Aurobindo Pharma has transformed from a low-margin API player to a high-margin formulation player. The company is expected to see net sales and recurring profits grow at a CAGR of 15.6% and 29.1% through FY2012 due to supply agreements with Pfizer and AstraZeneca, growth in the US market, and their ARV formulation business. The report initiates coverage on Aurobindo Pharma with a buy recommendation and a target price of Rs. 1,330, representing growth potential of 18.7%
- Blue Star reported a 22.6% year-over-year increase in quarterly revenue to Rs875 crore, slightly ahead of estimates. Operating margins were in line with estimates at 12.8%.
- The company has shifted its strategic focus from IT/ITeS and retail segments to hospital, hotel, and infrastructure segments, which have longer execution periods.
- Order inflows increased 43% year-over-year to Rs704 crore for the quarter, indicating an improved outlook. The analyst maintains an "Accumulate" rating with a target price of Rs425.
Subros reported a 15.8% jump in net sales to Rs249cr for the fourth quarter of fiscal year 2010, which was in line with expectations. Volume growth of 48.5% and realization growth of 14.2% drove the top-line growth. Net profit spiked to Rs9cr from Rs0.8cr in the prior year quarter due to robust volumes and lower raw material costs. EBITDA margins expanded substantially by 336 basis points year-over-year to 10.5% due to a 724 basis point decline in raw material costs as a percentage of sales. The company is expected to maintain its leadership position in the domestic car air conditioning market.
1) Orchid Chemicals has acquired US-based generic marketing and sales company Karalex Pharma through an all-cash deal estimated between 2-2.5x Price/Sales.
2) The acquisition will help Orchid establish front-end presence in the US market and launch 15 new generic products over the next few years.
3) The deal is expected to contribute $10 million to Orchid's revenue in FY2011 and $15 million in FY2012, while maintaining EBITDA margins of 17-18%.
Bajaj Electricals reported a 19.3% year-over-year increase in quarterly revenue to Rs. 784 crore, slightly ahead of estimates. Revenue growth was driven primarily by the consumer durables division which saw 35.6% growth. However, net profit declined 21.1% to Rs. 37 crore due to additional taxes and a loan write-off. The company maintained a strong order backlog of Rs. 932 crore. While growth outlook remains positive, the analyst maintains a neutral rating given the recent run-up in stock price and expects the stock to trade around 10-12 times estimated earnings.
Polyplex Corporation reported higher-than-estimated quarterly and annual results. Net sales grew 19.4% year-over-year for the quarter and 9.1% for the full year. Quarterly net profit jumped 50.2% year-over-year due to a substantial increase in other income. For the full year, net profit declined 14.9% but was above estimates. The company trades at a discount to its peers and its Thailand subsidiary, despite an estimated 26% earnings CAGR over the next two years. The analyst maintains a "Buy" rating with a target price of Rs418.
HUL reported an 8.2% year-over-year increase in top-line revenue that was in-line with estimates. However, recurring earnings declined 23% due to margin contraction from higher advertising spending and a higher tax rate. Volume growth was positive at 11% but competitive pressures remained high, particularly in core categories like soaps and detergents. While reported earnings grew 47% due to one-time items, recurring earnings fell short of estimates due to margin pressure and taxes. The company maintained its neutral outlook on the stock.
For the first quarter of fiscal year 2011 (1QFY2011):
1) Hero Honda's net sales grew 12% year-over-year to Rs. 4,297 crore, in line with estimates, while operating profit fell 7% and net profit declined 2% due to higher input costs.
2) Operating margins decreased significantly to 14% from 17% in the prior year quarter due to a 345 basis point rise in raw material costs.
3) The analyst maintains revenue growth estimates but revises operating margin forecasts lower to account for pressure from increasing raw material prices.
Cadila Healthcare reported strong quarterly results driven by growth in its export segment, particularly the US and Europe markets. Revenue grew 16% year-over-year led by 42% growth in the US and 50% growth in Europe. Domestic formulations grew modestly by 8%. Net profit more than doubled due to lower interest and tax expenses. For the full year, revenue grew 25% and net profit grew 67%. The company expects 27-28% revenue growth and a 100 basis point increase in operating margins in fiscal year 2011.
- Blue Star reported a 22.6% year-over-year increase in quarterly revenue to Rs875 crore, slightly ahead of estimates. Operating margins were in line with estimates at 12.8%.
- The company has shifted its strategic focus from IT/ITeS and retail segments to hospital, hotel, and infrastructure segments, which have longer execution periods.
- Order inflows increased 43% year-over-year to Rs704 crore for the quarter, indicating an improved outlook. The analyst maintains an "Accumulate" rating with a target price of Rs425.
Subros reported a 15.8% jump in net sales to Rs249cr for the fourth quarter of fiscal year 2010, which was in line with expectations. Volume growth of 48.5% and realization growth of 14.2% drove the top-line growth. Net profit spiked to Rs9cr from Rs0.8cr in the prior year quarter due to robust volumes and lower raw material costs. EBITDA margins expanded substantially by 336 basis points year-over-year to 10.5% due to a 724 basis point decline in raw material costs as a percentage of sales. The company is expected to maintain its leadership position in the domestic car air conditioning market.
1) Orchid Chemicals has acquired US-based generic marketing and sales company Karalex Pharma through an all-cash deal estimated between 2-2.5x Price/Sales.
2) The acquisition will help Orchid establish front-end presence in the US market and launch 15 new generic products over the next few years.
3) The deal is expected to contribute $10 million to Orchid's revenue in FY2011 and $15 million in FY2012, while maintaining EBITDA margins of 17-18%.
Bajaj Electricals reported a 19.3% year-over-year increase in quarterly revenue to Rs. 784 crore, slightly ahead of estimates. Revenue growth was driven primarily by the consumer durables division which saw 35.6% growth. However, net profit declined 21.1% to Rs. 37 crore due to additional taxes and a loan write-off. The company maintained a strong order backlog of Rs. 932 crore. While growth outlook remains positive, the analyst maintains a neutral rating given the recent run-up in stock price and expects the stock to trade around 10-12 times estimated earnings.
Polyplex Corporation reported higher-than-estimated quarterly and annual results. Net sales grew 19.4% year-over-year for the quarter and 9.1% for the full year. Quarterly net profit jumped 50.2% year-over-year due to a substantial increase in other income. For the full year, net profit declined 14.9% but was above estimates. The company trades at a discount to its peers and its Thailand subsidiary, despite an estimated 26% earnings CAGR over the next two years. The analyst maintains a "Buy" rating with a target price of Rs418.
HUL reported an 8.2% year-over-year increase in top-line revenue that was in-line with estimates. However, recurring earnings declined 23% due to margin contraction from higher advertising spending and a higher tax rate. Volume growth was positive at 11% but competitive pressures remained high, particularly in core categories like soaps and detergents. While reported earnings grew 47% due to one-time items, recurring earnings fell short of estimates due to margin pressure and taxes. The company maintained its neutral outlook on the stock.
For the first quarter of fiscal year 2011 (1QFY2011):
1) Hero Honda's net sales grew 12% year-over-year to Rs. 4,297 crore, in line with estimates, while operating profit fell 7% and net profit declined 2% due to higher input costs.
2) Operating margins decreased significantly to 14% from 17% in the prior year quarter due to a 345 basis point rise in raw material costs.
3) The analyst maintains revenue growth estimates but revises operating margin forecasts lower to account for pressure from increasing raw material prices.
Cadila Healthcare reported strong quarterly results driven by growth in its export segment, particularly the US and Europe markets. Revenue grew 16% year-over-year led by 42% growth in the US and 50% growth in Europe. Domestic formulations grew modestly by 8%. Net profit more than doubled due to lower interest and tax expenses. For the full year, revenue grew 25% and net profit grew 67%. The company expects 27-28% revenue growth and a 100 basis point increase in operating margins in fiscal year 2011.
HUL reported disappointing 1QFY2011 results, with profits declining 4% due to a 34% rise in advertising spending. While revenue grew 7% driven by 11% volume growth, operating margins contracted significantly by 289 basis points. Higher competitive intensity in categories like detergents and soaps drove the increase in advertising. Weak profit growth and uncertain earnings outlook despite modest revenue growth lead us to maintain a reduce rating on the stock.
For 4QFY2010, Motherson Sumi Systems reported revenues of Rs. 2,028 crore, up 140.5% over the previous year, exceeding expectations. Net profit increased 84.5% to Rs. 141.9 crore due to favorable currency movements and lower raw material costs. The company saw improved margins both year-over-year and quarter-over-quarter due to higher operating efficiencies. On a standalone basis, revenue grew 69.9% while net profit increased 242.3% for the quarter.
Hindalco reported strong results for the first quarter of fiscal year 2011. Revenue grew 29.2% year-over-year to Rs. 2,533 crore, driven by a 12.7% increase in aluminum shipments. Adjusted EBITDA more than doubled to Rs. 263 crore, resulting in adjusted EBITDA margins of 10.4%. However, net profit declined 65% to Rs. 50 crore due to higher interest and tax expenses. Management expects continued growth in demand and benefits from capacity expansions. The stock currently trades at attractive valuations and the analyst maintains a Buy rating with a target price of Rs. 204.
Shoppers stop result update 4 qfy2010 040510Angel Broking
Shoppers' Stop reported a 23.1% year-over-year growth in net sales to Rs388.8 crore for the fourth quarter of FY2010. Operating margins expanded substantially by 490 basis points to 6.2% due to cost rationalization measures. Net profit was Rs12.6 crore compared to a loss of Rs24.5 crore in the prior year quarter. For the full year FY2010, net sales grew 11.4% while operating margins improved 600 basis points and the company reported a profit versus a loss in the previous year. While growth prospects remain positive, the analyst recommends a Neutral rating given rich valuations.
Anant Raj Industries' (ARIL) 4QFY2010 results were below expectations due to a delay in launching a premium residential project. Rental income grew 10.6% but profit fell 53.9% quarter-over-quarter. The analyst downgraded earnings estimates for FY2011-FY2012 to account for the delayed project launch. However, ARIL has a strong development pipeline and the analyst maintains a Buy rating due to ARIL's low-cost land bank and strong balance sheet.
GlaxoSmithKline Pharmaceuticals reported financial results for the first quarter of 2010 that were ahead of estimates. Net sales increased 18.4% year-over-year to Rs541.1 crore, driven by growth in the vaccine and dermatology segments. Operating margin expanded to 37% from 36% in the prior year quarter due to an improved product mix. Net profit grew 12.6% to Rs161.2 crore. The analyst maintains a "Reduce" rating on the stock and sets a target price of Rs1,700, citing rich valuations of 29.1 times estimated 2010 earnings.
