Aurobindo Pharma: Should you invest?

About the company: Aurobindo Pharma

• Aurobindo Pharma commenced operations in 1988-89 with a single unit manufacturing Semi-Synthetic Penicillin (SSP) at Pondicherry. The company became a public company in 1992 and listed its shares on the Indian stock exchanges in 1995.
• In addition to being the market leader in Semi-Synthetic Penicillin’s, it has a presence in key therapeutic segments such as neurosciences (CNS), cardiovascular (CVS), anti-retroviral, anti-diabetics, gastroenterology and Anti-biotics.
• It is R&D focused and has a multi-product portfolio with manufacturing facilities in several countries. The formulation business is systematically organized with a divisional structure, and has a focused team for key international markets.
• A well-integrated pharma company, the company features among the top 2 pharmaceutical companies in India in terms of consolidated revenues.
• Its customers include premium multi-national companies. 

Area of Operation:

• Aurobindo Pharma have manufacturing units in India, USA, Brazil and Portugal.
• Among top 3 with over 60% of commercial portfolio in the US in terms of prescriptions.
• Ranked among the top 10 generics companies in 7 countries including four of Top-5 EU countries.
• Aurobindo exports many countries across the globe with around 90% of revenues derived from international operations.
• Product portfolio: Oncology and Hormones, Biosimilars, Dermatology, Respiratory, Depot Injections, Vaccines, Peptides.
• Aurobindo Pharma has a high dependence on the China market for import of Key Starting Materials (KSMs), Intermediates and Active Pharmaceutical Ingredients.
• While their key geographies remain US and Europe, they have a growing presence in emerging markets as well like Africa, the Middle East and Russia where they are managing business by participating in Government tenders and by appointing approved distributors to expand the sales in those markets.

Board of Committees:

Subsidiaries:

70+ subsidiary companies all around the globe.

Competitors:

• Alkem Laboratories Ltd
• Sun Pharmaceuticals Industries Ltd

Shareholding pattern: Aurobindo Pharma

Top Shareholdings:

• Rpr Sons Advisors Private Limited, Mrs.P.Suneela Rani (Jointly Holding) – 33.51%
• LIC if Inida – 5.33%
• K Nityananda Reddy – 4.33%
• Axis Healthcare ETF – 4.13%
• HDFC Trustee Company Ltd – 3.59%

Industry Overview:

• India enjoys an important position in the global pharmaceuticals sector, it is the largest provider of generic drugs globally. Indian pharmaceutical sector supplies over 50% of global demand for various vaccines, 40% of generic demand in the US and 25% of all medicine in the UK. Globally, India ranks 3rd in terms of pharmaceutical production by volume and 14th by value.
• According to the Indian Economic Survey 2021, the domestic market is expected to grow 3x in the next decade. As of August 2021, CARE Ratings expect India’s pharmaceutical business to develop at an annual rate of 11% over the next two years to reach more than US $60 billion in value.

Profit and Loss Statement: Aurobindo Pharma

Consolidated P&L (Rs. Crores)

Key Pointers:

1. Expenses of the company majorly include 40% Material cost and 7% Manufacturing cost.
2. Company incurs a compartively high percentage of material cost among its peers.
3. Strong EPS growth.
4. Strong annual perfromance when compared to immediate peer and industry leader.
5. Sudden high is PBT is due to some exceptional items.

Standalone Balance Sheet (In Rs. Crores)

Standalone Cash Flow (in Rs. Crores)

Financial Ratios: Aurobindo Pharma

Stock Price:

Ratios:

SWAT: Aurobindo Pharma

Strengths:

1. Robust Global presence with 100% owernership in 70+ companies.
2. Large product portfolio which is manufactured and distributed around the world.
3. Strong EPS Growth.
4. Solid Financials in terms of both Revenue and Profit.
5. Exceptionally Strong Cash Flow.

Weaknesses:

1. FIIs have substantially decreased their holdings.
2. Compartively experiances high material cost.

Opportunities:

1. India enjoys an important position in the global pharma sector and the business tend to develop at an annual rate of 11% over the next two years.
2. Well built retained earnings, which can be used for further developments.
3. Undervalued when compared to Industry P/E.

Threats:

1. High dependence on China for imports.
2. Aurobindo Pharma are recalling different products in the US market due to deviation from standard manufacturing norms.

Disclaimer: This shouldn’t be construed as a stock recommendation, investors discretion is advised while investing.

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Team, MyGoalMySip.