Fundamental Analysis of Aurobindo Pharma

Fundamental Analysis of Aurobindo Pharma: The increased focus on global health issues since the outbreak of the pandemic has given greater importance to pharmaceutical companies. One such company in this sector is Aurobindo Pharma. The company’s shares have once again hit record highs in recent days after falling from their Covid highs.

In this article, we will perform a fundamental analysis of Aurobindo Pharma and find out whether the stock price is likely to rise further in the future.

Fundamental Analysis of Aurobindo Pharma

We will begin our fundamental analysis of Aurobindo Pharma by getting to know the company’s operations and products. Next, let’s look at equity finances. The article concludes with highlights and a summary of future plans.

Industry Overview

India is the world’s largest supplier of generic drugs and is known for its affordable vaccines and generic drugs. The pharmaceutical sector in India currently ranks third in terms of size and over time has developed into a dynamic business growing at a compound annual growth rate (CAGR) of 9.43% over the last nine years.

The major segments of the Indian pharmaceutical industry include generic drugs, generic drugs, bulk drugs, vaccines, contract research and manufacturing, biosimilars, and biological products.

According to government data, the Indian pharmaceutical industry is worth about $50 billion, of which more than $25 billion is generated from exports. India also accounts for approximately 20% of global generic drug exports.

India’s pharmaceutical sector is expected to grow to USD 65 billion by 2024 and USD 130 billion by 2030.

Company Overview

Aurobindo Pharma was founded in 1986 by Mr. PV Ramprasad Reddy and Mr. It was founded by K. Nityananda Reddy along with a group of highly dedicated professionals. The company is engaged in the production and commercialization of generic pharmaceutical products and active pharmaceutical ingredients (APIs) through a vertically integrated approach.

The company operates in key therapeutic segments including Cardiovascular (CVS), Neuroscience (CNS), Antiretrovirals, Antidiabetics, Gastroenterology, and Antibiotics. We currently sell more than 300 products in various therapeutic segments in more than 150 countries.

The company’s operations can be broadly categorized into the API and Formulations segment. During FY23, the company generated the majority of its business from the formulations segment, which accounted for 84.5% of its revenue, while the remaining 15.5% was generated from the API segment.

Aurobindo’s 11 units for APIs/intermediates and 15 units for formulations (10 in India, 3 in the US, 1 in Brazil and 1 in Portugal) are designed to meet the requirements of both developed and emerging market opportunities.

Aurobindo Pharma, a well-integrated pharmaceutical company, is one of the top two pharmaceutical companies in India in terms of consolidated revenue. Aurobindo exports to more than 150 countries around the world and approximately 90% of its revenue comes from international operations.

As of FY23, the company has 25 state-of-the-art manufacturing and packaging facilities, 9 research and development centers, and over 1500 scientists and analysts engaged in R&D through which the company operates.

Aurobindo Pharma – Finance

Let us now perform a fundamental analysis of Aurobindo Pharma using the annual reports declared by the company.

Increased sales and net profit

According to the profit and loss account, the company’s revenue increased from ₹19663.6 crores in FY19 to ₹24855.4 crores in FY23. This gives the company a revenue CAGR of 6.03%.

The FY23 revenue increase was driven by 4.8% year-over-year growth in our U.S. Formulations business, 31.2% year-over-year growth in our Growth Market Formulations business, 14.6% year-over-year growth in our ARV segment, and 9.4% year-over-year growth in API business revenue.

Rather, we can see that the company’s profits have decreased despite the increase in sales.

During FY23, the company reported a net profit of Rs 192.77 billion compared to net profit of Rs 236.47 billion in FY19. This would result in a negative CAGR of 4.98% for the company’s profits.

The table below shows Aurobindo Pharma’s total revenue and net profit for five fiscal years.

Now, let us analyze the company’s margins to understand what is causing its profit decline.

Margin Analysis

If we look at the company’s margins, we can see that the company’s operating profit margin and net profit margin have declined since FY22.

The decline in operating profit margin in FY23 can be attributed to pricing pressure, particularly in the US generics business, and higher overhead and expenses as a percentage of revenue.

The company’s net profit margin was further impacted by increased financing costs and tax rates. During FY23, the company reported operating and net profit margins of 15.1% and 7.8%, respectively.

The table below shows Aurobindo Pharma’s operating profit margin and net profit margin for five fiscal years.

Rate of Return: RoCE and RoE

The impact of declining profits can be seen in the company’s profitability. The company’s ROE and ROCE have been on a downward trend since FY23.

During FY23, the company reported ROE and ROCE at 7.5% and 9.5%, respectively. This indicates that the company has not been able to generate good returns on shareholder capital in recent years and has not been utilizing its resources efficiently.

The table below shows Aurobindo Pharma’s ROE and RoCE over five fiscal years.

Debt and interest coverage ratio

If we look at the company’s leverage situation, we can see that the company has reported a negative debt-to-equity ratio for the past three years. A negative debt-to-equity ratio can be attributed to the company’s increased reserves.

Additionally, the company’s interest coverage ratio was reported to be 20 in FY23. This indicates that the company has earned enough gross profits to cover its interest expenses 20 times.

The table below shows Aurobindo Pharma’s leverage ratio for five fiscal years.

Aurobindo Pharma’s future plans

So far, we have looked at data from previous fiscal years for a fundamental analysis of Aurobindo Pharma. In this section, we will try to understand what the future holds for the company and its investors.

1. The Company invested $93 million in capital expenditures in connection with the PLI Project. This investment is aimed at strengthening manufacturing capabilities and driving growth in line with government initiatives.
2. Allocated $44 million in capital expenditures to support expansion in new markets, including China, the United States, and the biopharmaceutical sector. These investments are critical to capturing opportunities in high-potential markets and diversifying our revenue streams.
3. The company aims to transition to a higher mix of complex products within its dominant categories, contributing to long-term growth and differentiation.
4. The company aims to expand its injectables business by setting up a dedicated facility in Vizag by FY24 to cater to the growing demand from the EU and emerging markets.
5. The company’s Penicillin-G project is progressing well and is scheduled to begin shipping in April 2024. It is said that this investment will further strengthen its position in the market.
6. The company will continue seeking ANDAs and market approvals to leverage its existing capabilities and resources. This will help us leverage new opportunities, expand our product portfolio and further strengthen our market position.
7. The company is focused on building a robust peptide-based API portfolio in areas such as oncology and diabetes. This allows us to expand our treatment offering.

Key Indicators for Aurobindo Pharma

We are almost done with our fundamental analysis of Aurobindo Pharma. Let’s take a quick look at some important stock indicators.

Finishing

Concluding our fundamental analysis of Aurobindo Pharma, we can conclude that although the company’s revenue has been growing, its earnings have been influenced by various external and internal factors.

The company has developed a number of action plans to respond to these issues. If these issues can be resolved, good growth can be expected in the future.

It is also important to note that investment decisions should not be made solely on the information provided above. Individuals are encouraged to conduct their own research before making any investment decisions.

What do you think about the future of Aurobindo Pharma? Please share in the comments section.

Written by Aaron Barth

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