Aurobindo Pharma Ltd’s March quarter results were a step ahead of the Street’s expectations with revenues and profitability showing all-round improvement. The steady Q4FY20 performance pushed its share price higher by about 3% on Thursday.

Aurobindo’s revenue growth across geographies is encouraging, particularly from the overseas markets. Its US formulations business clocked a steady growth of 21% year-on-year (YoY) in Q4. Europe formulations business also saw a decent increase of about 26% YoY. The increase in anti-retroviral sales were a decent 31% y-o-y. Some of this could be attributed to pre-stocking though.

Its Rest-of-the-World business stood at 30% YoY, which was even ahead of the US market. The only disappointment was its active pharmaceutical ingredient (API) division, where growth slid about 18%. Nevertheless, its overall revenue grew 16%, which is about 4-5% ahead of the Street’s estimates.

This decent revenue growth aided gross margin improvement. While staff costs and other expenses increased, lower research and development expenses counter-balanced the operating-margin growth. Earnings before interest, tax, depreciation and amortisation (Ebitda) margins for the quarter was at 21.8%, which was an improvement over the 20% in the year-ago quarter. Raw material costs were lower aiding the margin growth.

Aurobindo’s new drug application filings for 17 drugs during the quarter is positive. These include about 10 injectables, which tend to have a higher margin. Of course, drug approvals need to be watched, but the pipeline looks encouraging.

In addition, the balance sheet showed a healthy improvement over last year. The company reduced about $87 million in debt in Q4, bringing down its overall net debt to about $359 million. This is more than half of the $724 million debt at end-FY19.

Another positive is that profitability has improved due to a lower tax rate. Given the company has been reducing its net debt, the cash flows are expected to improve in the coming quarters. Some of that reflects in its stock price. Further, the broader market interest in pharmaceutical stocks has also driven the stock up by70% in 2020. Of course, its launch pipeline, particularly in the US, needs to be watched for indications of future growth.

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