Aurobindo Pharma Ltd

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1 Aurobindo Pharma Ltd BUY CMP: Rs Date: February 01, 2010 Key Ratios: Particulars FY09 FY10E FY11E OPM (%) NPM (%) ROE (%) ROCE (%) P/BV(x) P/E(x) EV/EBDITA(x) Debt Equity Ratio Key Data: Sector Pharma Sector Face Value Rs wk. High/Low (Rs.) / Volume (2 wk. Avg.) BSE Code V.S.R. Sastry Vice President Equity Research Desk Target Price: Rs Market Cap.: Rs mn. SYNOPSIS Aurobindo is the largest 'Vertically Integrated' pharmaceutical companies in India, Aurobindo has robust product portfolio spread over major product. Aurobindo Pharma has identified international operations, catering to over 100 countries and also operates with its subsidiary. During the quarter company has received final approval for Cetirizine Hydrochloride Syrup 1mg/mL from the US Food & Drug Administration (USFDA). During Q3FY10 company inaugurated its formulations manufacturing facility in Hyderabad. During the quarter company receives approval for Citalopram Hydrobromide tablets from TGA, Austraila. Net sales and PAT of the company are expected to grow at a CAGR of 17% and 27% over 2008 to 2011E respectively. Share Holding Pattern: Dr. V.V.L.N. Sastry Ph.D. Chief Research Officer drsastry@firstcallindia.com 1

2 Table of Content Investment Highlights... 3 Peer Group comparison...6 Keyconcern. 6 Financials.7 Charts....9 Outlook and conclusions...10 Industry Overview

3 Investment Highlights Q3 FY10 Results Update Drug maker, Aurobindo Pharma reported a rise of 12.31% sales in the standalone net sales for the quarter ended December During the quarter, the company disclosed a standalone profit of Rs. 1, million as against loss of Rs million for the quarter ended December 31, Net sales are increased by 12.31% to Rs. 8, million from Rs million in the same quarter previous year. In the same period, standalone total operating income of the company was at Rs million, a rise of 170.0% over the prior year period. Company EPS is stood at Rs for the quarter ended December Quarterly Results - standalone (RS in mn) As At Dec-09 Dec-08 %change Net sales PAT Basic EPS Net Sales & Net Profit Growth The standalone sales for the quarter rose by per cent to Rs million compared to the same period a year ago & standalone PAT of Rs million, a growth of per cent for the second quarter ended December 31, 2009 compared to the corresponding quarter last year. 3

4 Received final approval for Cetirizine Hydrochloride Syrup (Rx) Aurobindo Pharma Limited is has received the final approval for Cetirizine Hydrochloride Syrup 1mg/mL (ANDA No ) from the US Food & Drug Administration (USFDA). This approval of Cetirizine Hydrochloride Syrup is under Prescription drug product category Cetirizine Hydrochloride Syrup 1mg/mL is the generic equivalent of McNeil Consumer Healthcare Zyrtec Syrup 1mg/mL. Cetirizine Hydrochloride Syrup is indicated for the relief of symptoms associated with seasonal allergic rhinitis in adults and children above 2 years of age and falls under the Anti-Allergic segment. Received approval for Citalopram Hydrobromide tablets from TGA, Australia Aurobindo Pharma Limited wholly owned subsidiary Aurobindo Pharma Australia Pty Ltd has received approval from Therapeutic Goods Administration (TGA), Government of Australia for the registration of Citalopram Hydrobromide Tablets 10mg, 20mg & 40mg. Citalopram Hydrobromide Tablets are indicated for the treatment of depression and fall under the Central Nervous System (CNS) therapeutic segment. This is Aurobindo's fifth approval from TGA, Australia. Opens manufacturing facility Aurobindo Pharma has inaugurated its formulations manufacturing facility (unit VII) in Hyderabad. The facility situated at APIIC Green Industrial Park, Jascherla near Hyderabad, India is Aurobindo`s 15th manufacturing facility globally. The facility would cater to high value non-betallactum products for regulated markets and will further enhance Aurobindo`s capabilities in providing comprehensive pharma manufacturing, distribution, 4

