PL Stock Report - Aurobindo Pharma (ARBP IN) - Q2FY24 Result Update - Strong quarter; US to further scale up - Accumulate

Aurobindo Pharma (ARBP IN) – Param Desai – Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: ACCUMULATE | CMP: Rs980 | TP: Rs1,065

Q2FY24 Result Update – Strong quarter; US to further scale up

Quick Pointers:

§ Launched gRevlimid in US in Oct-23.

§ Guided for $90mn run-rate for generic injectables in the US.

Our FY24/25E EPS est. stands increased by ~5% to factor in higher margins and US sales. Aurobindo Pharma’s (ARBP) Q2FY24 EBITDA of Rs14bn (up 22% QoQ) with OPM of 19.4% (up 250 bps QoQ) was 14% above our estimate. We expect margin trajectory to further improve. Pick up in US sales hinge on timely niche approvals along with stabilization of pricing pressure in the base business. We believe ARBP has multiple growth drivers in place with investments in vaccines, injectables, biosimilars and PLI which are expected to be reflected from FY25. At CMP, the stock is trading at 16.5x FY25E P/E. We value company at 16x Sept 2025E EPS and assign a TP of Rs1,065/share (Rs900 earlier). Maintain ‘Accumulate’ rating.

§ Strong revenue across segments: Formulations business witnessed growth of 26% YoY and 5% QoQ at Rs72bn. US revenues ex Puerto Rico was up ~36% YoY. In CC terms US revenues increased by 5% QoQ at $409mn, we est $400mn. Revenues from Eugia Pharma contributed $91mn in Q2. EU sales were up 17% YoY at Rs18bn (in line with our estimates). RoW business grew 25% YoY. ARV formulations increased by 52% YoY. API sales were up by 20% YoY on the back of improved asset utilization and debottlenecking.

§ EBITDA beat est at 19.4%: Gross margins came in higher at 55.2% (up 130bps QoQ) mainly on account of moderation of price erosion and better product mix. R&D spend stood at Rs 3bn (4.2% of revenue), up 9% YoY and down 23% QoQ. EBITDA margins came in at 19.4% (we est 17.8%), up 260bps QoQ aided by better operating leverage. EBITDA came at Rs14bn (up 22% QoQ), vs our estimates of Rs12.3bn. There was forex gain to the tune of Rs298mn. PAT was higher at Rs7.5bn, up 83% YoY vs our est of Rs6.8bn.

§ Key concall takeaways: Global revenues from Eugia Pharma stood at $127mn and guided for $560mn sales in FY24. Price erosion in US was neutral in Q2. Filed 10 ANDAs and launched 19 more including 5 injectables with USFDA in Q2FY24. Launched gRevlimid in Oct’23. Guided for +40 new launches in US over next 12 months. Expect generic injectable to go up from current qtrly level of $81mn to $90mn. R&D cost to inch up to Rs3.5-4bn as clinical trials for next phase starts. Mgmt highlighted that it intends to file its 3 biosimilars Pegfilgrastim, filgrastim & Trastuzumab (breast cancer drug) before Jan’24. Targeted $150mn capex for biosimilars in coming years. Focus on EU business to be more profitable and grow margins in double digit. Guided margins to scale up to 20% in H2FY24 post factoring in gRevlimid launch and higher R&D cost. Total PLI capex spend up $188mn as of Q2FY24 end. Expect Biologics CDMO to get commissioned in FY26. Net cash stands at Rs8.3bn vs Rs16bn as of Q1FY24 end.

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