US outlook a worry for Aurobindo
The Aurobindo Pharma stock was down 8 per cent in trade on Friday and the biggest loser among the BSE 100 companies, after it posted weakerthan-expected June (Q1FY22) quarter results. The stock has been underperforming its peers for the past year, given the flattish trend of revenues on the back of pricing pressure in the US market and lack of immediate triggers.
While the company has invested significantly in developing a differentiated product pipeline, the gains from new drugs will be back-ended. Moreover, heavy investments in facilities may impact its cash flows in the near term.
As was the case in the March quarter, results in the June quarter missed Street estimates. The company reported a 4 per cent decline in revenues YOY; on a sequential basis, the fall was 5 per cent to ~5,700 crore. Brokerages had pegged sales at over ~6,200 crore. Lower formulation sales and the divestment of Natrol business led to the YOY decline; adjusted for Natrol, sales were up 3 per cent YOY.
While Europe, the rest of the world, and active pharmaceutical ingredient sales increased, the decline was largely due to the weak US formulations and antiretroviral sales. The latter, accounting for 5 per cent of turnover, were down 30 per cent on a high base.
Sales in the US market, which accounts for 47 per cent of overall revenues, were down over 6 per cent on a sequential basis (1.5 per cent down YOY). The company indicated that the price erosion was in higher single digits — more than normal. The erosion was due to a build-up of inventory across the supply chain amid weak demand. The company hopes to offset the negative impact of this by fresh launches and higher volumes. While the company launched five products in the quarter, it intends to introduce over 30 products on an annual basis.
To strengthen its portfolio, the company purchased nine over-the-counter products and six abbreviated new drug applications. The portfolio has been purchased at over $100 million; the company expects to generate $30-35 million in the first year from the brands/andas (abbreviated new drug applications), which are complementary to its current basket of products.