Aurobindo Pharma Limited Stock Research Report

SEVERAL GROWTH LEVERS TO DRIVE TOPLINE…

Aurobindo Pharma Limited (ARBP) is an integrated global pharmaceutical company based in Hyderabad, India. The company develops, manufactures, and commercializes a wide range of generic pharmaceuticals, branded specialty pharmaceuticals and active pharmaceutical ingredients globally in over 150 countries.
The company has 25 manufacturing and packaging facilities that are approved by leading regulatory agencies, including USFDA, UK MHRA, EDQM, Japan PMDA, WHO, Health Canada, South Africa MCC, and Brazil ANVISA. The Company’s robust product portfolio is spread over 7 major therapeutic product areas, encompassing CNS, AntiRetroviral, CVS, Antibiotics, Gastroenterological, Anti-Diabetics and Anti-Allergic, supported by a strong R&D set-up.

Key Rationale

◼ Q2FY24 Performance:

Aurobindo Pharma & Q2FY25 results were below expectations, with US revenue of $421 Mn showing minimal growth QoQ. Revenue increases in the European market were offset by declines in the ARV and API segments. In the US market, injectablesales experienced a $81 Mn decline, representing a -20% QoQ drop, reflecting significant price erosion despite approximately $20-$30 Mn in additional revenue from gRevlimid. Gross margins decreased by -365/+57 bps YoY/QoQ, while EBITDA marginsimproved by 106/-131 bps YoY/QoQ. The reported profit was Rs 917 Cr, falling short of the Rs 925 Cr expectation.

◼ New Expansion Plans:

The Pen-G API and China plants are expected to begin commercialization in H1FY25. 40-50% of ABRP’ Pen-G API capacities of 15K TPA will be consumed internally and we expect ABRP’s external Pen-G API sales to be $100/150 Mn in FY25/FY26, assuming pricing of $20/kg. The new China plant and the Vizag plant will help to scale up injectable supplies in the EU market and will aid in improving EU margins to the mid-teens.

Aurobindo Pharma Limited Stock Research Report

◼  Eugia III Unit:

This unit has recently received an Official Action Indicated (OAI) status from the USFDA. It is a significant unit, encompassing injectables and ophthalmology, and the company has already received 111 approvals from this unit, with 29 approvals currently under review. This development is expected to potentially have a negative impact on Aurobindo Pharma’s upcoming launches.

◼  Outlook & Valuation:

The Injectable Business represents $500 Mn in revenues, constituting 30% of US sales, and boasts the highest gross margins. However, the issuance of OAI for injectable segments may negatively impact new launches. Additionally, price erosion within the injectable portfolio poses a risk to gross margins in upcoming quarters.
Aurobindo has allocated Rs 7,000 Cr in Capex over the past two years, focusing on areas such as Biosimilars and Pen-G (API). The company’s future valuations will largely hinge on the return on invested capital (ROIC) generated from this significant investment.

◼ Valuation: At the CMP, the stock trades at 21.8x and 19.0x its FY25E and FY26E earnings

Key Financials (Consolidated)