Aurobindo's weak 2QFY12 results fell significantly below our estimates. Adjusted net profit fell 68% yoy to Rs456m, nearly half our estimate of Rs862m, chiefly due to a 1210-bp drop in EBITDA margin. We lower our FY12-14 earnings estimate 12-37% to factor in lower licensing income and a fall in EBITDA margin.
n Weak 2Q. Aurobindo reported a 3.4% drop in revenue to Rs10.8bn vs our Rs11.2bn estimate. EBITDA margin dropped 1210bps yoy to 10.7% due to lower licensing income and increased operating expenses, expected to soften from 3QFY12. Due to the lower revenue and EBITDA margin, adjusted PAT was Rs456m, far below our estimate of Rs862m.
n Disappointing formulations revenue. Formulations revenue declined 3.9% yoy to Rs5.9bn; with share of total revenue at 54.7% vs 57.7% in 2Q. The decline stemmed from production disruption due to political unrest in Andhra Pradesh, loss of revenue from Unit-VI due to an import alert and lower pick-up in European sales. APIs grew 8.5% yoy, led by 99% growth in ARVs.
n Revising estimates. We lower revenue and earnings estimates 0-3% and 12-37%, respectively, for FY12-14. The substantial downgrade in earnings is due to continuing pressure on the EBITDA margin, (we lower our estimates by 200-500bps for FY12-14), and less licensing income.
n Valuation and Risk. The stock has significantly underperformed in the past six months following the USFDA issues. We believe that the present valuation of 6.7x FY13e earnings factor in most of the negatives.
Safe Harbor Statement:
Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.
Nothing in this article is, or should be construed as, investment advice.
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