Aurobindo Pharma quarterly and full year report

Aurobindo Pharma stock price jumped up 13.5% in yesterday session closing at Rs 580.30. So investors who missed out investing with it might be thinking, is it still worth to invest with Aurobindo Pharma?

We think it is still worthwhile to invest at current price if you are a long term investor. Let me share with you why we should consider this stock to still buy and look at its positives and negatives to make up your own mind and build your own conviction towards this investment story.

Quarterly results

Aurobindo Pharma is listed in the top 10 Indian pharma companies. The company was listed in 1995 so does have history of 22 years. In 2013 this stock was trading at Rs 100 and last year it has seen its highs of Rs 895 and stock price had fallen down to Rs 500 levels. So this stock has a potential and for few has already been a multibagger.

So what are the challenges this business is facing?

Before we get into those challenges, let us have a look at its quarterly results for 2017.

Aurobindo Pharma Q4 – 2017 Q3 – 2017 Q4 – 2016 % change Q4 Vs. Q3 % change Q4 Vs. Q4
Revenues Rs 3,682.41 Rs 3,929.90 Rs 3,782.30 -6.30% -2.64%
  100% 100% 100%    
EBT Rs 649.37 Rs 796.17 Rs 760.87 -18.44% -14.65%
  17.63% 20.26% 20.12%    
Net Profit Rs 532.85 Rs 575.78 Rs 554.38 -7.46% -3.88%
  14.47% 14.65% 14.65%    

 

Similar to other pharma stocks Aurobindo has been facing lot of pressure to grow its revenues. The other negative news last quarter was falling of its margins and we heard again Mr Jhunjunwalla grinding the management on investors call in regards to it.

Aurobindo Pharma exports its products to more than 120 countries and 70% of its revenues come from them. Management have come out openly and said that price war in US markets will not impact more than 7% – 8% of its revenues from that market. This was like music to ears for investors where most of the other companies are expecting revenues to decline in double digit from the US market.

Valuations

Aurobindo Pharma is not great with paying dividends so investors look for capital gains while investing in this business. Aurobindo Pharma generates more than US$2 billion in revenues and 44% of that comes from the US market. The second biggest market for them is the European Union which generates 22% of their gross revenues. As of 31st December 2016 they had done 421 formulation fillings with US regulator. 262 fillings of them have received final approvals and 118 are under review.

The sales in US market is growing by 25% since 2013 and this is expected to slow down for the next 7 – 8 quarters. Like other pharma business they are focusing now on specialised products. They had cut down their debt last year, invested in the new property and plant and working capital.

We valued this business for 2017 financial year for Rs 700 per share. We looked at two different group of analysts and their expectations. One group (Bears) expects its revenues to grow by 8% in 2018 financial year and their earnings by 4%. The other group (Bulls) expects its revenues can jump by as far as by 45% and earnings to grow by 40%. So this group expects a turnaround in the Aurobindo business in 2018.

As an investor we always love the turnaround story to turn into reality. But it is prudent to invest looking at the worst case scenario. So if we go with the first group of analyst then we expect its intrinsic value for 2018 to be Rs 594 per share. If you believe there is a good chance for Aurobindo to beat the worst case scenario numbers then its stock price should climb above Rs 600 and fly from there.

So this is the time to read and dig for the facts and do a bit of probability analysis and build strong conviction for buy side analysis as its stock price is trading below our 2018 expectation value band still after the jump of 13.5% yesterday.

If you are buying this stock then please share with us why you are buying this stock? If not, still we want to hear from you, why not?