 2016

Quarterly Update

AUROBINDO PHARMA
PHARMACEUTICALS

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