5 services and solutions to its customers including global alliances. This facility currently employs 200 people and expects to significantly expand its work force in India over time. The scheduled commencement of commercial operations is April Received final approval for Perindopril Erbumine Tablets Aurobindo Pharma Limited has received it's tentatively approved ANDA for Perindopril Erbumine Tablets 2mg, 4mg and 8mg from the US Food & Drug Administration (USFDA). Perindopril Erbumine Tablets are the generic equivalent of Solvay Pharmaceuticals' Aceon Tablets and falls under the CVS segment and indicated for the treatment of patients with essential hypertension. Aurobindo Pharma receives final approval for Lamotrigine Tablets from USFDA Aurobindo Pharma Limited has received the final approval for Lamotrigine Tablets (Chewable, Dispersible) 5mg and 25mg from the US Food & Drug Administration (USFDA). Lamotrigine Tablets 5mg and 25mg is generic equivalent to Lamictal CD Tablets 5mg and 25mg of GlaxoSmithKline. Lamotrigine tablet falls under the CNS (Central Nervous System) segment and is indicated as adjunctive therapy for partial seizures and generalized seizures of Lennox - Gastaut syndrome in patients aged 2 years and older, and for conversion to monotherapy in adults with partial seizures who are receiving treatment with a single enzyme-inducing antiepileptic drug. Aurobindo Pharma receives final approval for Cefotaxime for Injection USP Aurobindo Pharma Limited has received final approvals from the US Food & Drug Administration (USFDA) for 2 ANDAs namely Cefotaxime for Injection USP 500mg, 1g, 2g and Cefotaxime for Injection USP 10g pharmacy bulk pack. Cefotaxime for Injection is the generic equivalent to Claforan for injection of Sanofi Aventis US, LLC. Cefotaxime for Injection and falls under the Anti-betallactum segment and is ready for launch. Received two new registration from MCC, South Africa Aurobindo Pharma disclosed that Medicines Control Council (MCC) South Africa has granted approval to manufacture and market 2 more products in South Africa, namely, `Auro-Amplicillin` 500 mg and 100 mg in an injection form with an active ingredient `Ampicillin Sodium` in the anti-infective category and `Auropidone` 0.5 mg in a tablet form with an active ingredient `Risperidone` in the CNS category. Aurobindo now has a total of 37 products approved by MCC. Company is a fast-track integrated pharmaceutical company headquartered in Hyderabad, India, producing and marketing active pharmaceutical ingredients (bulk actives), intermediates and specialty generic formulations. 5

6 Domestic & Export breakup of Gross Sales Care assigns Credit Ratings India`s Aurobindo Pharma (APL) National Long-term rating at `A+(ind)`. At the same time, Fitch has affirmed and assigned ratings for Rs.1,083 million outstanding long-term bank loan: affirmed at `A+(ind)` and Rs.5,750 million interchangeable fund based working capital limit: affirmed at `A+(ind)/F1+(ind)` Peer Group Comparison Name of the company CMP(Rs. ) Market Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend(%) Aurobindo Pharma Ltd GSK Merck Wyeth Key Concerns Competition from MNC s Transformation of process patent to product patent Frequent change of exchange rates 6

7 Financials Results 12 Months Ended Profit & Loss Account (Standalone) Value(Rs. in million) FY08A FY09A FY10E FY11E 12m 12m 12m 12m Description Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross Profit Depreciation Profit before Tax Tax Profit after Tax Extraordinary Items Net Profit Equity Capital Reserves Face Value Total No. of Shares EPS

8 Quarterly Ended Profit & Loss Account (Standalone) Value(Rs. in million) 30-Jun Sep Dec Mar-10E 3m 3m 3m 3m Description Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross Profit Depreciation Profit before Tax Tax Profit after Tax Extraordinary Items Net Profit Equity Capital Face Value Total No. of Shares EPS

9 Charts: 9

10 1 Year Comparative Graph Aurobindo Pharma BSE SENSEX Outlook and Conclusion At the current market price of Rs , the stock is trading at 8.69 x FY10E and 8.08 x FY11E respectively. Price to Book Value of the stock is expected to be at 2.57 x and 1.95 x respectively for FY10E and FY11E. Earning per share (EPS) of the company for the earnings for FY10E and FY11E is seen at Rs and Rs respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 17% and 27% over 2008 to 2011E respectively. On the basis of EV/EBITDA, the stock trades at 5.37 x for FY10E and 5.08 x for FY11E. We expect that the company will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs for medium to Long term investment. 10

11 Industry Overview The Indian Pharmaceutical Industry (IPI) today is in the front rank of India s science-base industries with wide ranging capabilities in the complex field of drug manufacture and technology. Accounting for two percent of the world's pharmaceutical market, the Indian pharmaceutical sector has an estimated market value of about US $8 billion. It's at 4th rank in terms of total pharmaceutical production and 13th in terms of value. It is growing at an average rate of 7.2 % and is expected to grow to US $ 12 billion by From simple headache pills to sophisticated antibiotics and complex cardiac compounds, almost every type of medicine is now made indigenously. The Indian Pharmaceutical sector is highly fragmented with more than 20,000 registered units. It has expanded drastically in the last two decades. The leading 250 pharmaceutical companies control 70% of the market with market leader holding nearly 7% of the market share. It is an extremely fragmented market with severe price competition and government price control. Over the last two years the pharmaceutical market value has increased to about US $ 355 million because of the launch of new products. According to an estimate, 3900 new generic products have been launched in the past two years. These have been by and large launched by big brands in the pharma sector. And in the year 2005 Indian pharmaceutical companies captured around 70% of the domestic market. With the Product Patent Act, which came into action in January 2005, this industry is able to attract big MNCs to India. Earlier these big firms had apprehensions in launching new drugs in the Indian market. As in the present scenario, only a few people can afford costly drugs, which have increased price sensitivity in the pharmaceutical market. Now the companies are trying to capture the market by introducing high quality and low price medicines and drugs. At present, a large number of Indian pharmaceuticals companies are looking for tie-ups with foreign firms for in-license drugs. Contract research and pharmaceutical outsourcing are the new avenues in the pharmaceutical market. Contract manufacturing 11

