AUROPHARMA - Aurobindo Pharma Ltd. Share Price

Management provided a positive outlook during the Q4 FY26 earnings call for Aurobindo Pharma, emphasizing ongoing stability across its core businesses and a focus on strategic priorities. Key forward-looking points from the call include:

1. Revenue Growth Target: The U.S. business aims to reach the $2 billion revenue milestone in the near term, leveraging the expansion of the base business, new product launches, and ongoing acquisitions like Lannett.

2. Europe's Strategic Role: Aurobindo sees Europe as a vital growth engine, expecting continued strong momentum driven by portfolio expansion and improved market penetration. The company anticipates at least double-digit growth in this region.

3. Long-term Drivers: Management highlighted that biosimilars and biologics Contract Manufacturing Organization (CMO) strategies are significant long-term growth drivers, with expectations for a diversified product portfolio to achieve a balanced earnings profile.

4. India's Growth Potential: The Indian market is expected to evolve into a new growth engine, strengthened by recent acquisitions and initiatives aimed at expanding therapeutic presence.

5. Production Capacity Goals: Aurobindo has set an annualized production target of over 10,000 metric tons for Pen-G, with expectations of capacity utilization exceeding 80%.

6. Financial Outlook for FY27: Management anticipates EBITDA margins to improve to above 21%, indicating confidence in profitable growth supported by the scale of operations and new business initiatives.

7. R&D Investment: The company plans to maintain its focus on R&D, allocating around 5% of revenue towards research and product development to drive future growth.

These initiatives and targets reflect Aurobindo's commitment to disciplined execution, operational excellence, and long-term value creation amidst a dynamic marketplace.

Q: Your operating cost excluding R&D has increased 11% QoQ and 17% YoY. Can you throw some light on this and is there any one-off element?
A: The increase in costs is mostly due to year-end provisions, which have become routine. The primary reason for the rise is a significant increase in power and fuel consumption at our Pen-G plant in Q4. This trend will likely continue as we shift to using our own 6-APA for production rather than sourcing it, leading to a decrease in raw material costs, ultimately benefiting our gross margins.

Q: How much EBITDA loss did you incur in FY26 from new projects like Pen-G, Eugia Steriles, and the China facility? Will most projects break even in FY27?
A: Last year, we incurred an approximate Rs.200 crores in EBITDA loss mainly from Pen-G and 6-APA. However, we anticipate that the China facility will become profitable this year. For Pen-G and 6-APA, we saw a positive EBITDA contribution last quarter, and we expect these gains to continue year-round.

Q: You mentioned aiming for a $2 billion mark in the US. Any timelines for that?
A: We project reaching the $2 billion revenue milestone in the US within the next couple of years. Our confidence stems from ongoing acquisitions and promising business opportunities we're pursuing.

Q: Are you on track to close the Lannett deal?
A: Yes, we plan to close it by Q2 of the current fiscal year. The timeline faced some delays due to a 76-day government shutdown affecting approvals, but we expect to catch up. Early Q2 is our revised estimate for closing the deal.

Q: Now that you've achieved a €1 billion milestone in Europe, can you indicate how the sales will progress from here?
A: We are optimistic and confident about growing beyond this milestone. Contributions from new launches and tech transfers from China will progressively enhance our business. We aim for a minimum growth rate of double digits, despite current geopolitical challenges.

Q: When do you expect the Biological CDMO unit to start generating revenue?
A: We expect Unit-1 to be commissioned by late 2026. We anticipate revenue generation to start by 2028 after validating initial batches, while Unit-2 is projected to begin contributing by 2031.

Q: When will Pen-G start external sales?
A: External sales have already begun; we sold over Rs.100 crores worth of Pen-G and 6-APA materials last quarter. We expect stronger market uptake in the coming weeks as we have informed customers of available stock.

Q: What is the EBITDA margin for European business?
A: The EBITDA margin for our European business currently exceeds 20%, and we expect it to increase as we grow in this market, especially considering the recent expansion and product contributions from China.

Q: What kind of gross margins should we expect from the biosimilars segment?
A: We anticipate gross margins in the biosimilars space to range from 65% to 70%. As our product mix evolves, we expect margins may rise to 75% with the introduction of differentiating products.

Q: How does INR depreciation impact EBITDA? Specifically, what's the gain from a 1% depreciation?
A: A 1% depreciation of the INR against the USD translates to an approximate increase in EBITDA of Rs.100 crores. However, the effect may vary based on costs increasing due to raw material and freight prices.

Q: What's your guidance for the European business growth? Is it constant currency based?
A: Yes, we project a minimum double-digit growth in the European business, on a constant currency basis, driven by established base business performance and newer product launches planned for FY27.