- Dishman reported 1QFY2011 results which were primarily in line with estimates, boosted by higher other income. Net sales were down 11.3% YoY due to subdued CRAMS segment performance.
- Operating profit margin contracted 140bps to 22% due to sales de-growth. However, net profit was maintained due to higher other income.
- The company maintained FY2011 guidance of 15-20% top-line growth and 25% operating margin, expecting a robust second half of FY2011.
Bajaj Auto reported strong results for the first quarter of fiscal year 2011. The company's top line was marginally above expectations, driven by a 70% year-over-year increase in total volumes. EBITDA margins expanded slightly by 50 basis points year-over-year to 20%. Net profit increased 101% year-over-year to Rs590 crore, beating estimates, aided by higher other income and improved operating leverage. Overall, robust volume growth and margin expansion led to better-than-expected financial performance during the quarter.
Godrej Consumer Products reported strong revenue growth of 48.1% for the fourth quarter, driven primarily by the consolidation of Godrej Sara Lee. However, excluding this contribution, domestic growth was a disappointing 5.3%. Earnings growth of 54.6% was boosted by margin expansion but adjusted earnings grew only 16% excluding Godrej Sara Lee. While international operations grew robustly, growth in the core domestic business of soaps and hair colors slowed. The brokerage maintains an 'Accumulate' rating based on Godrej's wider portfolio and potential for acquisitions but expects growth to moderate going forward.
Dishman Pharmaceuticals reported subdued quarterly results, with net sales down 15.2% and operating margins down 350 basis points due to higher material costs. Recurring net profit declined 72.1% for the quarter. However, for fiscal year 2011 the company has guided for 20% revenue growth and operating margins of 25%.
Deccan Chronicle Holdings reported quarterly results below estimates due to political unrest in Andhra Pradesh. Revenue grew 6.3% year-over-year to Rs191.7 crore, below estimates, due to weak circulation and advertising revenue. Earnings declined 20.2% to Rs6.5 crore due to lower revenue and higher taxes, despite gross margin expansion from lower paper costs. The analyst maintains a Buy rating but lowers revenue and earnings estimates and the target price to Rs193 per share based on discounted valuation of the print business and IPL team.
GlaxoSmithKline Pharma reported lower-than-expected 2QCY2010 results with net sales of Rs. 498 cr, up 8.9% YoY, and net profit of Rs. 129 cr, up 3.7% YoY. Sales were impacted by supply constraints in the vaccine segment. While operating margins improved, other income declined by 28.9% YoY. Given the company's rich valuations trading at 31.5x CY2010 earnings, Angel Research maintains a Sell rating with a target price of Rs. 1,700.
DLF reported 4QFY2010 results that were marginally below expectations due to higher interest and tax expenses. The merger with DAL and purchase of preference shares from SC Asia will increase net debt to 0.65-0.75x in 1QFY2011 from the current 0.53x. Strong volume guidance of 15-18mn sq ft is given for FY2011. The analyst maintains a Neutral rating and says the stock's performance depends on reducing debt levels through non-core asset sales and commercial segment recovery.
Pratibha ind Result Update 4 qfy2010-110510Angel Broking
Pratibha Industries reported financial results for the fourth quarter of fiscal year 2010 that were in line with expectations. Operating margins improved significantly due to a reduction in raw material costs, boosting the bottom line. However, the company paid taxes at the marginal rate rather than claiming tax benefits. While the results were decent, the analyst maintains a neutral outlook on the stock given that positives are already reflected in the price.
Bayer CropScience reported disappointing 1QFY2011 results with 20% revenue growth and an 8% decline in profit. EBITDA margin contracted to 11% from 14% due to a 358 basis point drop in gross margins. While the company is expected to benefit from high commodity prices, its stock price is nearing the analyst's revised target valuation after recent gains. The analyst maintains a Neutral rating.
Nestle reported a 21% increase in revenue for the second quarter driven by 20% growth in domestic sales and 36% growth in exports. However, earnings grew at a slower 12% due to a contraction in operating margins from rising input costs and increased spending on marketing. The analyst downgraded the stock to Reduce due to concerns over margin pressure and high valuations leaving little room for negative surprises. Top-line growth was robust due to increased sales volumes and limited price increases while exports picked up on higher sales to Russia.
Reliance Industries reported lower-than-expected quarterly results, with profits impacted by lower-than-expected refining margins. Revenue grew 120.7% year-over-year primarily due to higher refining revenues, but margins were lower than estimates. While volume growth was strong, profitability was hurt by refining margins of $7.5/bbl compared to an estimated $8.5/bbl. The analyst maintains a buy rating due to expectations for margin improvement and inorganic growth opportunities.
For the fourth quarter of fiscal year 2010, Hero Honda reported a 20% year-over-year growth in net sales and a 49% surge in net profit, exceeding expectations. Top-line growth was driven by an 18.9% rise in volumes while bottom-line growth benefited from lower raw material costs and improved operating leverage. Going forward, the company expects to maintain its market share through new motorcycle launches but notes its domestic market share has declined in fiscal year 2010.
Motherson Sumi Systems (MSSL) reported a 32% year-over-year increase in net sales to Rs. 1,905 crores for the first quarter of fiscal year 2011, below expectations. Operating margins increased 370 basis points year-over-year to 9.8% but fell short of expectations and declined sequentially. Net profit for the quarter came in below expectations at Rs. 60 crores due to lower-than-expected revenue growth and margins. Management indicated input costs and currency impacts would be gradually passed on to customers, and the analyst maintains an 'Accumulate' rating while lowering the target price.
Pantaloon Retail reported a 25.3% year-over-year growth in net sales to Rs. 2,057.6 crore for the third quarter of fiscal year 2010, below expectations of 30.2% growth. Same store sales growth was 13.9% and 13.2% for value and lifestyle retailing respectively. Operating margins remained flat at 10.5% while net profit grew 62.7% to Rs. 55.9 crore due to sales growth and unchanged interest costs. The analyst maintains an accumulate rating and target price of Rs. 469 based on retail space expansion, revival in consumer sentiment, and organizational restructuring.
HUL reported an 8.2% year-over-year increase in top-line revenue that was in-line with estimates. However, recurring earnings declined 23% due to margin contraction from higher advertising spending and a higher tax rate. Volume growth was positive at 11% but competitive pressures remained high, particularly in core categories like soaps and detergents. While reported earnings grew 47% aided by one-time items, recurring earnings fell short of estimates due to margin pressure and taxes. The company maintained its neutral outlook on the stock.
GIPCL posted a 23.1% year-over-year increase in net profit to Rs36cr for the fourth quarter of fiscal year 2010, in line with estimates. The growth was aided by a 15.5% decline in fuel costs due to increased gas availability and lower interest and tax expenses. While net sales declined 12.4% to Rs254cr, operating profit fell 13.3% to Rs62cr. The company maintained its expansion plans and guidance. At a share price of Rs110, GIPCL is trading at an attractive valuation compared to its peers.
HUL reported disappointing 1QFY2011 results, with profits declining 4% due to a 34% rise in advertising spending. While revenue grew 7% driven by 11% volume growth, operating margins contracted significantly by 289 basis points. Higher competitive intensity in categories like detergents and soaps drove the increase in advertising. Weak profit growth and uncertain earnings outlook despite modest revenue growth lead us to maintain a reduce rating on the stock.
For 4QFY2010, Motherson Sumi Systems reported revenues of Rs. 2,028 crore, up 140.5% over the previous year, exceeding expectations. Net profit increased 84.5% to Rs. 141.9 crore due to favorable currency movements and lower raw material costs. The company saw improved margins both year-over-year and quarter-over-quarter due to higher operating efficiencies. On a standalone basis, revenue grew 69.9% while net profit increased 242.3% for the quarter.
Hindalco reported strong results for the first quarter of fiscal year 2011. Revenue grew 29.2% year-over-year to Rs. 2,533 crore, driven by a 12.7% increase in aluminum shipments. Adjusted EBITDA more than doubled to Rs. 263 crore, resulting in adjusted EBITDA margins of 10.4%. However, net profit declined 65% to Rs. 50 crore due to higher interest and tax expenses. Management expects continued growth in demand and benefits from capacity expansions. The stock currently trades at attractive valuations and the analyst maintains a Buy rating with a target price of Rs. 204.
Shoppers stop result update 4 qfy2010 040510Angel Broking
Shoppers' Stop reported a 23.1% year-over-year growth in net sales to Rs388.8 crore for the fourth quarter of FY2010. Operating margins expanded substantially by 490 basis points to 6.2% due to cost rationalization measures. Net profit was Rs12.6 crore compared to a loss of Rs24.5 crore in the prior year quarter. For the full year FY2010, net sales grew 11.4% while operating margins improved 600 basis points and the company reported a profit versus a loss in the previous year. While growth prospects remain positive, the analyst recommends a Neutral rating given rich valuations.
Anant Raj Industries' (ARIL) 4QFY2010 results were below expectations due to a delay in launching a premium residential project. Rental income grew 10.6% but profit fell 53.9% quarter-over-quarter. The analyst downgraded earnings estimates for FY2011-FY2012 to account for the delayed project launch. However, ARIL has a strong development pipeline and the analyst maintains a Buy rating due to ARIL's low-cost land bank and strong balance sheet.
GlaxoSmithKline Pharmaceuticals reported financial results for the first quarter of 2010 that were ahead of estimates. Net sales increased 18.4% year-over-year to Rs541.1 crore, driven by growth in the vaccine and dermatology segments. Operating margin expanded to 37% from 36% in the prior year quarter due to an improved product mix. Net profit grew 12.6% to Rs161.2 crore. The analyst maintains a "Reduce" rating on the stock and sets a target price of Rs1,700, citing rich valuations of 29.1 times estimated 2010 earnings.
- Dishman reported 1QFY2011 results which were primarily in line with estimates, boosted by higher other income. Net sales were down 11.3% YoY due to subdued CRAMS segment performance.
- Operating profit margin contracted 140bps to 22% due to sales de-growth. However, net profit was maintained due to higher other income.
- The company maintained FY2011 guidance of 15-20% top-line growth and 25% operating margin, expecting a robust second half of FY2011.
Bajaj Auto reported strong results for the first quarter of fiscal year 2011. The company's top line was marginally above expectations, driven by a 70% year-over-year increase in total volumes. EBITDA margins expanded slightly by 50 basis points year-over-year to 20%. Net profit increased 101% year-over-year to Rs590 crore, beating estimates, aided by higher other income and improved operating leverage. Overall, robust volume growth and margin expansion led to better-than-expected financial performance during the quarter.
