Aurobindo Pharma Q1 FY27 earnings call

Aurobindo Pharma delivered a robust Q1 FY27, with consolidated revenues increasing by 16% year-on-year to Rs. 9,150 crores. Operating EBITDA stood at Rs. 1,924 crores, achieving a 21% margin, despite a one-time^📎 impact of Rs. 43 crores from derecognition of leased residuals. The gross margin improved to 60.4% from 58.8% in Q1 FY26, reflecting an improved business mix and operating efficiency. Profit after tax was reported at Rs. 1,032 crores, showcasing healthy operating leverage and efficient capital management. The company reiterated its FY27 guidance for double-digit revenue growth and EBITDA margins north of 21%, with absolute EBITDA in excess of 8000 crores.

The quarter's defining milestone was the successful completion of the Lannett acquisition for $247 million, which strengthens Aurobindo's US platform and expands its presence in complex and controlled substances. The US revenues grew by 8.1% year-on-year to Rs. 3,770 crores ($399 million), with 10 new products launched and 10 final approvals received. The Advair launch is scheduled for August, following inventory build-up. Lannett's current utilization is 40%, with plans to reach a 'decent level' within a 12-month timeframe, driven by SGA synergies, operational leverage, and procurement benefits, expecting margin improvements within nine months.

Aurobindo is on track for its US biosimilar filings, with the first three planned for this year, aiming for at least three products in the US by 2030. Four biosimilar approvals have already been received for EU, UK, and Canada, with a target of 7-8 products by 2028-29. The TheraNym Unit 1, a pure-play contract manufacturing organization (CMO), is expected to generate steady revenue from 2028. TheraNym Unit 2 is slated for commissioning by end-2029, with revenues commencing from 2031. Combined, Units 1 and 2 are projected to achieve $150-200 million in revenue from 2032 onwards, with typical EBITDA margins of 35-50%.

The API business contributed Rs. 1,049 crores, accounting for 11% of overall revenues, supported by backward integration. The PEN-G plant is consistently producing 800-900 tonnes, effectively converted into 6-APA and Amoxi. The company is working towards self-reliance in cost structure for PEN-G to mitigate risks from cheaper imports, with the Minimum Import Price (MIP) benefit expected soon. External supplies of PEN-G and 6-APA are ongoing, and the import data for 6-APA shows a drastic reduction, indicating successful domestic supply.

The European business maintained strong momentum, with revenues reaching €267 million, growing 11% year-on-year in constant currency terms. Growth markets revenues increased significantly by 38% year-on-year to Rs. 1,063 crores ($113 million). The company expects double-digit revenue growth for Europe in FY27 and an increasing EBITDA position. The China OSD facility doubled its production over the past 12 months, with an objective to exceed 2 billion tablets capacity by mid-next year, and is expected to turn positive in EBITDA this year, compared to a loss of 7 million last year.

Aurobindo maintains a strong balance sheet with a net cash position of $42 million, even after payments of $85 million for buyback and $247 million for the Lannett acquisition. The average finance cost declined to 4.8% from 5% in the previous quarter. Net CapEx for the quarter was $78 million, primarily directed towards TheraNym Biologics. The net effective tax rate of 31.9% is expected to normalize^📎 to 28-29% by year-end, as the company progresses through its investment phases. R&D expenses for FY27 are projected to be Rs. 1,450-1,500 crores, reflecting a shift from heavy Phase 3 clinical study investments to filing and implementation.

Aurobindo recently acquired A1 Biochem, a CRO with an annual turnover of around Rs. 100 crores. This acquisition is strategic to establish an integrated Contract Research, Development, and Manufacturing Organization (CRDMO) by leveraging existing API plant capabilities. Management envisions scaling A1 Biochem's revenue by three to five times over the next three to five years. The closing of the acquisition is anticipated within the next one to two months.