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* Aurobindo Pharma (ARBP) is a mid-sized Indian pharma company with one of the largest product portfolios in the US market. Formulation business contributes ~87% to its total sales, while the contribution of API business stands at ~13%.
* With seven marketed oncology injectable products addition and recent Sandoz’s derma and oral solid business acquisition (deal to close by 2HFY20E), we see significant scale in the US operation. Overall business-mix changed towards high-growth and high-margin complex generic segment and we expect this mix to continue in the near future. 40 new products expected to be launched in FY20 in the US.
* Despite challenging environment in the US, we expect ARBP’s US revenue to clock 37% CAGR over FY19-21E led by new launches (139 pending for approval), ramp-up in injectable and contribution from Sandoz and Spectrum acquisition.
* With double-digit margin in European business, we expect further improvement in margin led by cost savings following transfer of products from Europe to Indian manufacturing units.
* At CMP, the stock trades at a discount to its peers owing to higher leverage and pending USFDA issues. We maintain our BUY recommendation on the stock with a Target Price of Rs860.
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