Aurobindo Pharma: Going Strong; Going For Growth
We spoke to the Aurobindo Pharma (ARBN) management to get an update on the biz. Besides robust sales growth and operating leverage upside, we expect further progress on supply deals for global markets in FY11. Concerns over debt and equity dilution also appear overdone. Given these and 30% EPS CAGR (FY10-12E), it looks attractive at 9xFY11E EPS and due to re-rate. Buy. Strong FY11 despite Higher Overheads — We expect a scale-up in supply to Pfizer (esp. in Europe) and growing traction in own global operations to drive growth and margins, despite higher overheads on the SEZ (Rs150m/qtr) & CRAMS (Rs100-150m) Execution of some pending orders (1bn tablets on capacity choking at Unit III) would lead to a strong 1Q and, while 2Q may be subdued (overheads on new SEZ), 2H should be healthy, as SEZ sales pick and tax benefits accrue. to make some progress in an effort to gain more large partners. It is in talks with 2-3 global players for similar (albeit at a smaller scale) tie-ups and believes this could bear fruit soon. This would not only add to revenues but also reduce dependence on Pfizer, providing more comfort to investors. further as cash flows & net worth rise. The FCCBs due in Aug 10 (US$23m) are in the money & would add to equity (2.2m shares) on conversion. The FCCBs due in May 11 are out of the money & may see an outflow (cS$200m), if not converted. ARBN will be able to redeem these, if needed, thru internal accruals & an ECB (US$125m) it intends to raise soon. Equity dilution risk appears low. Capex would be limited from here on (cRs5-5.5bn over FY11-12E) & largely funded internally. our coverage universe – an offshoot of its checkered track record & B/S concerns. With the latter receding & clear signs of sustainable earnings momentum, we believe it is only a matter of time before it re-rates to a higher range. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints. Nothing in this article is, or should be construed as, investment advice. |
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