Aurobindo Pharma Ltd. has terminated its binding agreement to acquire 51% stake in Cronus Pharma Specialities India Private Limited Rs420 crore. While the Aurobindo management had expected to grow the business (to about $100 million over the next three years), there were concerns about low revenue base ($13million in FY21) and thereby on deal valuation as well. With the agreement now called off, the stock soared 6% in early trade on Monday.
The surge in the stock comes after a period of lacklustre trade. In August will last week, the stock had corrected more than 20% to 52-week lows. The company’s soft June quarter performance had failed to impress the Street and one of the company’s manufacturing facility receiving observations from the US FDA (Food and Drug Administration) had added to investor concerns.
June quarter results were hit by soft performance in the US, which contribute about half to the company’s total sales. Pricing pressure in key products is said to have impacted the performance. Inventory build-up was cited as another reason for the decline in sales. Aurobindo’s US revenues declined 7.4% sequentially to $364 million in the June quarter, below the estimated $397 million. Injectable sales also dropped 8.8% sequentially as demand for elective surgeries remained weak. Investors thereby will be watchful for a rebound in the company’s US sales. The resolution of the US FDA observations will also be monitored.
“We believe Aurobindo’s US portfolio has lower concentration, pricing risk compared to peers, given it is well-diversified (top 25 products accounts for 32% of the revenue)” said analysts at HDFC Securities Ltd.
The company, however, remains on a strong footing in Europe, the next important region for Aurobindo after the US. European Union sales rose 19.7% year-on-year during Q1 and were supported by emerging market revenue growth of 13.7% year-on-year.
“Potential value unlocking of the injectables business and resolution of US FDA facilities are the key near-term trigger,” said analysts at HDFC Securities in their recent report.
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