Analysis Report: Aurobindo Pharma (BUY; Estimated Price: Rs.1076)

About the Company

Aurobindo Pharma Limited is a public pharmaceutical manufacturing organization headquartered in Hyderabad, India. The company fabricates generic pharmaceuticals and active pharmaceutical ingredients. It was established in 1986 by Mr. P. V. Ramaprasad Reddy and Mr. K. Nityananda Reddy. The company initiated operations in 1988-89 with a single unit producing Semi-Synthetic Penicillin (SSP) at Pondicherry. Aurobindo Pharma became a public company in 1992 and listed its shares in the Indian stock exchanges in 1995.
The company’s area of activity incorporates six major product areas: antibiotics, anti-retroviral, cardiovascular products, central nervous system products, gastroenterological, and anti-allergic. Aurobindo Pharma highlights among the top 10 enterprises in India in terms of consolidated revenues. The National Long–term Fitch Rating of the Company has been upgraded to 'IND AA' from 'IND AA–' showing stable standpoint of the Company.

Shareholding Pattern

 Business Description

Aurobindo Pharma Ltd. is a vertically integrated pharmaceutical company that delivers innovative solutions. From discovery to development to commercialization, their growth is aided by cost-effective drug development and substantial manufacturing. It is one of the well-known global suppliers of generic Antiretroviral (ARV) drugs. It focuses on high customer centricity. Its products are updated continuously to suit the changing needs of its customers. It market’s more than 300 products in over 125 countries. It is building and establishing its brand as it gain’s significant strengths in chosen markets. It has strategic alliances with global pharmaceutical majors to cater to their formulation manufacturing needs. Thus, Aurobindo has a sustainable setup of alliances and partnerships across the globe. The company has carved a niche for itself in the global regulated market.

Aurobindo is power-driven by its subsidiary model. The brilliance and hard work of its global workforce, stellar track record, ever-growing infrastructure and cost-competitiveness has well positioned it to overcome the challenges normally associated with the pharma industry. Product Aurobindo is determining its future, by guaranteeing sustainable development with niche and differentiated basket of products, offering the elevated product quality while being cost focused, to address the issues of customers and patients. It has a product existence in key therapeutic segments like SSPs, cephalosporin’s, antivirals, CNS, cardio–vascular, gastroenterology, etc. The company is the business sector pioneer in semi–synthetic penicillin drugs. Formulation– In this section it manufactures formulation for cardio vascular, central nervous system, gastroenterological, anti–retroviral and anti–invective’s. It has created formulations specifically Trandolapril, Captopril, Benazepril Hydrochloride, etc. Active Pharmaceutical Ingredients (API) – Aurobindo’s five units for APIs and four units for formulations are designed for the regulated markets. Organic Intermediates– It produces wide range of organic intermediates namely Desmethyl Azithromycin, Methanamine, Benz imidazole, ECPPA and many more. Geographical Presence Aurobindo Pharma has distinguished worldwide operations, taking into account more than 100 nations, as a major engine of growth and extending worldwide system of advertising and assembling operations across countries such as China, Brazil, Japan, Netherlands, South Africa, Thailand, UK, USA, Russia, Netherlands and numerous more which will expand its international reach. It has set up abroad branches/representatives offices situated in Ethiopia, Tanzania, Kenya, Uganda, Italy, Ghana, Vietnam, and United Kingdom. Aurobindo exports to more than 125 nations over the globe with more than 70% of its incomes derived out of worldwide operations. Its promoting accomplices incorporate AstraZeneca and Pfizer. In 2014, Aurobindo bought the generic operations of Actavis in 7 Western European nations for $41 million. In 2011 Aurobindo Pharma received Platinum Certificate of Outstanding Exports Award from Pharmexcil. Industry Analysis The Indian pharmaceutical industry is 3rd largest in terms of volume and 10th largest in terms of value. This demonstrates the way that India gives world class generics at a low-cost. India is the largest supplier of generic drugs globally with the Indian generics representing 20 per cent of global exports in terms of volume. India enjoys a significant position in the global pharmaceuticals sector. The country also has an expansive pool of researchers and specialists who can possibly direct the business ahead to a much larger amount. India exports drugs to almost all crucial pharmaceutical markets including mature ones such as US, European Union and Japan. The Indian pharmaceutical industry has been developing at an intensified yearly development rate of more than 15% over the last five years and has significant growth opportunities. (PwC-CII). The Addendum 2015 (by IPC) is projected to play an important role in upgrading the nature of prescriptions that would thusly advance general wellbeing and quicken the development and improvement of pharmaceutical area. Market Analysis Aurobindo Pharma highlights among the top 10 endeavours in India in terms of consolidated revenues. It has developed as the 10th largest and fastest growing organization in the US (by prescriptions). Itis the business sector pioneer in Semi-Synthetic penicillin and stands among the top pharma companies in India. Itis targeting an income of over $ 3 billion (over Rs 19,800 crores) by 2017-18 and plans to grow its basket with new drugs to treat cancer and hormonal diseases, as also with various nutraceuticals and Over the Counter (OTC) products. Aurobindo has additionally created and made filings for four items in injectable portfolio that are controlled in the pre-working procedure. It is working towards recording one more item inside of the following 12 months The addressable market for all five products is $ 400 million in the US. Firstly, the products are likely to be launched in Brazil and Mexico in 2016. The organization is additionally investigating entering Nano spheres which have a much bigger business sector, where the items have an addressable business sector of about $ 3 billion in the US.