Godrej Consumer Products reported strong revenue growth of 48.1% for the fourth quarter, driven primarily by the consolidation of Godrej Sara Lee. However, excluding this contribution, domestic growth was a disappointing 5.3%. Earnings growth of 54.6% was boosted by margin expansion but adjusted earnings grew only 16% excluding Godrej Sara Lee. While international operations grew robustly, growth in the core domestic business of soaps and hair colors slowed. The brokerage maintains an 'Accumulate' rating based on Godrej's wider portfolio and potential for acquisitions but expects growth to moderate going forward.
Dishman Pharmaceuticals reported subdued quarterly results, with net sales down 15.2% and operating margins down 350 basis points due to higher material costs. Recurring net profit declined 72.1% for the quarter. However, for fiscal year 2011 the company has guided for 20% revenue growth and operating margins of 25%.
Deccan Chronicle Holdings reported quarterly results below estimates due to political unrest in Andhra Pradesh. Revenue grew 6.3% year-over-year to Rs191.7 crore, below estimates, due to weak circulation and advertising revenue. Earnings declined 20.2% to Rs6.5 crore due to lower revenue and higher taxes, despite gross margin expansion from lower paper costs. The analyst maintains a Buy rating but lowers revenue and earnings estimates and the target price to Rs193 per share based on discounted valuation of the print business and IPL team.
GlaxoSmithKline Pharma reported lower-than-expected 2QCY2010 results with net sales of Rs. 498 cr, up 8.9% YoY, and net profit of Rs. 129 cr, up 3.7% YoY. Sales were impacted by supply constraints in the vaccine segment. While operating margins improved, other income declined by 28.9% YoY. Given the company's rich valuations trading at 31.5x CY2010 earnings, Angel Research maintains a Sell rating with a target price of Rs. 1,700.
DLF reported 4QFY2010 results that were marginally below expectations due to higher interest and tax expenses. The merger with DAL and purchase of preference shares from SC Asia will increase net debt to 0.65-0.75x in 1QFY2011 from the current 0.53x. Strong volume guidance of 15-18mn sq ft is given for FY2011. The analyst maintains a Neutral rating and says the stock's performance depends on reducing debt levels through non-core asset sales and commercial segment recovery.
Pratibha ind Result Update 4 qfy2010-110510Angel Broking
Pratibha Industries reported financial results for the fourth quarter of fiscal year 2010 that were in line with expectations. Operating margins improved significantly due to a reduction in raw material costs, boosting the bottom line. However, the company paid taxes at the marginal rate rather than claiming tax benefits. While the results were decent, the analyst maintains a neutral outlook on the stock given that positives are already reflected in the price.
Bayer CropScience reported disappointing 1QFY2011 results with 20% revenue growth and an 8% decline in profit. EBITDA margin contracted to 11% from 14% due to a 358 basis point drop in gross margins. While the company is expected to benefit from high commodity prices, its stock price is nearing the analyst's revised target valuation after recent gains. The analyst maintains a Neutral rating.
Nestle reported a 21% increase in revenue for the second quarter driven by 20% growth in domestic sales and 36% growth in exports. However, earnings grew at a slower 12% due to a contraction in operating margins from rising input costs and increased spending on marketing. The analyst downgraded the stock to Reduce due to concerns over margin pressure and high valuations leaving little room for negative surprises. Top-line growth was robust due to increased sales volumes and limited price increases while exports picked up on higher sales to Russia.
Reliance Industries reported lower-than-expected quarterly results, with profits impacted by lower-than-expected refining margins. Revenue grew 120.7% year-over-year primarily due to higher refining revenues, but margins were lower than estimates. While volume growth was strong, profitability was hurt by refining margins of $7.5/bbl compared to an estimated $8.5/bbl. The analyst maintains a buy rating due to expectations for margin improvement and inorganic growth opportunities.
For the fourth quarter of fiscal year 2010, Hero Honda reported a 20% year-over-year growth in net sales and a 49% surge in net profit, exceeding expectations. Top-line growth was driven by an 18.9% rise in volumes while bottom-line growth benefited from lower raw material costs and improved operating leverage. Going forward, the company expects to maintain its market share through new motorcycle launches but notes its domestic market share has declined in fiscal year 2010.
Motherson Sumi Systems (MSSL) reported a 32% year-over-year increase in net sales to Rs. 1,905 crores for the first quarter of fiscal year 2011, below expectations. Operating margins increased 370 basis points year-over-year to 9.8% but fell short of expectations and declined sequentially. Net profit for the quarter came in below expectations at Rs. 60 crores due to lower-than-expected revenue growth and margins. Management indicated input costs and currency impacts would be gradually passed on to customers, and the analyst maintains an 'Accumulate' rating while lowering the target price.
Pantaloon Retail reported a 25.3% year-over-year growth in net sales to Rs. 2,057.6 crore for the third quarter of fiscal year 2010, below expectations of 30.2% growth. Same store sales growth was 13.9% and 13.2% for value and lifestyle retailing respectively. Operating margins remained flat at 10.5% while net profit grew 62.7% to Rs. 55.9 crore due to sales growth and unchanged interest costs. The analyst maintains an accumulate rating and target price of Rs. 469 based on retail space expansion, revival in consumer sentiment, and organizational restructuring.
HUL reported an 8.2% year-over-year increase in top-line revenue that was in-line with estimates. However, recurring earnings declined 23% due to margin contraction from higher advertising spending and a higher tax rate. Volume growth was positive at 11% but competitive pressures remained high, particularly in core categories like soaps and detergents. While reported earnings grew 47% aided by one-time items, recurring earnings fell short of estimates due to margin pressure and taxes. The company maintained its neutral outlook on the stock.
GIPCL posted a 23.1% year-over-year increase in net profit to Rs36cr for the fourth quarter of fiscal year 2010, in line with estimates. The growth was aided by a 15.5% decline in fuel costs due to increased gas availability and lower interest and tax expenses. While net sales declined 12.4% to Rs254cr, operating profit fell 13.3% to Rs62cr. The company maintained its expansion plans and guidance. At a share price of Rs110, GIPCL is trading at an attractive valuation compared to its peers.
Indoco Remedies reported lower-than-expected 1QFY2011 results due to weaker-than-expected domestic formulation sales and lower other operating income. Net sales grew 13.3% to Rs111 crore while net profit declined 12.2% to Rs15 crore. Operating margins contracted to 15.8% due to higher raw material costs. For FY2011, the company reiterated guidance of 20-25% domestic sales growth and 30-35% export sales growth, implying overall revenue growth of 21-26% and operating margins of 18-19%. The analyst maintains a Buy rating with a target price of Rs541, expecting strong long-term growth drivers.
1) Orchid Chemicals has acquired US-based generic marketing and sales company Karalex Pharma through an all-cash deal estimated between 2-2.5x Price/Sales.
2) The acquisition will help Orchid establish front-end presence in the US market and launch 15 new generic products over the next few years.
3) The deal is expected to contribute $10 million to Orchid's revenue in FY2011 and $15 million in FY2012, while maintaining EBITDA margins of 17-18%.
1) HCC reported a 13.6% increase in net sales to Rs.995.4 crore for 1QFY2011, in line with Angel Research estimates. Operating profit grew 9.3% to Rs.125.8 crore.
2) Net profit increased 55.6% to Rs.28.3 crore, marginally ahead of estimates due to higher operating margins and lower taxes.
3) Angel Research maintains a Neutral view on HCC, valuing it at Rs.126/share on an SOTP basis, with limited upside from current levels given its valuation of 36.5x FY2012 EPS.
- Greenply Industries reported a 54.6% year-over-year increase in standalone quarterly revenue to Rs259 crore, exceeding estimates, driven by higher capacity utilization and realizations in plywood and laminates.
- Net profit increased 54.7% to Rs13.3 crore, also ahead of estimates, due to lower interest and depreciation expenses.
- The report maintains a buy recommendation, as the company is well-positioned to benefit from capacity expansions in laminates and a new MDF plant, while its stock trades at a discount to earnings estimates.
Rallis India reported a 14% increase in sales and 151% increase in profits for the fourth quarter of fiscal year 2010, in line with analyst estimates. Strong demand from farmers during the Rabi season and a 1000 basis point expansion in operating margins from 10% to 20% drove results. For the full fiscal year, Rallis saw a path-breaking performance with net sales growth of 5.2% and profit growth of 45.9% despite a drought in India and lower export prices for commodities. Going forward, analysts expect continued strong growth over the next few years supported by high agro-commodity prices and the upcoming commissioning of a new export facility.
Jain Irrigation Systems reported financial results for the fourth quarter of fiscal year 2010 that were ahead of estimates. Revenue grew 37% year-over-year driven by strong growth in the micro irrigation systems segment. Net profit increased significantly due to foreign exchange gains, while adjusted net profit grew 40% on higher sales and stable margins. However, margins were slightly lower than the previous year due to higher raw material costs for onions. While growth is expected to continue across segments, the stock price is nearing fair value, leading to a downgrade from "Buy" to "Accumulate."
TVS Motor reported a 41% increase in net sales for the first quarter of fiscal year 2011 compared to the same period last year, driven by a 33% rise in total volumes. However, operating profit was slightly below expectations due to lower-than-expected operating margins. While earnings grew substantially year-over-year due to margin expansion and lower taxes, the report maintains a neutral rating on the stock given its recent price increase. Future performance will depend on consistent volume growth, improved market share, and higher margins.
Dabur reported a 16% year-over-year growth in top-line revenue for the fourth quarter of FY2010, below estimates. Earnings grew 30% year-over-year, above estimates, driven by higher gross margins and lower expenses. While top-line growth was lower than expected, strong operating performance from margin expansion led to earnings beating estimates. Going forward, the company expects input costs to remain low, though it maintains a neutral outlook on the stock given its recent run-up in price.
1) For 1QFY2011, Punj Lloyd posted disappointing results with net sales declining 41.7% year-over-year. Operating profits declined 56.1% and the company reported a net loss of Rs 30.6 crore.
2) The top-line was lower than expected, leading the company to downgrade its FY2011 and FY2012 revenue estimates. Problem orders like Ensus and Heera are now out of the picture.
3) While past performance was weak, the outlook is more positive as slow-moving orders have picked up and most challenges are now behind the company. With many negatives priced in, the analyst maintains a "Buy" rating on expectations of improved performance in F
GIPCL reported a 42.3% year-over-year increase in net profit to Rs42cr for the first quarter of fiscal year 2011, despite flat revenues. The bottom line growth was driven by lower tax expenses from tax refunds received for prior years. Operating profit grew 3.3% to Rs64cr on better realizations. The company maintains a buy rating with a target price of Rs135, expecting revenue and profit to grow at a CAGR of 32.5% and 28.3% through fiscal year 2012 driven by new plant capacity additions.
