Aurobindo Pharma Q3 Earnings Review: Shares Rise As Analysts Bet On Growth Prospects

Analysts are betting on expected launches in the US and Europe, lower price erosion in the US, R&D investments in biosimilars, and Aurobindo Pharma Ltd.'s global injectables business after the third-quarter earnings.

Aurobindo Pharma's net profit fell 19% year-on-year, missing estimates. Its revenue was up 7% at Rs 6,407 crore, and Ebidta margins were at 14.9%.

Shares of the drugmaker gained 1.3% to Rs 476.50 apiece as of 10:18am on the Bombay Stock Exchange Ltd. This after the stock closed 6.4% higher on Friday after the earnings announcement.

Of the 32 analysts tracking the stock, 24 recommend a ‘buy,’ six suggest a ‘hold,’ and two rate a ‘sell,' according to Bloomberg data. The average 12-month price target implies an upside of 19.4%.

Here's what brokerages have to say about Aurobindo's Q3 FY23 results...

• Maintains a ‘neutral’ rating with a target price of Rs 500 apiece, implying an upside of 7%.

• Delivered better-than-expected Q3 of FY23, led by healthy traction in the U.S., antiretrovirals, and Europe segments.

• But earnings were below estimate—a 7% miss—due to higher depreciation/interest cost/tax outgo for the quarter.

• The company remains on track with respect to product development in the biosimilar space.

• Over the medium term, it is also witnessing a ramp-up in its global injectables business.

• Raise the earnings estimate to factor in

  a) the impact of a reduction in price erosion on the base business;

  b) robust new launches in US/EU and

  c) higher R&D spend on biosimilars

• The company expects to launch g-Revlimid in Q3 FY24.

• Pen-g project is expected to add business FY25 onwards.

• The company has witnessed reduced price erosion in the US base business, and seasonality has supported some growth in US generics.

• Company guided for mid-single digit year-on-year growth prospects in the Europe business over the next 12-15 months

• The R&D spend has been higher for the quarter due to increased spending in clinical trials related to biosimilars.

• This is expected to continue for a few more quarters.

• Drugmaker expects commercialization from the Vizag facility FY25 onwards.

• Aurobindo Pharma is in the process of building additional levers of growth such as the Pen-g project, a biosimilar pipeline, and niche products in the generics space (including injectables).

• However, the earnings CAGR is expected to be moderate at 14% over FY23–25.

• Maintains a ‘buy’ rating with a revised target price of Rs 520 from Rs 600 apiece, implying an upside of 18%.

• Ebidta missed estimates due to higher SG&A and staff costs.

• US and Europe recovered sharply, API shown a decline.

• Ex-injectable US business grew by 4% quarter-on-quarter, led by new launches.

• Given the quarterly run-rate of $100 million for global injectable business, management aims to build $125 million (around Rs 1,000 crore) quarter-on-quarter in FY24.

• Management guided margin to reach at 20% in near future led by new launches and continued growth run-rate in US.

• As pricing and volumes in the U.S. are stable, expect further margin expansion in the coming years.

• Pen-G project is on fast track with $ 100 million already spent and overall investment is expected to be $ 250 million.

• The project has a market size of $250 million (around Rs 2,000 crore) and is expected to add business from FY25 onward.

• On the biosimilar front, R&D spend has been higher for the quarter due to a ramp-up in spending for clinical trials related to biosimilars.

• This is expected to continue for a few more quarters.