Fundamental Analysis Of Aurobindo Pharma: Since the outbreak of the pandemic, there has been a greater emphasis on pharmaceutical companies due to the increased attention on global health concerns. One such company in this sector is Aurobindo Pharma. The company’s stock has once again reached its all-time high in recent days after tumbling from its Covid Highs.
In this article, we shall conduct a Fundamental Analysis Of Aurobindo Pharma and figure out if the stock has the potential to increase further in the future.
Table of Contents
Fundamental Analysis Of Aurobindo Pharma
We’ll begin our Fundamental Analysis Of Aurobindo Pharma by becoming acquainted with the company’s operations and products. Following that, we’ll go into the stock’s financials. The article concludes with a highlight of future plans and a summary.
Industry Overview
India is the world’s largest supplier of generic pharmaceuticals and is well-known for its low-cost vaccines and generic medications. The Indian pharmaceutical sector is currently placed third in terms of volume, having evolved over time into a vibrant business that has grown at a CAGR of 9.43% over the last nine years.
Some of the primary segments of the Indian pharmaceutical industry include generic drugs, over-the-counter medications, bulk meds, vaccines, contract research and manufacture, biosimilars, and biologics.
According to government data, the Indian pharmaceutical industry is worth approximately $50 billion, with over $25 billion of the value coming from exports. Furthermore, India accounts for about 20% of global exports in generic drugs.
India’s pharmaceutical sector is projected to be worth US$65 billion by 2024 and US$130 billion by 2030.
Company Overview
Aurobindo Pharma was founded in 1986 by Mr. P.V. Ramprasad Reddy, and Mr. K. Nityananda Reddy along with a small group of highly committed professionals. The company is involved in the production and commercialisation of generic pharmaceuticals and active pharmaceutical ingredients (APIs) through a vertically integrated approach.
The company operates in key therapeutic segments such as cardiovascular (CVS), neurosciences (CNS), anti-retroviral, anti-diabetics, gastroenterology and Anti-biotics. Currently, it markets over 300 products in various therapeutic segments to more than 150 countries.
The company’s operations can be broadly categorised into APIs and formulation segments. During FY23, the company generated the majority of its business from the formulation segment which accounted for 84.5% of its revenue and the remaining 15.5% was from the API segment.
Aurobindo’s 11 units for APIs / intermediates and 15 units (10 in India, 3 in the USA, 1 in Brazil and 1 in Portugal) for formulations are designed to meet the requirements of both advanced as well as emerging market opportunities.
A well-integrated pharma company, Aurobindo Pharma features among the top 2 Pharmaceutical companies in India in terms of consolidated revenues. Aurobindo exports to over 150 countries across the globe with around 90% of revenues derived from international operations.
As of FY23, the company has 25 State-of-the-art manufacturing and packaging facilities, 9 research and development centres and over 1500 Scientists and analysts involved in R&D through which the company operates its business
Aurobindo Pharma – Financials
Using the annual reports declared by the company, we will now conduct a fundamental Analysis Of Aurobindo Pharma.
Revenue and Net Profit Growth
The profit and loss account indicates that the company has increased its revenue from ₹19663.6 crores in FY19 to ₹24855.4 crores in FY23. This gives the company a CAGR of 6.03% on its revenue.
In FY23 revenue increase can be attributed to 4.8% y-o-y growth in the US formulation business, 31.2% y-o-y growth in the Growth markets formulation business, 14.6% y-o-y growth in the ARV segment, and 9.4% y-o-y growth in API business revenue.
On the contrary, we can see that there has been a decline in the profits of the company despite the increasing revenue.
During FY23, the company reported a net profit of ₹1927.7 crores compared to a net profit of ₹2364.7 crores in FY19. This gives the company a negative CAGR of 4.98% on its profits.
The table below shows the total income and net profit of Aurobindo Pharma for 5 financial years:
| Year | Total income (₹ In crores) | Profit after tax (₹ In crores) |
|---|---|---|
| 2023 | 24855.4 | 1927.7 |
| 2022 | 23455.5 | 2647.1 |
| 2021 | 24774.6 | 5333.8 |
| 2020 | 23098.5 | 2845.1 |
| 2019 | 19663.6 | 2364.7 |
| 4-year CAGR growth | 6.03% | -4.98% |
Let us now analyse the margins of the company to understand the reason behind the company’s decrease in profits
Margin Analysis
Looking at the margins of the company, we can notice a decline in the operating and net profit margins of the company from FY22.
The decline in operating profit margins in FY23 can be attributed to pricing pressure, especially in the US generic business, as well as higher overheads and expenses relative to revenue.