Indoco Remedies reported financial results for 4QFY2010 that were above estimates. Net sales grew 28% year-over-year to Rs108.9 crore, driven by 24.5% domestic growth and 34.2% export growth. Operating margins of 10.1% were below expectations due to higher raw material costs. Net profit doubled to Rs8.2 crore. For FY2011, the company plans Rs95 crore in capital expenditures and expects sales growth of 14-28% and operating margins of 18-19%. The analyst maintains a Buy rating with a target price of Rs487.
Blue Star reported a 25.2% year-over-year increase in net sales for the first quarter of fiscal year 2011, though margins declined and profit fell. While sales grew across all segments, higher input costs and lower commission income caused operating margins to drop 281 basis points year-over-year to 9.2%. Net profit declined 10% year-over-year due to the margin pressure and a change in accounting policy. However, the company's order backlog grew nearly 15% and the outlook for large orders remains positive.
Exide Industries reported a 35.1% increase in net profit for 1QFY2011 compared to the previous year. Net sales grew 27.5% year-over-year to Rs1,152 crore, exceeding estimates. Earnings before interest, taxes, depreciation, and amortization margins improved from the previous quarter due to a decline in other expenditures. The analyst maintains an "Accumulate" rating for Exide Industries due to reasonable valuations and expects net sales and profit to grow annually over the next two years.
Rallis India reported 1QFY2011 results that were below expectations due to lower-than-estimated EBITDA margins of 11.6%, despite revenue growth of 21.8% that exceeded estimates. While revenue growth was driven by strong domestic demand and export revival, higher other expenses restricted improvement in operating margins. Looking ahead, management expects industry growth of 10-12% in FY2011 on expectations of normal monsoons, and the company is positioned to outpace industry growth. However, the brokerage maintains a Neutral rating given margins were below estimates and the stock is trading at fair valuations.
Hindustan Construction Company (HCC) reported a 10.8% increase in net sales for the fourth quarter of fiscal year 2010, in line with estimates. However, operating margins of 11.3% disappointed due to four projects not reaching revenue recognition thresholds. While interest costs decreased by 31.8% year-over-year, net profit declined 16.3% due to lower operating margins. The analyst maintains a neutral outlook on HCC stock due to trimmed earnings estimates for fiscal years 2011-2012 but sees potential upside from the planned listing of HCC's Lavasa subsidiary.
Exide Industries reported a 35.1% increase in net profit for the first quarter of fiscal year 2011. Net sales grew 27.5% due to a substantial increase in both original equipment and replacement auto battery sales. While raw material costs increased, operating margins improved on a quarter-over-quarter basis due to a decline in other expenditures and average lead prices. The analyst maintains an "Accumulate" rating for Exide Industries due to reasonable valuations and expectations for continued double-digit revenue and earnings growth over the next two fiscal years.
The Indian markets are expected to open higher, tracking gains in most Asian markets. Spain has asked for a bailout of up to €100 billion for its banking system. Chinese exports grew more than expected in May. In India, shares extended gains for a fifth session despite weak global cues as major central banks held off on additional stimulus. The key support and resistance levels for the Nifty are 5,023 and 5,114 respectively. L&T has bagged orders worth Rs. 483 crore to build commercial vessels in Qatar. Vedanta Resources has acquired a 24.5% stake in Raykal Aluminium for Rs. 201 crore.
Axis Bank reported a 27.0% year-over-year increase in net profit to Rs. 942 crore for the first quarter of fiscal year 2012, in line with analyst estimates. Business growth momentum slowed as advances declined 7.4% quarter-over-quarter and deposits fell 3.0% quarter-over-quarter, moderating the bank's cash-deposit ratio to 40.5% from 41.1% last quarter. However, asset quality remained healthy with slippage ratio declining to 0.8% and gross and net NPA ratios stable.
1) For 1QFY2012, Electrosteel Castings reported 16.4% sales growth but margins declined due to higher raw material costs. EBITDA fell 18.2% and net profit declined 7.2%.
2) While sales volumes grew, costs increased more due to a rise in raw material costs as a percentage of sales.
3) The company maintains a buy recommendation due to initiatives in steelmaking and backward integration that should lower costs starting in FY2013 and valuation remains attractive.
1) For 1QFY2012, Persistent Systems reported revenues of ₹224 crore, up 5.2% over the previous quarter and 23.6% over the same period last year.
2) EBITDA was ₹40 crore, up 5.3% over the previous quarter but margins declined.
3) PAT was ₹28 crore, down 16.8% over the previous quarter due to higher taxes.
4) Management maintained revenue guidance of 29% growth for FY2012 and expects PAT to remain flat despite higher tax rates.
HT Media reported a 22.7% year-over-year increase in revenue to ₹494 crore for the first quarter of FY2012. Revenue was also up 5.8% quarter-over-quarter. Advertising revenue grew 17% year-over-year, with 18% growth in English and 15% growth in Hindi. Operating profit rose 11.8% year-over-year to ₹87.8 crore due to higher other income and lower tax rates, although operating margins contracted by 174 basis points. The company maintained its Accumulate rating based on expectations of continued revenue growth and margin expansion.
The summary is:
1) The derivative report analyzes the performance of the Nifty futures, options, and key stocks from the previous trading session on July 18, 2011.
2) It provides details on changes in open interest, premium levels, volatility, and turnover for various derivatives contracts.
3) Trading strategies and technical analysis is also given for some stocks along with risk-reward profiles of sample spreads trades for the Nifty.
The market ended lower, with the Sensex and Nifty closing down 0.3%. Mid- and small-cap indices closed higher. Select heavyweights like Hindalco Industries and BHEL gained 1-3%, while TCS and Tata Motors lost 1-2%. In corporate news, Motherson Sumi Systems agreed to acquire an 80% stake in Peguform for €141.5 million. HDFC Bank, Cadila Healthcare, Crompton Greaves, and Ashok Leyland are scheduled to announce their quarterly results. The trend for the day will be decided by whether Nifty trades above or below the levels of 18,533/5,572 in early trade.
- GSM subscriber additions in India continued their declining trend in June 2011, with net additions of 9.6 million, down 10% from the previous month.
- All major operators except BSNL reported a drop in subscriber additions. Bharti and Vodafone each added 2.1 million subscribers.
- The total GSM subscriber base reached 598.8 million in June 2011, with Bharti, Vodafone, Idea and BSNL maintaining their major market shares.
The document provides a technical analysis of the Indian stock market indices Sensex and Nifty for the week of July 16, 2011. It summarizes that the indices declined over 1.5% for the week and are currently trading in a range between 18,326/5496 on the downside and 19,132/5740 on the upside. It notes that a break above or below this range would dictate the direction of the upcoming trend. The analysis also lists pivot levels for 50 Nifty stocks to watch in the coming week.
The document provides a summary of derivative market activity in India for July 18, 2011. Key points include:
- Nifty futures open interest increased 0.67% while Mini Nifty increased 3.48% as the market closed at 5581.10
- Nifty July futures closed at a premium of 5.85 points and August futures at a premium of 22.60 points
- Implied volatility of at-the-money options decreased from 18% to 17.3%
- Total open interest in the market was Rs. 135,158 crore with stock futures open interest at Rs. 34,675 crore.
The indices opened flat but traded choppily throughout the day. Metal, auto and realty stocks declined while IT stocks gained. The indices are currently trading in a range between 18,326-18,810/5496-5653 on the downside and 19,132-19,094/5740-5700 on the upside. A break above these resistance levels could lead to further gains while a break below support could result in losses extending to 17,805-17,950/5350-5400. Pivot levels for 50 Nifty stocks are provided.
- The key Indian stock indices declined slightly, with the Sensex and Nifty closing down 0.3%.
- GSM subscriber additions in India continued their declining trend in June across most major operators such as Idea, Bharti Airtel, and Vodafone. Total GSM subscriber addition was 9.6 million, down 10% from the previous month.
- Tata Motors reported flat annual global sales growth in June 2011 compared to the previous year.
- South Indian Bank reported a 41.2% year-over-year increase in net profit to Rs. 82 crores for the first quarter of fiscal year 2012, slightly below analyst estimates.
- Business growth remained strong, with advances growth of 31.2% and deposits growth of 35.5% year-over-year. However, net interest margins compressed by 29 basis points sequentially to 2.8% due to a sharp rise in the bank's cost of deposits.
- Non-interest income was boosted by treasury gains, but fee income growth was modest. Asset quality was stable with gross and net NPAs rising marginally, and provision coverage at a comfortable 73.1%.
Bajaj Auto reported marginally lower-than-expected results for the first quarter of fiscal year 2012, with net sales growth of 22.8% year-over-year driven by a 17.7% increase in volumes. However, operating margins contracted by 145 basis points quarter-over-quarter to 19.1% due to a 150 basis point increase in raw material costs. As a result, net profit grew by 20.5% year-over-year to ₹711 crore, which was slightly below analyst estimates. Going forward, the analyst expects further margin pressure and has revised downward its earnings estimates for fiscal years 2012 and 2013 to factor in higher raw material costs and changes to export incentives.
1) Tata Consultancy Services (TCS) reported strong results for the first quarter of fiscal year 2012, outperforming expectations with revenue growth of 6.3% over the previous quarter and 31.4% over the same quarter of the previous fiscal year.
2) A key highlight was 7.4% quarter-over-quarter growth in business volumes. While profit margins declined due to wage hikes, net profit remained flat due to foreign exchange gains.
3) Management maintained a positive outlook, highlighting strong demand environment and deal pipeline, and expects pricing increases later in the fiscal year.
The document summarizes the Indian stock market outlook and performance on July 15, 2011. It reports that domestic indices closed with modest gains of 0.1-0.4%, while global indices declined. Wholesale price inflation in India rose to 9.44% in June 2011, above estimates and persisting above 9% for seven months, driven by increases in primary articles and fuel costs. Key benchmark levels are identified for determining if the market may continue rallying or correct in the near term.
The summary is:
1) The derivative report analyzes the movement in Nifty futures, options, and individual stocks between July 14-15, 2011.
2) Nifty futures open interest decreased while mini Nifty open interest increased as the market closed at 5599.80.
3) Implied volatility of at-the-money options increased from 17.6% to 18%.
