Aurobindo Pharma Management Confident Of A Strong FY18: Conference Call Highlights

A man rides past an Aurobindo Pharma Ltd. production facility in Jadcherla, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

Aurobindo Pharma Ltd. reported a net profit of Rs 518 crore in the first quarter of financial year 2017-18, compared to Rs 585 crore figures in the corresponding quarter. The consensus estimate of analysts tracked by Bloomberg had pegged the bottomline at Rs 567 crore.

Shares of the drugmaker gained as much as 5.6 percent to Rs 722 in opening trade, making it the best performer on the benchmark NSE Nifty 50 Index.

In a conference call with analysts the company's management explained the quarter's performance and the business outlook. Here are key takeaways from the call...

Prices erosion at low double-digit percentage rather than high single-digit as was indicated earlier.
Price erosion mainly in the Oral Solids business; Not much price erosion seen in Natrol.
Actavis has grown 8 percent on a constant currency basis this quarter.
The company expects to reduce debt to below $470 million by end of the year from the current $560 million.
Acquisitions, if any, will be to complement the current business; No “exotic” acquisition will be done.
High dependence on China for supply of Active Pharmaceutical Ingredient (API) materials currently.
Cannot budget market dynamics of Renvala Tablets in terms of number of players
Did not include Renvala tablet sales in first quarter earnings.
The first quarter saw one month of sales of Renvela Suspension product.
Unit 4 is under review by the U.S. FDA. Not received an Establishment Inspection Report (EIR) yet.
Tax rate will be 27 percent for FY18 as per estimates.
Not expecting price erosion in base products.
Europe as a whole will have double digit EBITDA margins.

‘Fine Performance In Difficult Times'

Well-known investor Rakesh Jhunjhunwala, who owns 1.12 percent stake in Aurobindo Pharma, also interacted with the management at the conference call. Jhunjhunwala said the drugmaker has managed to put in a “fine performance in difficult circumstances”.

Here's an excerpt of the interaction:

You have had price erosion year-on-year, but from the fourth quarter to the first quarter, there has not been a significant or rather any price erosion. Is that correct?

Yes, the price erosion on quarterly basis has been flat.

Lupin has mentioned in its conference call that there is no price erosion in its portfolio from the first quarter as compared to the fourth quarter. Doesn't this mean that the market is bottoming out, since we don't see price erosion year-on-year, but rather over the preceding three months?

On the base products, we are not expecting a massive erosion. Maybe to the upside or downside of 3-5 percent.

So that ways, the industry is bottoming out, right?

Yes, that's right.

Price erosion has become too popular and widely accepted. Also, Unit 16 is an injectable unit and you have still not launched products from that. Why?

We have launched, we have started exporting.

What would be the expected EBITDA margin and turnover of Europe this year?

In this quarter, Europe EBITDA margin crossed double digit.