Financial Analysis

Aurobindo Pharma has shown tremendous growth in the past 5 years. Its total assets have grown by more than 100% during the last five years. Its total assets increased by 36.09 % from Rs. 9489.82 crores in the previous year to Rs. 12914.48 crores in 2014-15 whereas total liabilities increased by 35.33 %, from Rs. 5714 crores to Rs. 7732.75 crores. Aurobindo Pharma has debt/equity ratio of 0.75 and its reserves and surplus has increased from Rs. 3721 crores in the previous year to Rs. 5126.71 crores in 2014-15. Current assets have increased from Rs. 5631.18 crores to Rs. 8298.80 crores. Less debt and sufficient working capital shows good signal about the company.

Consolidated Balance Sheet Last 5 years

(Rupee in crores)	Mar-11	Mar-12	Mar-13	Mar-14	Mar-15
EQUITY AND LIABILITIES
Share capital	29.11	29.11	29.12	29.15	29.20
Reserves and surplus	2415.72	2310.54	2576.64	3721.00	5126.71
Non-current liabilities	658.96	982.93	1,236.26	1,519.63	1,622.17
Trade payables	776.35	660.14	968.74	1351.20	2051.12
Other current liabilities	1,992.14	2,254.91	2,467.08	2,868.84	4,085.28
TOTAL	5872.28	6237.63	7277.84	9489.82	12914.48
ASSETS
Fixed assets	2,396.02	2,840.06	2,857.38	3,031.39	4,125.27
Other non-current assets	155.08	133.53	283.71	827.25	490.41
Inventories	1,455.27	1,545.56	1,923.59	2,367.54	3,611.30
Trade receivables	1,230.98	1,239.96	1,596.98	2,636.57	3,539.17
Cash and cash equivalents	186.72	70.86	208.45	178.58	469.11
Other current assets	448.21	407.66	407.73	448.49	679.22
TOTAL	5,872.28	6,237.63	7,277.84	9,489.82	12,914.48

Aurobindo Pharma has been growing consistently. Revenue from operating activities has increased by 49.64 % from Rs. 8099.79 crores in the previous year to Rs. 12120.52 crores in 2014-15. Net profit has increased by 34.35 % during the same period, from Rs. 1172.85 crores to Rs. 1575.77 crores. Net profit has a Compounded Annual Growth Rate of 29.32 % for the last 5 years.  That indicates a high growth rate for the company. Cash conversion cycle of Aurobindo Pharma has decreased from 195.15 days in the previous year to 178.40 days in 2014-15.