The Sensex and Nifty indices opened lower and traded with volatility, closing marginally lower. On the sectoral front, Realty, Banks and Healthcare gained while IT and FMCG fell. The advance-decline ratio favored advancing stocks. On the daily chart, prices tested but did not close above the downward gap area of 18,679-18,589/5,601-5,580 levels. Immediate resistance is seen at 18,735/5,633, while 18,449/5,541 is crucial support.
1) Infosys reported modest revenue growth of 3.2% qoq for 1QFY2012. EBITDA and margins declined due to wage hikes.
2) Guidance for 2QFY2012 revenue growth was lower than expected at 3.5-5% qoq. Annual revenue growth guidance was unchanged.
3) The analyst revised EPS estimates down and cut the target price to INR 3,200 due to macro concerns and muted guidance.
This document summarizes a derivative report from India Research dated July 13, 2011. Some key points:
- The Nifty futures open interest increased 0.51% while Minifty futures open interest rose 8.2% as the market closed at 5526.15.
- Implied volatility of at-the-money options increased from 18% to 19.75%. PCR-OI decreased from 1.20 to 1.15.
- Total open interest of the market is Rs. 125,816 crore and stock futures open interest is Rs. 33,500 crore.
- FII were net sellers of Rs. 969 crore in the cash market segment. Put-call
The Universal Account Number (UAN) by EPFO centralizes multiple PF accounts, simplifying management for Indian employees. It streamlines PF transfers, withdrawals, and KYC updates, providing transparency and reducing employer dependency. Despite challenges like digital literacy and internet access, UAN is vital for financial empowerment and efficient provident fund management in today's digital age.
Enhancing Asset Quality: Strategies for Financial Institutionsshruti1menon2
Ensuring robust asset quality is not just a mere aspect but a critical cornerstone for the stability and success of financial institutions worldwide. It serves as the bedrock upon which profitability is built and investor confidence is sustained. Therefore, in this presentation, we delve into a comprehensive exploration of strategies that can aid financial institutions in achieving and maintaining superior asset quality.
5 Tips for Creating Standard Financial ReportsEasyReports
Well-crafted financial reports serve as vital tools for decision-making and transparency within an organization. By following the undermentioned tips, you can create standardized financial reports that effectively communicate your company's financial health and performance to stakeholders.
Economic Risk Factor Update: June 2024 [SlideShare]Commonwealth
May’s reports showed signs of continued economic growth, said Sam Millette, director, fixed income, in his latest Economic Risk Factor Update.
For more market updates, subscribe to The Independent Market Observer at https://blog.commonwealth.com/independent-market-observer.
Optimizing Net Interest Margin (NIM) in the Financial Sector (With Examples).pdfshruti1menon2
NIM is calculated as the difference between interest income earned and interest expenses paid, divided by interest-earning assets.
Importance: NIM serves as a critical measure of a financial institution's profitability and operational efficiency. It reflects how effectively the institution is utilizing its interest-earning assets to generate income while managing interest costs.
A toxic combination of 15 years of low growth, and four decades of high inequality, has left Britain poorer and falling behind its peers. Productivity growth is weak and public investment is low, while wages today are no higher than they were before the financial crisis. Britain needs a new economic strategy to lift itself out of stagnation.
Scotland is in many ways a microcosm of this challenge. It has become a hub for creative industries, is home to several world-class universities and a thriving community of businesses – strengths that need to be harness and leveraged. But it also has high levels of deprivation, with homelessness reaching a record high and nearly half a million people living in very deep poverty last year. Scotland won’t be truly thriving unless it finds ways to ensure that all its inhabitants benefit from growth and investment. This is the central challenge facing policy makers both in Holyrood and Westminster.
What should a new national economic strategy for Scotland include? What would the pursuit of stronger economic growth mean for local, national and UK-wide policy makers? How will economic change affect the jobs we do, the places we live and the businesses we work for? And what are the prospects for cities like Glasgow, and nations like Scotland, in rising to these challenges?
OJP data from firms like Vicinity Jobs have emerged as a complement to traditional sources of labour demand data, such as the Job Vacancy and Wages Survey (JVWS). Ibrahim Abuallail, PhD Candidate, University of Ottawa, presented research relating to bias in OJPs and a proposed approach to effectively adjust OJP data to complement existing official data (such as from the JVWS) and improve the measurement of labour demand.
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Aurobindo Pharma
1. Initiating Coverage | Pharmaceutical
October 18, 2010
Aurobindo Pharma BUY
CMP `1,120
Entering the big league Target Price `1,330
Aurobindo Pharma (APL), over the years, has transformed itself from being a Investment Period 12 Months
low-margin API player to a high-margin formulation player. Consequently, APL’s
FY2012 OPM and RoE are on par with top Indian generic peers. Concerns on the Stock Info
debt front are also receding and the company’s net debt/equity ratio is expected Sector Pharmaceutical
to improve to 0.6x in FY2012 from 1.1x in FY2010. We expect net sales and Market Cap (` cr) 6,521
recurring profit (excluding other operating income) to post a CAGR of 15.6% and Beta 0.8
29.1% respectively, over FY2010-12. The stock is currently trading at 13.6x 52 Week High / Low 1,176/735
FY2011E and 10.3x FY2012E earnings, which is at 50% discount to the top Avg. Daily Volume 27393
Indian generic peers and unwarranted due to the improving business mix owing Face Value (`) 5
to which we believe that the stock is poised for re-rating. We Initiate Coverage on
BSE Sensex 20,169
the stock, with a Buy recommendation and SOTP Target Price of `1,330.
Nifty 6,076
Supply agreements to drive growth: To leverage on its cost efficiency and strong Reuters Code ARBN.BO
product filings, APL entered into supply agreements with Pfizer and AstraZeneca, Bloomberg Code ARBP@IN
which provides significant revenue visibility. APL is also in talks with other MNCs
for more supply agreements. Revenues from the supply agreements are set to rise
3x over FY2010-12 from `227cr to `644cr. Shareholding Pattern (%)
Promoters 54.4
US and ARV formulation segments to be key drivers for base business: APL’s US
MF / Banks / Indian Fls 12.7
base business (ex-Pfizer) is expected to post CAGR of 36.0% over FY2010-12 to
FII / NRIs / OCBs 26.8
US $268mn with revenue per product increasing to US $2.6mn from US $2.3mn.
Indian Public / Others 6.1
On ARV front, we expect revenues to log CAGR of 11.1% to `612cr over
FY2010-12 as APL would continue to be the largest supplier under the PEPFAR
contract with a market share of 35%. Abs. (%) 3m 1yr 3yr
Valuation: Based on SOTP methodology, core business (ex-other operating Sensex 12.3 16.4 12.1
income) is valued at 14x FY2012E EPS (`1,263/share), while other operating APL 11.3 29.4 108.0
income has been valued at 7x 50% of FY2012E income (`9.5/share) and
ascribed `67/share.
Key Financials (Consolidated)
Y/E March (` cr) FY2009 FY2010 FY2011E FY2012E
Net Sales 2,935 3,370 3,796 4,506
% chg 20.8 14.8 12.7 18.7
Net Profit 100 563 479 617
% chg (58.0) 462.6 (15.0) 28.7
Recurring Profit 301 454 465 617
% chg 26.3 50.7 2.5 32.6
EPS (Rs) 18.6 101.1 84.9 109.2
Adj EPS 56.0 81.5 82.4 109.2
EBITDA Margin (%) 12.7 18.3 18.6 20.4
P/E (x) 20.0 13.7 13.6 10.3 Sarabjit Kour Nangra
RoE (%) 25.5 29.6 22.7 24.1 Tel: 022 – 4040 3800 Ext: 343
sarabjit@angeltrade.com
RoCE (%) 7.3 12.1 12.3 15.5
P/BV (x) 4.9 3.4 2.8 2.2
Sushant Dalmia, CFA
EV/Sales (x) 2.8 2.5 2.2 1.8
Tel: 022 – 4040 3800 Ext: 320
EV/EBITDA (x) 22.0 13.5 11.6 8.7 sushant.dalmia@angeltrade.com
Source: Company, Angel Research
Please refer to important disclosures at the end of this report 1
2. Aurobindo Pharma | Initiating Coverage
Initiate Coverage with a Buy and Target Price of `1,330
Recurring earnings (ex other OI) to post CAGR of 29.1%
Net sales are estimated to log a CAGR of 15.6% to `4,506cr over FY2010-12 on
back of supply agreements, the US (ex-Pfizer) and ARV formulation contracts. We
expect APL’s recurring earnings (excluding other operating income) to post a
CAGR of 29.1% over FY2010-12 to `506cr on the back of sales growth and OPM
expansion. We estimate OPM to increase by 206bp to 20.4% during the
mentioned period.
Exhibit 1: Net Sales, OPM and Recurring PAT (ex other OI) trend
5,000 600 25.0
4,506
506
4,000 3,796 500
20.0
3,370
2,935 400 355
3,000 3,000 304 15.0
(` cr)
(` cr)
2,430 2,273
(%)
2,122 1,852 300
1,397 230
2,000 1,600 999 189 10.0
694 169
271 200
1,000 67 5.0
1,330 1,429 1,431 1,538 1,518 1,523 1,506 100
0 0 0.0
FY2006 FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E FY2006 FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E
API Formulations Recurring PAT OPM
Source: Company, Angel Research
APL aims to clock US $2bn in FY2014
APL expects to clock strong CAGR of 29.4% in top-line to US $2bn by FY2014
from US $713mn in FY2010. The company expects contribution from the
formulations segment to ramp up to 75% by FY2014 from current levels of 55%.
Exhibit 2: APL’s revenue target
2400 CAGR 29.4%
2,000
2000 125
1600 69.9 500
(US $mn)
1200
79.7
713 875
800
15
48 27.8
328
400
11.6 500
322
0
FY2010 FY2014
API Formulations Supply Agreements Injectable business
Source: Company, Angel Research
Our estimates are lower than company’s long term guidance as we expect growth
to be more back-ended for the company driven by US (injectables and controlled
substances) and supply agreements.
October 18, 2010 2
3. Aurobindo Pharma | Initiating Coverage
APL stock poised for re-rating
APL has moved up the value chain and transformed from being a
low-margin API player to a high-margin formulations player. Consequently,
contribution from the formulation segment to net sales is expected to increase from
55% in FY2010 to 67% in FY2012. Moreover, APL’s FY2012 OPM and RoE are
in-line with top Indian generic players. The debt concerns are also receding with
the company’s net debt/equity ratio expected to improve to 0.6x in FY2012 from
1.1x in FY2010. At current levels the stock is trading at 13.6x FY2011E and 10.3x
FY2012E earnings, which is at 50% discount to the top Indian generic peers and
unwarranted due to the improving business mix owing to which we believe that it is
poised for re-rating.
