Hold Aurobindo Pharma Ltd For Target Rs.765 - ICICI Direct
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Margin pressure, US slowdown weigh on numbers…
About the stock: Aurobindo is a significant global generics player with 28 manufacturing facilities, including eight key formulations facilities in India and abroad along with three R&D centres. The current employee strength is more than 8000, which includes more than 750 scientists
FY21, API: formulations ratio was at 12:88. US formulations constitute 50% of revenues followed by Europe (24%), APIs (12%), RoW (6%) & ARV (8%)
Aurobindo is setting up a plant for production of Penicillin-G with capacity of 15,000 MT for | 1850 crore, under the PLI scheme
Q3FY22 Results: Results were below our estimates with margins being impacted by high input and freight costs along with price erosion in the US
Adjusted revenues for Natrol were down 1% YoY to | 6002.2 crore
EBITDA was at | 1016.3 crore, down 25.7% YoY with margins at 16.9%
Consequent adjusted PAT was at | 569.9 crore, down 31.9% YoY
What should investors do? Aurobindo’s share price has remained steady over the past five years (from ~| 679 in February 2017 to ~| 685 levels in February 2022
We maintain HOLD due to 1) weakness in US business as we await cost normalisation in the upcoming quarters and 2) uncertainty on implications of diversifying into the domestic business
Target Price & Valuation: Valued at | 765 at 12x P/E on FY24E EPS of | 63.6
Key triggers for future price performance:
As per IQVIA December, 2021, Aurobindo’s 719 ANDAs have an addressable US market size of ~US$140 billion
Aurobindo has one of the most enduring generics ecosystems among peers but recent cGMP related issues at some of the plants continue to weigh
The company plans to venture into complex areas like biosimilars, vaccines & complex injectables. Additionally, participation in the PLI scheme will enhance its backward integration in antibiotics, open new revenue streams
It engages in continuous US filings & launches, incremental launches and filings in the RoW markets along with site transfers and supplies for products covered under the European deals
Alternate Stock Idea: Apart from Aurobindo, we like Cipla in healthcare coverage.
Cipla’s core strength lies in following a calibrated approach of focusing more on branded products and core therapies across the world
BUY with a target price of | 1100
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