Q3FY24 Review: Aurobindo Pharma: Near-term uncertainties led by Eugia Unit-3

13 Feb 2024 , 12:57 PM

Aurobindo’s Q3 Ebitda, adjusted for one-time claw back tax in EU, was 7% ahead of analysts of IIFL Securities estimates driven by launch of Revlimid and 100-150bps higher margins for the base business (ex-Revlimid). US base business (ex-Revlimid) grew 4-4.5% QoQ in Q3 led by strong growth in OSD. Although Aurobindo’s medium-term growth levers are in place with ramp-up expected in Revlimid, 40 new launches targeted p.a. in the US, and commercialisation of Pen-G API/China plant by Q1/Q2FY25, there are near-term uncertainties owing to the recent ‘483 and production stoppages on the Eugia Unit-3 plant which will impact revenues by USD20m in Q4FY24. While analysts of IIFL Securities remain positive on Aurobindo, they expect the stock to consolidate till incremental clarity emerges on Unit-3 given it accounts for ~50% of company’s pending injectable filings and ~40% of Eugia’s revenue. Analysts of IIFL Securities upgrade FY25/26 EPS by 2-4% led by higher margins and expect 14% core EPS (ex-Revlimid) Cagr over FY24-27. Maintain ADD (TP Rs1280, pegged at ~19.5x FY26 core EPS). 

Mgmt expects to maintain Eugia’s quarterly revenue run-rate at USD150m (incl. Revlimid), barring the USD20m revenue impact expected in Q4FY24 owing to production stoppages. Aurobindo expects to restart non-aseptic production lines by end of Feb’24 and then aseptic lines by end of Mar’24. Unit-3 contributes 40% to Eugia’s revenue, implying US sales contribution of USD140-150m (9-10% of overall US sales). Barring any regulatory setbacks in Unit-3, analysts of IIFL Secirotoes expect Aurobindo’s base US business to clock 6.5% Cagr & Revlimid to contribute USD46/120/140m over FY24-26ii. 

Growth levers in place with Pen-G API/China plant revenue expected to start by Q1/Q2FY25. 40-50% of Aurobindo’s Pen-G API capacities of 15K TPA will be consumed internally and analysts of IIFL Securities expect Aurobindo’s external Pen-G API sales to be USD75/150m in FY25/26 assuming price of USD20/kg. Aurobindo’s EU business Ebitda margins were 10-11% earlier and have improved by 200-300bps now. With China & Vizag plant supplies to EU market, mgmt expects EU margins to improve to mid-teens going forward. 

Biosimilars to aid overall margin improvement from FY27/28, given biosimilars’ GMs of 85% (vs FY24ii consol. GMs of 56%). Aurobindo is targeting bXolair filing and bProlia filing in the regulated markets in 2025 and then potential commercialization in 2026. Mgmt expects bXolair to be a meaningful product, with USD120-180m revenue in the US by FY28 (given limited competition) and another USD20m from the RoW markets.