Exhibit 3: OPM and RoE comparison (FY2012)
30.0
24.1
25.0 22.9
22.0
20.4
20.0
15.0
10.0
5.0
0.0
Sector APL
OPM RoE
Source: Company, Angel Research. Note: Sector includes Cadila, Cipla, DRL, Lupin, Ranbaxy and
Sun Pharma
Valuation
On a PE basis, the stock has traded in the 2-22x one-year forward PE band, and
at an average of 11x in the last five years. On the EV/Sales front, the stock has
been trading in the range of 0.8-2.5x and at an average of 1.7x.
Exhibit 4: 1-year forward PE and EV/Sales band
2,200 12,000
2,000 20x
10,500 2.5x
1,800
1,600 15x 9,000 2.0x
1,400 7,500
EV (` cr)
(`)
1,200 1.5x
10x 6,000
1,000
800 4,500 1.0x
600 5x 3,000
400 1,500
200
0
-
Jul-05
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Apr-05
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Oct-05
Oct-06
Oct-07
Oct-08
Oct-09
Oct-10
Jul-05
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Apr-05
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Oct-05
Oct-06
Oct-07
Oct-08
Oct-09
Oct-10
Source: Company, Angel Research
October 18, 2010 3
4. Aurobindo Pharma | Initiating Coverage
We have valued APL on a SOTP basis. The base business has been valued at 14x
FY2012E core earnings (`90.2/share), which is at 33% discount (on the back of
low presence in the high-margin domestic formulation business) to the top Indian
generic players and fetches `1,263/share. We have assigned a higher multiple to
APL’s core business compared to the multiple assigned by street and its historical
average, as we believe that the concerns about higher contribution of the API
business is unwarranted given that the company’s FY2012 OPM and RoE are on
par with top Indian generic peers and are likely to sustain going forward.
APL has also seen a substantial spurt in other operating income on the back of
dossier income primarily under the Pfizer agreement and sale of dossiers in
Europe. Other operating income constituted nearly 31.9% of PBT in FY2010.
However, we have assigned a lower multiple as there is lack of clarity regarding
the time-line of the recurring nature of the dossier income. We have valued other
operating income at 7x 50% of FY2012E income (`9.5/share) and ascribed
`67/share.
Exhibit 5: SOTP Valuation (FY2012)
Multiple
Per share (`)
(x)
Core business (`90.2/share) 14 1,263
Other Op. income at 50% FY2012E income (`9.5/share) 7 67
Total 1,330
Source: Company, Angel Research
We Initiate Coverage on the stock with a Buy recommendation and SOTP Target
Price of `1,330, implying an upside of 19% from current levels.
Exhibit 6: Comparative Valuation
Comparative Mcap (` cr) Sales (` cr) PE (x) EV/Sales (x) EV/EBITDA (x) RoE (%)
FY2011E FY2012E FY2011E FY2012E FY2011E FY2012E FY2011E FY2012E FY2011E FY2012E
Cadila Healthcare 14,147 4,308 5,100 22.5 17.4 3.4 2.8 17.1 13.5 34.8 34.7
Cipla 26,255 5,902 6,797 23.5 19.1 4.3 3.7 21.3 17.3 17.5 18.9
Dr Reddy's 26,924 8,416 9,797 27.0 20.4 3.1 2.6 16.4 13.2 25.0 25.5
Lupin 18,264 5,645 6,579 22.2 17.8 3.3 2.9 17.7 14.7 31.8 31.2
Ranbaxy 24,362 8,162 9,913 15.1 20.1 3.0 2.4 18.6 12.7 31.3 20.2
Sun Pharma 42,252 4,830 5,581 28.5 24.1 7.8 6.6 24.0 19.8 17.1 17.7
Average - 6,521 7,305 23.9 20.6 4.7 3.9 19.9 15.9 24.3 22.9
Aurobindo 6,521 3,796 4,506 13.6 10.3 2.2 1.8 11.6 8.7 22.7 24.1
Prem /(Disc) % to Avg - - - (43.2) (50.2) (53.7) (54.7) (42.0) (45.0) - -
Source: Company, Angel Research
October 18, 2010 4
5. Aurobindo Pharma | Initiating Coverage
Investment Arguments
Supply agreements to drive growth
APL has increased its global filing On the global filings front (ANDAs and dossiers) APL has increased its filing
dramatically from 313 in FY2008 to dramatically from 313 in FY2008 to 1,171 in FY2010, as it proposes to scale up
1,171 in FY2010 from SSP and Cephs to NPNC products. Further, the transformation from being a
pure API supplier to becoming a formidable formulations player has increased its
cost efficiencies, as 90% of its formulation is now backward integrated.
Exhibit 7: API and Formulations filings
1,600 1,200
1,412
1,002
1,000
1,126 838
1,200
895 800
800 600
400
400 185 147 169
122 133 145 200 128
0 0
FY2008 FY2009 FY2010 FY2008 FY2009 FY2010
US Other Regulated markets US Other Regulated markets
Source: Company, Angel Research. Note: Other regulated markets include multiple registrations in the EU
Thus, to leverage on its cost efficiency and strong product filings, APL entered into
long-term supply agreements with Pfizer (March 2009) and AstraZeneca
(September 2010), which provides significant revenue visibility going ahead. The
company is also in discussion with other MNCs for more supply agreements.
In FY2010, under the Pfizer contract Under the Pfizer contract, APL would supply more than 100 products post full
APL scaled up supply to 23 products to commercialisation of the contract and cover various geographies. In FY2010, APL
the US and clocked revenues of US scaled up supply with 23 products to the US and clocked revenues of US $48mn.
$48mn In Europe, the company expects to significantly ramp up in the current fiscal. The
company proposes commercialisation for the rest of the world (RoW) by FY2012.
Pertinently, APL has received upfront payment under the contract boosting its cash
flow. Going ahead, Pfizer is likely to add more products and cover additional
geographies based on the initial response that it receives from its existing markets.
October 18, 2010 5
6. Aurobindo Pharma | Initiating Coverage
Exhibit 8: Pfizer contract - Number of products
US France ROEU Aus/NZ Canada RoW
Co-Exclusive
Solid oral products 75
Exclusive
Solid oral products 34
Sterile injectable products 11
Non-Exclusive
Solid oral products 13 77 44 14 55
Sterile injectable products 1 12 12 5
Total 87 59 89 44 14 60
Source: Company, Angel Research
Under its supply agreement with AstraZeneca, APL would be supplying several
solid dosage and sterile products to the emerging markets covering therapeutic
segments such as anti-infective, CVS and CNS. We expect the AstraZeneca
contract to contribute US $5mn in FY2012. Overall, we expect revenues from the
supply agreements to increase 3x over FY2010-12 from `227cr to `644cr.
Exhibit 9: Sales under supply agreements
800 16.0
23
600 12.0
(` cr)
400 8.0
(%)
621
200 367 4.0
227
0 0.0
FY2010 FY2011E FY2012E
Pfizer AstraZeneca % of Sales
Source: Company, Angel Research
October 18, 2010 6
7. Aurobindo Pharma | Initiating Coverage
US and ARV formulation segment key drivers for base business
APL’s business, excluding the supply agreements, would primarily be driven by the
US and the ARV segment on the formulation front. The API business is expected to
be subdued as the company would be using most of the API for internal
consumption.
Product launches to drive business in US market
APL’s base business (ex Pfizer) logged a APL has particularly been able to scale up its business in the US market through
CAGR of 82.3% to US $145mn over product introductions and the supply agreement with Pfizer. In the US, the
FY2006-10 company has seen a growth in business 16x over FY2006-10 and attained critical
mass. APL’s base business (ex Pfizer) logged a CAGR of 82.3% to US $145mn
over the period. Pertinently, the company scaled up supplies under the Pfizer
contract in FY2010 and clocked revenues of US $48mn. APL offset the lower
revenue per product (US $2.3mn) by widening its product basket (APL-61,
Pfizer-23 products).
Exhibit 10: US market - Performance across players (FY2010)
400 374
357
350 331
300
250 233
(US $mn)
193
200
146
150
100
50
0
Dr Reddy Lupin Ranbaxy Sun Pharma Aurobindo Cadila
Source: Company, Angel Research.
APL targets day-1 launches in the US APL has commercialised 61 products in the US with the top-10 products
and has commercialised 61 products in contributing nearly 60% of its revenues in FY2010. The company primarily targets
the US day-1 launches in the US. APL has been able to garner strong market share in
highly competitive generic products such as Citalopram Hydrobromide, Paroxetine
Hydrochloride, Amoxicillin, Metformin Hydrochloride and Simvastatin owing to cost
advantages. APL is also witnessing strong pick up (has garnered 8% market share)
in the recently launched Valacyclovir tablets. Additionally, APL recently also
received approvals for the low-competition Ampicillin injections, which has a
market size of more than US $100mn.
October 18, 2010 7
8. Aurobindo Pharma | Initiating Coverage
Exhibit 11: APL’s top products in US
Key Products # of players Market share (Rx, %)
Citalopram Hydrobromide >15 15
Paroxetine Hydrochloride >10 11
Amoxicillin >10 9
Metformin Hydrochloride >15 6
Simvastatin >15 5
Source: Industry, Angel Research; Note: Market share is for July 2010
APL has also commercialised its New Jersey (NJ) facility, which it acquired from
Sandoz in 2006. Through this facility APL is targeting the institutional business in
the US. Pertinently, to run the institutional business in the US it is necessary to have
a local production unit. APL has also begun filings of controlled substances from
the unit, which is expected to contribute from FY2013 onwards.
APL expects to file 15-20 ANDAs in APL has been one of the aggressive filers in the US market with 169 ANDAs filed
FY2011 and FY2012 with 113 approvals received till FY2010. Among the players, APL is the third
largest ANDA filer. APL has aggressively filed in the last three years and is now
geared to reap benefits, even though most of the filings are for highly competitive
products. APL expects to file 15-20 ANDAs in FY2011 and FY2012.
