Buy Aurobindo Pharma Ltd For Target Rs.1,080 - Yes Securities
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Our View
* Strong momentum in injectables business to support US business as acceleration unlikely in slow growing oral solids
* Steady margin uptick over next 2 years as better margin injectables business offset to an extent by lackluster oral solids profitability
* Net cash balance sheet offers comfort; as also gives firepower to plug gaps in US portfolio
* FY21 estimates change as gains from Natrol sale are crystalized; minor 2% cut to FY23 EPS on marginally lower US sales assumption
* BUY stays on unchanged 15x PE; sustained execution to drive stock upside
Highlights
* Adjusted for Natrol, US revs up 10% yoy vs reported 6% yoy. Cc growth at 2% yoy on reported basis. Injectables business remains on strong growth trajectory
* Europe cc growth less than 2% yoy as sales benefited from 12% yoy FX tailwind; company expects European margin to pick up pace from current low double digit run rate
* Margin stood at 21.5% with a gain of 100bps yoy. Gain could have been higher but for loss of export incentive and lack of 1mth of Natrol sales
* Auro took Rs4.3bn provisional write off relating to business and covid in some markets
Risk to our call
Any increased competition in injectables can lead to margin deterioration pretty quickly
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