Q1 recurring net profit of Aurobindo Pharma was up 55% y-o-y to Rs1.1 billion led by revenue growth of 24.8% y-o-y to Rs8.5 billion.
The impressive performance was led by US formulation segment which grew ~3x y-o-y to Rs2.3 billion and licensing fees of Rs430 million. EBITDA margin improved 619bps to 22.9% on favorable revenue mix and depreciation of rupee versus US$.
The stock appears to be attractively valued at 9x FY10E and 7x FY11E earnings respectively.
Aurobindo Pharma trades at ~50% discount to its peers (in Indian generic segment) such as DRL, Sun Pharma and Cipla, which are trading at an average FY11E P/E of 14x.
Positives: 1) attractive valuation, 2) strong performance in the US business with one of the best product pipeline, 3) initiation of revenue from supply arrangements with Pfizer 4) fast changing revenue mix in favor of formulation, and 5) operating margin leverage.
All these factors make Aurobindo an attractive investment opportunity. We maintain BUY rating on the stock.