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Below par numbers; progress on new ventures key…

Revenues de-grew 2.5% YoY to | 6002 crore tracking 4.5% YoY decline in US to | 2856 crore and a 6.0% YoY decline in Europe formulations to | 1553 crore. RoW markets also declined, posting 18.8% YoY de-growth to | 306 crore. On the other hand, ARV segment grew 28.7% YoY to | 491 crore. API segment grew 5.1% YoY to | 794 crore. EBITDA margins remained flat, down 13 bps YoY at 21.2% (I-direct estimate: 20.7%). EBITDA de-grew 3.2% YoY to | 1275 crore against I-direct estimates of | 1354 crore. Adjusted PAT de-grew 4.4% YoY to | 801 crore (I-direct estimate: | 820 crore) in line with operational performance, higher other income and tax rate.

Global injectables, US key growth drivers…

After filing its first ANDA in the US in 2003, the company has come a long way with current filings at 639. US revenues have grown from ~US$100 million in 2009 crossing $1.67 billion sales in FY21. In rupee terms, US sales have grown at 15% CAGR to | 12325 crore in FY16-21. Despite calling off Sandoz’ US dermatology and oral solid portfolio acquisition and sale of Natrol business, we expect US revenue size to reach | 14286 crore at 7.7% CAGR in FY21-23E amid a strong pipeline and incremental injectable traction. On the global injectable front, the current ~US$395 million annual bandwidth is expected to reach US$650-700 million over the next three years on the back of new launches and significant capacity addition.

Transformation, capacity optimisation to improve financials The API:

formulations ratio has improved from 43:57 in FY13 to 12:88 in FY21. Another USP of the company is its vertically integrated model with huge capacity, unmatched by most peers. The company owns 28 manufacturing facilities, including eight key formulations facilities in India and abroad. These can be optimised by 1) continuous US filings and launches, 2) incremental launches and filings in the RoW markets and 3) site transfers and supplies for products covered under the European deals.

Valuation & Outlook

Q4 operational performance was below I-direct estimates amid decline across US, Europe and RoW markets. Quarterly gyrations notwithstanding, Aurobindo has one of the most enduring generics ecosystems among peers (vertically integrated model, lower product concentration) to withstand volatility in the US and other generics space. It has also significantly improved its net debt position from foregoing the Sandoz deal and the recent sale of the Natrol business.

This also bodes well as the company plans to venture into complex areas like biosimilars, vaccines and complex injectables where capital requirements are higher and precise. Additionally, participation in the PLI scheme will enhance its backward integration in antibiotics and open up new revenue streams to support its growth prospects in the future. We maintain our BUY recommendation with an unchanged target price of | 1165 at 16x FY23E EPS of | 72.8.

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