12 is growing at a very fast pace and is estimated to grow to US $30billion, whereas contract research is estimated to reach US$6-10 billion. Indian multinational companies like Dr.Reddy's Lab, Cipla, Ranbaxy, Wockhardt etc have created awareness about the Indian market prospects in the international pharmaceutical market. Approvals given by Foods and Drugs Administration (FDA) and ANDA (Abbreviated New Drug Application)/DMF (Drug Master File) have played an important role in making India a cost-effective and high quality product manufacturer. Furthermore, the changes that took place in the patent law, change of process patent to product patent, have helped in reducing the risk of loss for intellectual property. The changing dynamics of the global pharmaceutical industry especially that of the regulated markets like USA and Europe have presented a number of opportunities for IPI to capitalize on. Some of the major concerns facing the global pharmaceutical industry are higher healthcare costs, competition from generics, patent expiries of blockbuster drugs, drying R&D pipelines and increasing R&D costs. These translate into a significant growth opportunity for IPI in the form of exports of generics to regulated markets and contract manufacturing/ research for global pharmaceutical companies. The investment in R&D is also on the rise as it has become important for Indian companies to start innovating new drugs in order to ensure long term sustainable growth and remain competitive at the global level. Indian companies have invested in New Chemical Entity (NCE) research and are scouting for global partners for pursuing collaborative research. The availability of large patient base, skilled manpower and lower costs of carrying out clinical trials has made India a favorable destination for R&D outsourcing. Industry Strengths: Capital Investment in Technology: Owing to the availability of advanced technology at low costs, the companies can produce drugs at lower costs. Cost Effective: The filing cost of ANDAS and DMFs is comparatively low for the Indian companies. Manpower: There is a large pool of technical experts available at modest salaries. 12

13 Contract Research & Contract Manufacturing: There is a good scope for contract research and contract manufacturing. Infrastructure: There is a well-developed infrastructure for the pharmaceutical industry. Generic Drugs: In the last few years, the generic drug-manufacturing segment has received huge investments, in the process making it more competitive and efficient. Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. 13

14 Firstcall India Equity Research: B. Harikrishna Banking B. Prathap IT A. Rajesh Babu FMCG C.V.S.L.Kameswari Pharma U. Janaki Rao Capital Goods E. Swethalatha Oil & Gas D. Ashakirankumar Auto Rachna Twari Diversified Kavita Singh Diversified Nimesh Gada Diversified Priya Shetty Diversified Tarang Pawar Diversified Neelam Dubey Diversified Firstcall India also provides Firstcall India Equity Advisors Pvt.Ltd focuses on, IPO s, QIP s, F.P.O s,takeover Offers, Offer for Sale and Buy Back Offerings. Corporate Finance Offerings include Foreign Currency Loan Syndications, Placement of Equity / Debt with multilateral organizations, Short Term Funds Management Debt & Equity, Working Capital Limits, Equity & Debt Syndications and Structured Deals. Corporate Advisory Offerings include Mergers & Acquisitions(domestic and cross-border), divestitures, spin-offs, valuation of business, corporate restructuring-capital and Debt, Turnkey Corporate Revival Planning & Execution, Project Financing, Venture capital, Private Equity and Financial Joint Ventures Firstcall India also provides Financial Advisory services with respect to raising of capital through FCCBs, GDRs, ADRs and listing of the same on International Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and other international stock exchanges. For Further Details Contact: 3rd Floor,Sankalp,The Bureau,Dr.R.C.Marg,Chembur,Mumbai Tel. : / / Telefax : info@firstcallindiaequity.com 14

DISHMAN PHARAMACEUTICALS & CHEMICALS

DISHMAN PHARAMACEUTICALS & CHEMICALS HOLD CMP: Rs.216.00 Date: Nov 21, 2009 Key Ratios: Particulars FY09 FY10E FY11E OPM(%) 25 25 25 PAT Margin(%) 14 13 14 ROE(%) 12 10 11 ROCE(%) 21 20 21 P/BV(x) 1.40