Aurobindo rallies on US growth prospects
Completion of Sandoz acquisition and new product launches are key triggers
The Aurobindo Pharma stock rose nearly 8 per cent after the drugmaker posted strong results in the June quarter — both revenues and margins.
Revenue growth at 28 per cent over the year-ago quarter was led by a 42-per-cent spurt in US revenues. This jump was on the back of volume gains, consolidation of Spectrum Pharmaceuticals, and new launches.
While the company has launched 15 products, including four injectables in the quarter, it has lined up 40 launches for the rest of the year, which should keep revenue growth at elevated levels. What should help is the gradual reduction in price erosion, which was limited to 5 per cent in the quarter.
The US, which accounts for about half the consolidated revenues, will be the key growth geography for Aurobindo.
In addition to the current portfolio, the acquisition of Spectrum and Sandoz’s dermatology/oral solids business will add to revenue growth in the US market.
The two businesses increase the footprint of the company’s derma and oncology branded segment and fill the portfolio gaps.
After the completion of Sandoz acquisition, the company is expected to become the second-largest generic player in the US market by the number of prescriptions.
Analysts at ICICI Securities expect the US revenues to grow from ~9,000 crore in FY19 to nearly ~17,000 crore by FY21.
Among other geographies, the company’s European revenues grew 18 per cent, with the management guiding for 8-10 per cent growth over the next two years.
While revenue growth and outlook are strong, what has been positive in the quarter is the improvement in gross margins by 266 basis points to 57.8 per cent due to better product mix.
While good growth and margins should help, the Street will keenly watch out for the progress on the leverage front. The firm, which has net debt of over ~4,000 crore ($593 million), has guided that it will reduce its debt by $150$200 million by the end of the current financial year.
Further, the US Food and Drug Administration’s clearance for the company’s facilities will also act as a rerating trigger.