Exhibit 12: ANDA filings (FY2010)
180
250
22 211 204
150
19 200
169 163
120
46 150 130
90 113
169
100
60
82 50
30
0 0
FY2007 FY2008 FY2009 FY2010 Total Sun Pharma Ranbaxy Aurobindo Dr Reddy Lupin Cadila
Source: Company, Angel Research
We expect the base business Going ahead, the next three years in the US, with US $70bn going
(ex-Pfizer) to grow at a CAGR of 36.0% off-patent, one of the highest in history, we believe that APL is well placed to tap
over FY2010-12 and contribute US this opportunity. We expect the company to clock 42.0% CAGR in net sales in the
$268mn with revenue per product US over FY2010-12 to US $388mn driven by product launches and the Pfizer
increasing to US $2.6mn contract. This contract is expected to contribute US $120mn constituting 31% of US
sales. We expect the base business (ex-Pfizer) to post a CAGR of 36.0% over
FY2010-12 and contribute US $268mn by FY2012 with revenue per product
increasing to US $2.6mn from US $2.3mn in FY2010 as the company moves
towards the high revenue generating NPNC and injectable (SSP and Cephs)
products.
October 18, 2010 8
9. Aurobindo Pharma | Initiating Coverage
Exhibit 13: US sales trend
500 50.0
400 40.0
(US $mn)
300 30.0
268
(%)
200 20.0
192
145
100 10.0
121 120
58 48 76
0 13 35 0.0
FY2006 FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E
Pfizer Ex-Pfizer % of Sales
Source: Company, Angel Research
ARV business on strong footing
APL is one of the largest generic APL derives 15% of its revenues from the ARV segment, which registered 54.9%
suppliers under the PEPFAR contracts CAGR over FY2006-10 to `495cr. This segment derives around 80% of its
with 35% market share revenues from the President's Emergency Plan for AIDS Relief (PEPFAR) program.
The US had committed funds to the tune of US $18.8bn for the PEPFAR program
during FY2004-08. In FY2009, the relief was increased to US $6.6bn and
maintained at US $6.7bn in FY2010. Overall expenditure on the ARV drugs
increased from US $117mn in FY2005 to US $203mn in FY2008, registering a
CAGR of 20%. Meanwhile, the amount spent on generic ARV increased from 9.2%
in FY2005 to 76.4% in FY2008.
APL is one of the largest generic suppliers under the ARV contracts with 35%
market share. APL enjoys high market share as it is fully integrated in all its
products apart from having a larger product basket. Overall, we expect the ARV
segment to post CAGR of 11.1% over FY2010-12 to `612cr with the PEPFAR
allocation for generic ARVs expected to increase.
Exhibit 14: ARV sales trend
700 20.0
612
600 549
495 15.0
500 464
404
(` cr)
400
(%)
10.0
300
200
122 5.0
86
100
0 0.0
FY2006 FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E
ARV % of Sales
Source: Company, Angel Research
October 18, 2010 9
10. Aurobindo Pharma | Initiating Coverage
Europe and RoW growing at steady pace
We expect EU to register CAGR of In Europe, APL has been developing its presence through licensing agreements
around 21.0% over FY2010-12 to with the MNC’s and other generic players. In the UK, Netherland and Italy, APL
`348cr driven by product launches and has a direct presence. The company is now targeting newer geographies, viz.
the Pfizer contract Romania, Spain, Yugoslavia and Bulgaria. During FY2006-10, the company’s EU
business registered CAGR of 51.6% to `237cr.
We expect EU to register CAGR of around 21.0% over FY2010-12 to `348cr
driven by product launches and the Pfizer contract. We expect the Pfizer contract to
scale up significantly from `2cr in FY2010 to `63cr in FY2012. Excluding Pfizer,
we expect overall sales to grow by 10.0% to `285cr in FY2012.
Exhibit 15: EU sales trend
400 9.0
300
6.0
(` cr)
(%)
200 285
247 3.0
235
100 201 198
128
45 63
0 2 18 0.0
FY2006 FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E
Pfizer Ex-Pfizer % of Sales
Source: Company, Angel Research
We expect revenues from the RoW to Over FY2006-10, RoW registered CAGR of 26.2%. In FY2010, RoW contributed
post a CAGR of 19.1% to `294cr over 6.1% to the company’s net sales to `207cr. We expect revenues from the RoW to
FY2010-12 and expect the AstraZeneca post a CAGR of 19.1% to `294cr over FY2010-12 and expect the AstraZeneca
contract to contribute Rs23cr in FY2012 contract to contribute Rs23cr in FY2012.
Exhibit 16: RoW sales trend
400 15.0
300
10.0
(` cr)
200
(%)
253
288 5.0
100 207 225
198
158
82 23
0 18 0.0
FY2006 FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E
Pfizer AstraZeneca Ex-Pfizer/Astra % of Sales
Source: Company, Angel Research
October 18, 2010 10
11. Aurobindo Pharma | Initiating Coverage
API segment to remain subdued
We expect the API segment revenues to APL is one of the largest players in the API space, which contributed around 45% to
remain flat to `1,575cr over FY2010-12 its FY2010 sales with supply of SSP (oral and sterile), Cephs (oral and sterile) and
as the company would use most of the other APIs having predominant exposure in its domestic segment.
API for internal consumption
APL registered a decline of 5.2% in oral (SSP and Cephs) APIs over FY2006-10 due
to price volatility. The company’s API segment is vulnerable to Pen-G prices as it is
the basic input for API. Hence, to protect its margins, APL shifted to sterile API
products and is now also using most of the API for internal consumption.
Going ahead, we expect the API segment revenues to remain flat to `1,575cr over
FY2010-12 as the company would use most of the API for internal consumption.
Exhibit 17: API sales break-up
(` cr) FY2006 FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E
SSP (Oral) 586 591 673 550 449 421 391
Growth (%) 1.0 13.8 (18.3) (16.8) (8.0) (7.0)
SSP (Sterile) - - 131 174 158 156 159
Growth (%) 32.2 (9.2) (1.0) 2.0
Cephs (Oral) 484 643 393 422 405 417 413
Growth (%) 32.7 (38.8) 7.3 (4.0) 3.0 (1.0)
Cephs (Sterile) - - 199 212 274 277 287
Growth (%) 6.6 29.5 0.9 3.7
ARV & other high value 355 296 152 271 307 310 325
Growth (%) (16.5) (48.8) 78.9 13.3 0.9 4.7
Total 1,425 1,530 1,548 1,628 1,593 1,581 1,575
Growth (%) 7.4 1.1 5.2 (1.6) (0.8) (0.4)
Source: Company, Angel Research
CRAMS a long term driver
APL launched its CRAMS division, AuroSource, to cater to the global innovators
and biotech players. The division offers services across the entire product life cycle
from pre-clinical to the commercial launch. APL is already in discussion with few
players though we have not factored in any upsides from the business in our
estimates.
October 18, 2010 11
12. Aurobindo Pharma | Initiating Coverage
Financials
Top-line to register 15.6% CAGR over FY2010-12E
Overall contribution of the formulation APL recorded 20.5% CAGR in net sales during FY2006-10 to `3,370cr driven by
segment increased from 17.0% in 2006 the formulation segments. Overall contribution of the formulation segment
to 55.0% in FY2010 increased from 17.0% in 2006 to 55.0% in FY2010 primarily led by the US and
ARV contracts. During FY2006-10, while sales in the US posted a CAGR of 99.2%
to `912cr driven by product launches and commencement of supplies to Pfizer,
ARV formulation sales logged 54.9% CAGR over on the back of the contract wins
under the PEPFAR project. The API segment however, recorded sluggish CAGR of
3.0% as the increase in volumes was offset by lower price realisations during the
period.
Exhibit 18: Increasing contribution from formulations
100%
17
33
80% 41
48
55 60
67
60%
40% 83
67
59
52
20% 45 40
33
0%
FY2006 FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E
API Formulations
Source: Company, Angel Research
For FY2011, we expect net sales to grow at a slower pace of 12.7% to `3,796cr
due to capacity constraints (NPNC) - the new facilities at the Unit VII (SEZ) and NJ
are expected to scale up gradually. We expect the formulation segment to clock
22.7% yoy growth to `2,273cr, while the API segment is expected to decline by
1.3% to `1,581cr.
In the US region, the formulation segment is expected to clock 35.3% yoy growth
to `1,234cr driven by the off-take under the Pfizer contract primarily in 2HFY2011
and launch of new products (SSP and Ceph injectable products). In Europe, we
expect net sales to come in at `265cr, up 11.5%, while the RoW is expected to
register 8.7% yoy growth to `225cr on the back of product launches. The ARV
segment is expected to clock 10.8% yoy growth to `549cr as contribution from
PEPFAR contract increases.
For FY2012, we expect net sales to clock strong growth of 18.7% to `4,506cr on
the back of increase in capacity utilisation at its new facilities. Formulation sales
are expected to register 32.0% yoy growth to `3,000cr while the API segment is
expected to remain flat at `1,575cr.
October 18, 2010 12
13. Aurobindo Pharma | Initiating Coverage
Overall, we expect net sales to post a In the US, under the Pfizer contract we expect APL to clock sales of `540cr
CAGR of 15.6% over FY2010-12 to following the increase in product launches. Further, ex-Pfizer sales in the US is
`4,506cr driven by the supply expected to grow 36.3% yoy to `1,206cr and is likely to witness improvement in
agreements, US (ex Pfizer) region and revenue per product. For EU we expect revenues to grow at 31.4% to `348cr,
ARV contracts while RoW is expected to clock net sales of `294cr following commencement of
supplies under the Pfizer and AstraZeneca contracts. On the ARV front, we expect
growth of 11.5% in revenues to `612cr. Overall, we expect net sales to log a
CAGR of 15.6% over FY2010-12 to `4,506cr driven by the supply agreements, US
(ex Pfizer) region and ARV contracts.
Exhibit 19: Sales break-up
(` cr) FY2006 FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E CAGR FY2010-12E
Formulations 271 694 999 1,397 1,852 2,273 3,000 27.3
US 58 156 236 537 912 1,234 1,746 38.3
Pfizer - - - 13 225 349 540 54.9
Ex-Pfizer 58 156 236 524 687 885 1,206 32.5
Europe 45 128 201 198 237 265 348 21.0
Pfizer - - - - 2 18 63 461.2
Ex-Pfizer 45 128 201 198 235 247 285 10.0
RoW 82 288 158 198 207 225 294 19.1
Pfizer - - - - - - 18 -
Astra - - - - - - 23 -
Ex-Pfizer, Astra 82 288 158 198 207 225 253 10.6
ARV 86 122 404 464 495 549 612 11.1
API 1,425 1,531 1,548 1,628 1,593 1,581 1,575 (0.6)
SSP 586 591 804 723 607 577 550 (4.8)
Cephalosporin 484 643 592 634 679 694 700 1.5
ARV & other high value 355 296 152 271 307 310 325 2.8
Gross Sales 1,696 2,224 2,547 3,025 3,446 3,854 4,575 15.2
Less Excise duty 95 102 117 90 76 58 69
Net Sales 1,601 2,122 2,430 2,935 3,370 3,796 4,506 15.6
Growth (%) 32.6 14.5 20.8 14.8 12.7 18.7
Source: Company, Angel Research
Margin expansion to be driven by increasing contribution from
formulations
APL has been able to expand its OPM APL has been able to expand its OPM (excluding other operating income) from
(excluding other OI) from 11.1% in 11.1% in FY2006 to 18.3% in FY2010 and is now on par with the sector average
FY2006 to 18.3% in FY2010 in spite of higher contribution from the low-margin API segment. The company’s
gross margins improved significantly by 12.1% over FY2006-10 to 47.3% on the
back of increasing contribution from the high-margin formulation segment.
