March 3, 2011

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BUY

EQUITY RESEARCH REPORT

CMP

- 176

TARGET - 280

INDEX DETAIL

AUROBINDO IN BRIEF
18489 5536
AUROBINDO PHARMA was born of a vision. Founded in 1986 by Mr. P.V.Ramaprasad Reddy, Mr. K.Nityananda Reddy and a small, highly committed group of professionals, the company became a public venture in 1992. It commenced operations in 198889 with a single unit manufacturing semi synthetic penicillins (SSPs) at Pondicherry. Aurobindo Pharma Limited, headquartered at Hyderabad, India, with a consolidated revenue of `36513 million, manufacture generic pharmaceuticals and active pharmaceutical ingredients.
5061 65.80 1376/156 0.58 1.46 8.66 1.0 524804 AUROPHARMA

SENSEX NIFTY INDUSTRY

BIOTECH & PHARMA

SCRIP DETAIL

M. CAP ( CRORE) BOOK VALUE 52WK H/L DIVIDEND YIELD Debt/Equity ratio PE Ratio FV (RS) BSE CODE NSE CODE

The Company's manufacturing facilities have been inspected and approved by several leading regulatory agencies such as US FDA, UK MHRA, WHO, Health Canada, MCC South Africa, ANVISA Brazil. Approximately 53.6% of the gross consolidated turnover comes from the formulations business. The Company's robust product portfolio is spread over 6 major therapeutic/product areas encompassing Antibiotics, Anti-Retro virals, CVS, CNS, Gastroenterological, and Anti-Allergics, supported by an outstanding R&D set-up. The Company has marketing footprints in over 125 countries and employs over 8,000professionals. Aurobindo Pharma has identified international operations, catering to over 100 countries, as a major engine of growth and expanding global network of marketing and manufacturing operations across countries like China, Brazil, Japan, Netherlands, South Africa, Thailand, UK, USA, Russia, Netherlands and many more which will further expand its international reach.

SHAREHOLDING PATTERN

SHAREHOLDING

HOLDING (%) 56.89 0.82 6.62 2.79 24.24 1.96 6.68

PROMOTERS GOVT/BANKS/FII MF INSURANCE COMPANIES FIIS/NRI/OCBS/FOREIGN CORPORATE BODIES GENERAL PUBLIC`

Vision - To become Asia's leading and one among

the top 15 generic pharma companies in the world by 2015.

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WWW.3MTEAM.IN RECENT ANNOUNCEMENT ON 24 FEB

Aurobindo Pharma slumps as US drug regulator bans imports from Hyderabad unit
Aurobindo Pharma indicated that its Unit VI Cephalosporin facility at Chitkul Village, Hyderabad was audited by the US Food and Drug Administration (USFDA) in December 2010. Subsequently, Aurobindo has sent the compliance report to USFDA, which is under review. But, subsequent to the audit findings, USFDA has imposed an import alert on its website for detention on Aurobindo's Unit VI products. Aurobindo is trying to establish contact with USFDA to understand the correct interpretation of such an alert i.e. whether it relates only to sterile products and/or oral products manufactured at Unit VI. Aurobindo said it will ascertain the scope of this import ban alert and request USFDA for a face to face meeting at the earliest and present the facts with a view to comply with all the USFDA regulations and bring back the Unit VI to active operations for US market at the earliest. Until then, Aurobindo indicated that, the development will impact any further shipment from unit VI to US market.

Aurobindo Pharma receives USFDA Tentative Approval

Aurobindo Pharma has announced that the company has received tentative approval from the US Food & Drug Administration to manufacture and market Venlafaxine Hydrochloride Extended-release Capsules 37.5mg, 75mg and 150mg.

The tentatively approved ANDA No. 200834 for Venlafaxine Hydrochloride Extendedrelease Capsules 37.5mg, 75mg and 150mg was filed with Paragraph IV certification and is currently under litigation in the United States District Court for the District of New Jersey [Wyeth LLC v. Aurobindo Pharma Limited, and Aurobindo Pharma USA Inc., Civil Action No. 10-CV-02084]. The product will be launched after the litigation settlement. Aurobindo now has a total of 132 ANDA approvals (99 Final approvals and 33 Tentative approvals) from USFDA.

POSITIVE FOR LONG TERM BUT MAY NEGATIVE IN SHORT TERM

On account of loss of revenue from Unit VI and cost of resolution. Though the stock has already corrected more than 27% in the past days, the import alert will continue to weigh on valuations till further clarity. We continue to remain positive on ARBPs long-term story; however, in the short term, the stock may remain under pressure.

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REVENUE(IN MILLION)
27%

EPS Basic ( RS.)

