Stock Market Result Update on Aurobindo Pharma for 1QFY2012

Stock Market Result Update on Aurobindo Pharma for 1QFY2012 with a Buy recommendation and a Target Price of `278 (12 months).

For 1QFY2012, Aurobindo Pharma’s (APL) results were below expectations on the operating front, even after excluding the one-time payment of FCCB redemption premium. Although the company’s performance was above our expectations on the top-line front, led by the formulation segment’s growth, performance on the operating and PAT levels was lower than our expectations. We maintain Buy on the stock.

US and ARV formulation segments‘ growth boosts revenue: Net sales grew strongly by 16.8% yoy to `1,076.9cr, driven by the US and ARV formulation segments. The US formulation segment grew by healthy 26.7% yoy to `274cr. The ARV formulation segment posted 44.4% yoy growth to `211.6cr. Gross margin came in at 46.8% (48.1%), impacted by higher raw-material costs. OPM fell to 15.2%, below our estimates of 17.6%, impacted by higher employee and other expenses. Adjusted net profit for the quarter came in at `88cr (`68.2cr).

Outlook and valuation: Commencement of operations at the Hyderabad SEZ and incremental contribution from the Pfizer deal would boost APL’s earnings with better growth visibility going forward. We estimate net sales to log a 12.7% CAGR to `5,243cr over FY2011–13E on the back of supply agreements and the US and ARV formulation contracts. We expect APL’s recurring earnings (excluding other operating income) to post a 29.5% CAGR over FY2011–13E to `557cr on the back of sales growth and OPM expansion. We maintain our Buy view on the stock with a target price of `278.