However, the increase in gross margins was partly offset by the rise in SG&A and
employee expenses, which restricted the increase in OPM by 7.2% to 18.3% in
FY2010. APL increased its employee strength by 16% in FY2010 with the
commencement of its new facilities and expansion at its API facilities.
October 18, 2010 13
14. Aurobindo Pharma | Initiating Coverage
Going ahead, increase in contribution from formulations to 67% in FY2012 from
55% in FY2010 and gradual scale up in capacity utilisation at its new facilities are
likely to increase its OPM to 20.4% in FY2012 from 18.3% in FY2010.
Overall, the transformation to a On a comparative basis, APL’s OPM would be on par with the sector average. This
formulation player has benefited APL in is on back of backward integration on the formulation front. Overall, the
dual ways - most of the API is now transformation to formulation player has benefited APL in dual ways - most of the
utilised for internal consumption making API is now utilized for internal consumption (more than 90% of its formulation is
it cost competitive as well as insulating backward integrated) thereby making it cost competitive in the formulation space
the company from the high price as well as insulating the company from the high price volatility (seen especially
volatility witnessed in the API business between 2008-09 where gains of the formulation business was offset by price
volatility on the API front) witnessed on the API business. Further, APL does not
have a significant presence in the branded generic segment (including India)
owing to which its expenditure for sales promotion and advertisements are on the
lower side.
Exhibit 20: OPM comparison (FY2012)
40.0
33.5
30.0
21.5 21.0 20.4 19.5 19.4
(%)
20.0
10.0 7.8
0.0
Sun Cipla Cadila APL Lupin Dr Reddy's Ranbaxy
Pharma Healthcare
Source: Company, Angel Research. Note: Ranbaxy’s base business OPM considered.
Recurring PAT (ex other OI) to increase by 29.1% CAGR over
FY2010-12
Recurring PAT (ex other OI) registered CAGR of 46.0% to `304cr during FY2006-
10 driven by sales growth and margin expansion.
Going ahead, interest expense is expected to rise as the company raises debt to
repay the FCCBs (including premium) to the tune of `938cr in May 2011. We
estimate interest expense to increase from `73cr to `91cr in FY2012. Depreciation
cost is also expected to increase from `149cr in FY2010 to `208cr in FY2012 due
to the new facilities (Unit VII (SEZ), NJ and Trident).
In the last two years (FY2009 and FY2010), the company clocked other OI of
`142cr and `206cr on the back of sale of dossiers to Europe and under the Pfizer
contract, which has resulted in strong cash flows for the company. On a
conservative basis, we expect the company to clock dossier income of `140cr both
in FY2011 and FY2012 primarily from the supply agreements.
October 18, 2010 14
15. Aurobindo Pharma | Initiating Coverage
Excluding the dossier income, recurring Overall, we expect recurring PAT to increase by 16.6% to `617cr assuming lower
PAT is estimated to record strong CAGR income from the sale of dossiers. Excluding the dossier income, recurring PAT is
of 29.1% to `506cr in FY2012 estimated to record strong CAGR of 29.1% to `506cr in FY2012.
Exhibit 21: Other operating income and Recurring PAT (ex other OI)
250 50.0 600
506
44.2
200 40.0
31.9 400 355
150 30.0 304
(` cr)
(` cr)
(%)
22.6 17.4 230
100 206 20.0 189
200 169
142 140 140
50 10.0 67
6.4
3.4 3.6
0 3 13 11 0.0 0
FY2006 FY2008 FY2010 FY2012E FY2006 FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E
Other Op Income % of PBT Recurring PAT
Source: Company, Angel Research
Capex spend to moderate
APL has been on aggressive capex The company has been on an aggressive capex spree in the last five years
spree in the last five years with capex of incurring capex of `1,721cr (73% of FY2010 fixed assets), which was largely spent
`1,721cr on the formulation segment.
However, capacity utilisation has been subdued especially in tablets/capsules at
46% in FY2010 primarily due to lower utilisation at the Unit VIB (Cephs) and Unit
XII (SSP). However, going ahead, we expect the utilisation to increase at these
facilities on the back of injectable product launches in the US and pick up in
volume under the supply agreements.
Exhibit 22: Formulation facilities
Units Product Capacity Utilisation (%)
Unit VIB Cephs oral & sterile < 25
Unit XII SSP oral and sterile <25
Unit III NPNC > 85
Unit VII (SEZ) NPNC Newly commenced
USA NJ NPNC Newly commenced
Trident Injectables (NPNC) To commence in 2HFY2012
Source: Company, Angel Research
To address capacity constraints on the Further, to address the capacity constraint in Unit III (NPNC), APL built a facility
NPNC front, APL commercialised Unit near Hyderabad (Unit VII SEZ) in FY2010. APL spent around `250cr to set up this
VII (SEZ) in FY2010 facility, which is spread across 10 acres of the total 75 acres land. The unit has
the capacity to produce to 1,000mn tablets and 100mn capsules per month, which
has almost doubled the company’s tablets/capsules production. The company
expects the unit to meet the increasing demand in the regulated markets and
emerging markets.
October 18, 2010 15
16. Aurobindo Pharma | Initiating Coverage
APL has also commercialised its NJ facility, which it acquired from Sandoz in
2006. Through this facility APL is targeting the institutional business in the US. It is
necessary to have a local production unit to run the institutional business. APL has
begun filings of controlled substances from the unit, which is expected to contribute
from FY2013 onwards. Overall, we expect Unit VII SEZ and the NJ facility to scale
up and witness ramp up in capacity utilisation in FY2012 driven by supply
agreements, US and ARV segment leading to an improvement in margins.
Thus, with most of the facilities in place, we expect APL to incur moderate capex of
`568cr over the next two years.
Debt concerns receding
In view of APL’s aggressive capex, its net debt/equity increased to 1.8x in FY2009,
which was much higher than the industry average of 0.4x. However, in FY2010,
with overall improvement in business profitability (OPM expansion), the company’s
net debt/equity improved to 1.1x. Going ahead, in FY2012, we expect net
debt/equity to further improve to 0.6x on the back of debt repayments, decline in
capex and improvement in profitability.
APL has outstanding FCCB of US $139.2mn repayable in May 2011 with the
conversion price at 25-43% premium over the current price. We expect APL to
repay its outstanding FCCBs through internal accruals and debt resulting in outflow
of `938cr.
Exhibit 23: FCCB details
Issued Converted/ O/s US YTM Exch Rate Amt Payable Breakeven
Maturity Date
(US$ mn) Bought back $mn (%) (`/US $) (` cr) price (`)
August 8, 2010 60.0 60.0 - 40.0 - - -
May 10, 2011 150.0 43.8 106.2 46.3 46.0 715 1,615
May 17, 2011 50.0 17.0 33.0 46.9 46.0 223 1,406
Total 260.0 120.8 139.2 938
Source: Company, Angel Research
Exhibit 24: Debt levels, FCF and Capex
2,500 2.0 600
479
400
450 345
2,000 1.6 288 280
253 244 247
300 198
1,500 1.2 150
(` cr)
29
(` cr)
(x)
2,333 0
1,000 2,078 2,155 2,004 0.8
1,908 1,766
(150) (48)
1,373
500 0.4 (300) (237)
(450) (326) (343)
0 0.0
FY2006 FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E
FY2006 FY2008 FY2010 FY2012E
Debt Net Debt Equity FCF Capex
Source: Company, Angel Research
October 18, 2010 16
17. Aurobindo Pharma | Initiating Coverage
Concerns
Delay in ramp up of supply agreements: APL is expected to receive 14.3% of
its FY2012 revenues from the supply agreements (Pfizer and AstraZeneca).
Hence, any delay in ramp up of the supply agreements would pose a
downside risk to our estimates.
Forex risks: Exports constitute 61% of the company revenues. Therefore, any
significant appreciation in the rupee could adversely affect the company's
margins. However, more than 80% of the company’s debt is foreign currency
denominated providing a natural hedge against currency volatility.
High price volatility in the API business: Higher-than-anticipated price erosion
in the company's generic API business, could impact its profitability. In
FY2008-09, OPMs were flat in spite of higher contribution from the
high-margin formulation business as the gains were offset by the price
volatility in the API business. However, with formulation contribution to net
sales increasing to 67% in FY2012 and reducing dependence on Pen-G
related APIs, which should cushion the company’s margins going ahead.
October 18, 2010 17
18. Aurobindo Pharma | Initiating Coverage
Company Background
APL, one of the largest API manufacturers in Asia, was incorporated in 1989 by P V
Ramaprasad Reddy and K Nityananda Reddy. APL is now present across the value
chain from intermediates, API and formulations supported by a strong R&D team.
APL has commercialised over 200 APIs and 300 formulation products till date.
Over the years, the company has developed its presence in key therapeutic areas
such as SSPs, Cephs, Anti-virals, CNS, CVS, gastroenterology, pain management,
etc. Being an integrated player, the company enjoys an edge over competition.
The company has 15 manufacturing facilities across the globe approved by the US
FDA and other regulators. APL has presence in more than 100 countries and
derives more than 60% of its revenues from exports.
Exhibit 25: Facilities
Formulations
Unit Products
Unit III Multi-purpose non-Betalactums Oral
Unit VII (SEZ) Non-Betallactums Oral
USA NJ Non-Betallactums Oral
Unit VIB Cephalosporins (Oral & Sterile)
Unit XII Semi-synthetic penicillins (SSP) oral and sterile
API
Units Products
Unit I CVS, CNS, Anti-allergic
Unit IA Cephalosporins (Non-Sterile)
Unit V Semi-synthetic penicillins (sterile and Non sterile)
Unit VIA Cephalosporins (Sterile)
Gastro enterologicals,
Unit VIII
Anti-retroviral
Unit XIB Anti-retroviral
Source: Company, Angel Research
October 18, 2010 18