39%

25% 2008 2008 34% 2009 2010 64% 11% 2009 2010

2008 25569

2009 31677

2010 36513

2008 35.83

2009 15.49

2010 89.12

PAT( IN MILLION)
2008 2009 2010

TERM LOAN (IN MILLION)

2009 2010

26% 29% 63% 11%

71%

2008 2385

2009 1003

2010 5634

2009 1635.1

2010 676.9

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BOOK VALUE

ROCE(%)
2009 2010

230.9

328.2 18%

2009 2010 82%

2009 230.9

2010 328.2

2009 4.6

2010 21.2

DIVIDEND(%)
DIVIDEND(%)

ROE
2009 2010

100% 90%

19%

2009 2010

81%

2009 90%

2010 100%

2009 8.0

2010 34.7

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Key financials

Rs. In millions
PARTICULARS Sales Profit EPS PE Ratio 2009 28852 6904 19.86 16.1 2010 33196 11750 83.16 10.7 2011E 38175 17625 21.6 13.4 2012E 43901 26437 24.0 12.04

Key Ratio

Mar 2010

Mar 2009

Mar 2008

Mar 2007

Mar 2006

Debt-Equity Ratio (x) Current Ratio (x) Fixed Assets (x) Inventory (x) Debtors (x) Operating Profit Margin (%) Gross Profit Margin (%) Cash Profit Margin (%) Return On Capital Employed (%) Return On Net Worth (%)

1.46 1.28 1.64 3.64 3.90 27.14 25.11 19.79 21.88 36.59

1.79 1.44 1.72 3.74 4.02 9.30 6.32 6.01 4.94 5.10

1.98 1.70 1.63 3.51 3.94 18.17 15.43 13.32 12.03 23.62

2.02 1.62 1.57 3.93 3.67 17.72 13.82 13.62 11.36 23.68

1.61 1.32 1.38 3.95 3.23 12.31 8.18 7.13 6.83 6.25

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Balance Sheet Rs.In millions

Particulars Sources of funds Shareholders fund Loan fund Deferred tax liability Total Application of funds Fixed asset Investment Current asset Current liability Total 19143 19447 950 39542 15448 3709 26783 6398 39542 13208 21146 784 35139 11588 2694 26060 5203 35139 2010 2009

PROFIT & LOSS STATEMENT Rs. In. millions

PARTICULARS NET SALES PBT PAT DIVIDEND(Proposed) (Rs.) DIVIDEND (Interim) (Rs.) EPS ( Diluted) (Rs.) 2010 32522 7101 5257 3 3 83.16 2009 27948 1570 1285 1.5 3 19.86 % change 16.36% 352% 309% 100% 318%

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CASH FLOW STATEMENT Rs. In millions

PARTICULARS NET CASH FLOW FROM OPERATING ACTIVITIES INVESTING ACTIVITIES FINANCING ACTIVITIES CASH AND CASH EQUIVALENTS790 OPENING BALANCE CLOSING BALANCE 40.9 2093 733.4 3446 (4062) (141.5) 48.8 (3017) 1609 2010 2009

Purchase of investments include investments made in subsidiaries (692.7)

RECENT NEWS
APPROVAL FROM USFDA
Received USFDA approval to manufacture vancomycin injections at its new facility in Bangalore. The company plans to manufacture all its approved sterile injectables from this facility and subsequently launch them in the US.

The drugmaker expects shipments of vancomycin injections, which fall under its speciality business unit Agila Specialties, to begin this month, it said. Vancomycin is used to treat bacterial infections inside the intestine. With unconstrained capacity, AUROBINDO are now well positioned to take advantage of the significant opportunity for injectable products in the US market

The company expects its speciality business to grow 45% in 2011 to Rs 1,000 crore, it said last week adding the consolidated revenue would grow 25% to Rs 2,200 crore.

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RESULT ANALYSIS
Earnings will continue to be robust through increasing contribution from Pfizer deal and commencement of operations at Hyderabad SEZ
Aurobindo Pharmas 22.7 per cent returns in the current financial year have outperformed the 1.3 per cent rise in the Sensex during the same period. The surge comes on the back of inking a supply and licensing agreement with Pfizer in March 2010, resulting in an improved earnings outlook for Aurobindo. In the US markets Aurobindo filed 15 ANDAs and 3 DMFs during the quarter and received FDA approvals for Anti hypertensive drug Losartan Pottasium and its combinations too.

Going ahead, analysts at 3MTEAM believe that the traction to earnings will continue through increasing contributions from Pfizer deal and commencement of operations at Hyderabad SEZs unit III. The increased product ramp up from Pfizer deal will further increase utilization levels at the SEZ and savings on taxes will further lead to incremental earnings.

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BASED ON TECHNICAL ANALYSIS

3M TEAM

BUY

BUY

BUY ABOVE 185

SL 178
TARGET 220

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ANALYST NAME Deepak Ostwal 3M TEAM Research TEAM

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