AUROBINDO - High Operational and Financial Leverage Create Huge Pressure
Auroindo’s sales for Q3 FY12 was in line with our estimates, however, earnings were much below our estimates owing to high overheads. Although Y-o-Y sales grew by 18% EBITDA margin decline of 525 bps ex-dossier income and 1500 bps including dossier resulted into a 40% decline in EBITDA (ex-forex losses). In other words, net capex (net of hive off of China and US facility) of `10b over last 5 years largely funded through debt without any improvement in asset turnover ratio is the core issue. In addition, the USFDA ban on facility has proven to be a big blow for a company that depended on contract manufacturing for growth.
We revise our EBITDA estimate down by 13% for FY12 and 5% for FY13. We reiterate our Underperform rating with a target price of Rs. 77 per share. Our target price is derived out of DCF as we believe this to be the only valuation parameter for a company that is generating negative free cashflows in last 8 out of 9 years.
We revise our EBITDA estimate down by 13% for FY12 and 5% for FY13. We reiterate our Underperform rating with a target price of Rs. 77 per share. Our target price is derived out of DCF as we believe this to be the only valuation parameter for a company that is generating negative free cashflows in last 8 out of 9 years.
COMPANIES MENTIONED
AUROBINDO
AUROBINDO