Consolidated Profit and Loss Statement Last 5 years

(Rupee in crores)	Mar-11	Mar-12	Mar-13	Mar-14	Mar-15
INCOME
Total Operating Revenue	4,381.48	4,627.40	5,855.32	8,099.79	12,120.52
Other income	71.41	24.70	28.54	23.24	96.71
Total Revenue	4,452.89	4,652.10	5,883.86	8,123.03	12,217.23
EXPENSES
Operating Expense	3418.22	4066.1	4994.37	5967.82	9556.9
Depreciation and amortization expense	171.50	200.53	248.74	312.53	332.61
Finance cost	64.65	277.24	266.64	310.16	159.87
Tax Expenses	235.85	233.01	85.17	367.23	601.10
Total Expenses	3,890.22	4,776.88	5,594.92	6,957.74	10,650.48
Profit for the year	562.67	-124.78	288.94	1,165.29	1,566.75

Operating revenue has increased by 4.63 % from Rs. 3280.11 crores in September quarter of financial year 2015-16 to Rs. 3432.08 crores in December quarter of 2015-16. The growth is low because of price pressure.

Profit & Loss Statement of last five Quarters

Particulars(In Crore Rs)	Dec'14	March'15	June'15	Sep'15	Dec'15
Income from operations:
Net sales	3142.46	3143.97	3263.72	3280.11	3432.08
Other operating income	23.7	18.1	56.64	53.36	63.42
Total income from operations	3166.16	3162.07	3320.36	3333.47	3495.5
Expenses;
Cost of materials consumed	1131.29	1032.34	1198.45	1155.06	1238.97
Purchases of stock-in-trade	452.13	336.57	323.48	338.23	377.48
Changes in inventories	-96.75	4.69	-14.1	-24.27	-62.9
Employee benefit expense	334.71	373.32	365.08	375.92	401.02
Depreciation and amortization expense	67.26	84.67	89.11	92.77	99.47
Other expenses	732.61	759.06	722.8	712.94	717.92
Total expenses	2621.25	2590.65	2684.82	2650.65	2771.96
Profit from operations	544.91	571.42	635.54	682.82	723.54
Other income	35.92	6.74	29.11	11.66	6.87
Profit from ordinary activities	580.83	578.16	664.65	694.48	730.41
Finance cost & Foreign exchange gain/loss	42.09	21.41	46.43	81.97	9.77
Profit before tax	538.74	556.75	618.22	612.51	720.64
Tax expense	156.34	153.4	186.53	162.2	185.99
Profit after tax	382.4	403.35	431.69	450.31	534.65
Minority interest	-1.95	-0.45	-0.75	-1.45	-0.3
Net profit	384.35	403.8	432.44	451.76	534.95

The pharmaceutical industry has a stable future as per our analysis and understanding. Given Aurobindo Pharma’s growth history, this company would grow with the industry and remain one step ahead of the industry. Using the discounted cash flow method, we project the stock price of Aurobindo Pharma to be around Rs. 1076.

Consolidated Balance Sheet Projected 5 Years

(Rupee in crores)	Mar-16	Mar-17	Mar-18	Mar-19	Mar-20	Terminal
EQUITY AND LIABILITIES
Share capital	29.20	29.20	29.20	29.20	29.20	29.20
Reserves and surplus	6828.50	8663.73	10641.86	12772.25	15063.98	17375.95
Non-current liabilities	1622.17	1622.17	1622.17	1622.17	1622.17	1622.17
Current Liabilities	5956.56	6143.68	6349.52	6575.95	6825.02	6962.00
TOTAL	14436.4	16458.8	18642.8	20999.6	23540.4	25989.3
ASSETS
Fixed assets	4631.32	5187.85	5806.97	6502.82	7291.96	8193.83
Other non-current assets	490.27	490.27	490.27	490.27	490.27	490.27
Inventories	3288.36	3617.20	3978.92	4376.81	4814.49	5055.22
Trade receivables	3396.66	3736.32	4109.95	4520.95	4973.05	5221.70
Cash and cash equivalents	1970.11	2767.43	3596.93	4449.01	5310.88	6368.60
Other current assets	659.57	659.57	659.57	659.57	659.57	659.57
TOTAL	14,436.29	16,458.64	18,642.61	20,999.43	23,540.22	25,989.19

 Consolidated Profit and Loss Projected 5 yrs.

Price Performance

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References

www.aurobindo.com

https://industryoutlook.cmie.com/

http://www.pwc.com/gx/en/industries/pharmaceuticals-life-sciences/pharma-2020/industry-strategies-trends-analysis.html

About the Author

This report has been prepared by Saumya Mehta and Abhishek Gulyani and published by Jayant Gupta. They are pursuing MBA from Institute of Management, Nirma University located in Ahmedabad, India.

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