IGI Logo

3Q in line; EU/ROW outshine while US underperforms

Remediation measures complete at Eugia-III

* Aurobindo Pharma (ARBP) delivered an in-line performance for 3QFY25. Robust growth in Europe/ROW markets and higher off-take of ARV sales were partially offset by weaker US sales. The US sales growth was soft for the quarter due to lower business from g-Revlimid and reduced production at the Eugia site.

* We largely maintain our estimates for FY25/FY26/FY27. We value ARBP at 18x 12M forward earnings to arrive at a TP of INR1,310.

* In addition to its US generics, ARBP is working on enhancing its offerings in the biologics/GLP-1 space. Further, the company is ramping up the production of PEN-G for in-house consumption as well as external sales. PEN-G is expected to positively contribute to EBITDA from FY26 onwards. With remediation measures in place, it is expected to scale up production at the Eugia site, which will improve operating leverage in the injectable segment. Accordingly, we build 10%/12.5%/16% revenue/EBITDA/PAT CAGR over FY25-27. We maintain a Neutral rating, given the limited upside from current levels.

Lower operating leverage outweighs product mix benefit on YoY basis

* ARBP’s 3QFY25 sales grew 8.5% YoY to INR79.8b (our estimate: INR76.1b). Overall formulation sales grew 10.8% YoY to INR69.7b. US formulation revenues declined 2.3% YoY to INR36.7b (CC: -3.5% YoY to USD435m; 46% of sales), driven by lower transient product sales. Europe formulation sales grew 30.4% YoY to INR21.2b (27% of sales). Growth markets sales grew 12.5% YoY to INR8.7b (11% of sales).

* ARV revenue grew 71.5% YoY to INR3.1b (2% of sales).

* API sales contracted 1.6% on a YoY basis to INR10.1b (13% of sales).

* Gross Margin (GM) expanded 130bp YoY to 58.4%.

* EBITDA margin, however, contracted 140bp YoY to 20.4% (our estimate: 21.4%), led by an increase in employee cost/other expense (+70bp/+170bp YoY).

* EBITDA was up 20.4% YoY to INR16.3b (in line with estimates).

* PAT declined 2.8% YoY to INR8.8b (our est: INR9b), led by a higher tax outgo.

* Revenue/EBITDA/PAT grew 9%/17.6%/14.2% YoY to INR233.4b/INR48.9b/INR26b in 9MFY25.

Highlights from the management commentary

* ARBP has guided for an EBITDA margin of 21.5-22% for FY25, having achieved 20.9% for 9MFY25.

* Higher RM prices and a lower off-take of transient products affected margins for the quarter.

* ARBP has completed remedial actions at Eugia and expects production to ramp up to 60-70% in 4Q, compared to the current capacity utilization of 45-50%.

For More Research Reports : Click Here 

For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412