The net profit margins of the company were further impacted due to factors higher finance costs and tax rates. During FY23, the company reported an operating and net profit margin of 15.1% and 7.8% respectively.
The table below shows the operating profit margins and net profit margins of Aurobindo Pharma for 5 financial years:
| Year | Operating Profit Margin | Net Profit Margin |
|---|---|---|
| 2023 | 15.10% | 7.80% |
| 2022 | 18.70% | 11.30% |
| 2021 | 21.50% | 21.50% |
| 2020 | 21.10% | 12.30% |
| 2019 | 20.20% | 12.10% |
Return Ratios: RoCE and RoE
The impact of declining profits can be noticed in the return ratios of the company. The ROE and ROCE of the company are on a declining trend from FY23.
During FY23, the company reported an ROE and ROCE of 7.5% and 9.5% respectively. This indicates that the company has not given good returns to shareholders’ capital and has not been able to utilise its resources efficiently in recent years
The table below shows the ROE and RoCE of Aurobindo Pharma for 5 financial years:
| Year | ROE | ROCE |
|---|---|---|
| 2023 | 7.50% | 9.50% |
| 2022 | 11.40% | 13.30% |
| 2021 | 27.50% | 18.90% |
| 2020 | 18.50% | 18.20% |
| 2019 | 23.00% | 17.90% |
Debt & Interest Coverage Ratio
If we take a look at the leverage situation of the company, we can notice that the company has reported a negative debt to equity ratio in the last three years. The negative debt-toequity ratio can be attributed to the increasing reserves of the company.
Additionally, the company’s interest coverage ratio was reported at 20 during FY23. This indicates that the company has earned enough gross profits to meet its interest expenses 20 times.
The table below shows the leverage ratios of Aurobindo Pharma for 5 financial years:
| Year | Debt to Equity | Interest Coverage Ratios |
|---|---|---|
| 2023 | -0.05 | 20 |
| 2022 | -0.1 | 73.6 |
| 2021 | -0.04 | 61.2 |
| 2020 | 0.16 | 24.9 |
| 2019 | 0.36 | 20.9 |
Future Plans Of Aurobindo Pharma
So far we looked at the previous fiscals’ data for our fundamental analysis of Aurobindo Pharma. In this section, we’ll try to make sense of what lies ahead for the company and its investors.
- The company has invested $93 million in capital expenditures in relation to the PLI project. This investment is intended to enhance its manufacturing capabilities and drive growth in line with the government’s initiatives.
- The allocated $44 million for capital expenditures to support the expansion of its operations in new markets such as China, the United States, and the Biologics segment. These investments are important for capturing opportunities in high-potential markets and diversifying their revenue streams.
- The company aims to shift towards a higher mix of complex products within its dominant categories, contributing to its long-term growth and differentiation.
- The company aims to expand its injectable business by establishing a dedicated facility in Vizag by FY24, to cater for growing demand in the EU and emerging markets.
- The Penicillin-G project of the company is on track and will begin its shipment in April 2024. This investment is said to strengthen its position in the market.
- The company will continue its ANDA’s and market authorizations which will allow it to leverage its existing capacity and resources. This will help them to capitalize on new opportunities, expand their product portfolio, and further enhance their market presence.
- The company is focused on building a robust portfolio of peptide-based APIs in areas such as oncology and diabetology. This will enable them to expand their therapeutic offerings.
Key Metrics Of Aurobindo Pharma
We are almost at the end of our Fundamental Analysis of Aurobindo Pharma. Let’s take a quick look at the stock’s important metrics.
| Particulars | Figures | Particulars | Figures |
|---|---|---|---|
| CMP | ₹ 1,015.35 | Market Cap (Cr.) | ₹ 59,537 Cr |
| EPS | 39.69 | Stock P/E | 25.33 |
| RoCE (%) | 9.50% | RoE(%) | 7.50% |
| Promoters Holding | 51.83% | Debt to Equity | 0.18 |
| Net Profit Margin(%) | 7.80% | Operating Profit Margin(%) | 15.10% |
In Closing
As we conclude our fundamental analysis of Aurobindo Pharma, we can draw the conclusion that, though the company has increasing revenues, its profits were affected by various external and internal factors.
The company has positioned various plans of action to counter these problems. If they are able to tackle these issues, they can expect favorable growth in the future.
It is also important to note that investment decisions should not be based solely on the information provided above. It is recommended that individuals conduct their own research before making any investment decisions.
What are your thoughts on the future of Aurobindo Pharma? Please share in the comments section.
Written By Aaron Vas
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