BackAurobindo Q4 growth beats the Street; launches remain key monitorable
The management said it plans to go debt-free by FY22, which seems likely, given the increase in cash flows
PremiumAurobindo Pharma Ltd’s fiscal-fourth quarter earnings were a step ahead of the Street, with revenue and profit showing all-round improvement. The performance helped push its share price up by about 1.2% on Thursday.
Aurobindo’s revenue growth across geographies is encouraging, particularly in the overseas markets. Its US formulations business clocked steady growth of 21% year-on-year in Q4. Of course, some of that could be attributed to a pickup in the oral solids business due to prestocking, with customers increasing their inventory levels.
In its injectables business, the firm saw some decline due to lower surgeries and pricing pressure.The Europe formulations business also saw decent increase of about 26%. Its rest-of-the-world business stood at 30% y-o-y, which was even ahead of the US market. The only disappointment was its active pharma-ingredient division where growth slid by about 18%. Even so, overall revenue grew 16%, about 4-5% ahead of the Street’s estimates.
This decent revenue growth also aided gross margin improvement. The management attributed this to a good product mix and healthy growth within geographies, lower cost of raw material, as well as the rupee depreciation.
While some expenses increased in Q4, research and development expenses were lower. This helped Ebitda margin expand to 21.8%, compared to 20% in the year-ago. Ebitda is earnings before interest, tax, depreciation and amortization.
Nevertheless, with the US contributing nearly half its revenue, new drug launches remain key for growth. The management said it was looking at filing 50-60 products in FY21, of which 26 have already been approved.
Besides, it is addressing US FDA observations on some of its plants, but given the covid-19 pandemic, the inspections have been delayed. Here, any adverse outcome of the regulatory investigations, must be watched.
A significant positive for the company was that it showed healthy improvement in its balance sheet over the last year. It reduced about $87 million debt this quarter, bringing down its overall net debt to about $359 million. This is a big reduction compared to the debt of $724 million at the end of FY19. The management said it was planning to go debt-free by FY22, which seems likely, given the increase in cash flows.
“The company has also been reducing its net debt, so we could see some earnings upgrades come through," said Anshuman Gupta, an analyst at Investec Securities.
Nevertheless, the covid-19 pandemic may cause growth to slow a tad in Q1, while pricing pressures will remain. The stock gained about 66% in 2020; so for now, some of the growth seems to be priced in.
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