A Superlative Strikeback From Aurobindo Pharma In Q1

In the June 2013 quarter, Hyderabad-based Aurobindo Pharma has reported a net profit of Rs 18.6 crore against a net loss of Rs 129 crore seen a year ago. The company has come back to profits despite a notional forex loss of Rs 172 crore. Its net revenues for the quarter grew by 42% to Rs 1670 crore owing to strong growth in the exports segment.

The company has reported a nearly two-fold growth in its US business, and the revenues from there shot up by 90% to Rs 624 crore. The revenues in the rest of the markets (including Europe) grew by 53% to Rs 284 crore. Overall, its exports grew by 56% to Rs 1266 crore. The revenues in the domestic market grew by 8% to Rs 378 crore.

The Anti Retroviral (ARV) segment revenues also went up by 37%, which is highly commendable especially for the fact that the company had decided to focus on value growth and not on volumes growth in the ARV segment.

On the EBITDA front, the company has reported margins of 18.10% against 11.67% a year ago. Even on a sequential basis, the margins saw an expansion of 264 basis points. This was mainly due to the decline in material costs as a percentage of sales. The employee costs as a percentage of sales also dropped. This, coupled with the higher sales, showed up positively in its EBITDA margins.

Further, the interest expenses declined from Rs 33 crore to Rs 25 crore, boosting the profit of the company. Its profit before tax excluding the forex loss tripled on a year-on-year basis, which is indicative of its exceptional financial performance.

At its CMP of Rs 181, the stock is trading at an adjusted TTM PE of 8x. We believe that the valuation is cheaper as compared to that of its peers. Hence, one can enter the counter with a one year horizon. The scrip looks set to gain more than 25% in the remainder of the year.