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Robust Base; Near-term Revlimid Pressure

Est. Vs. Actual for Q1FY26: Revenue – MISS; EBITDA – MISS; PAT – MISS

Changes in Estimates post Q1FY26

FY26E/FY27E: Revenue: -0.7%/-0.9%; EBITDA: -0.7%/-0.9%; PAT: -0.9%/-1.2%

Recommendation Rationale:

• Q1FY26 Miss; US Weakness Offsets Emerging Market Gains: Aurobindo reported revenue of Rs 7,868 Cr in Q1FY26, missing our estimates. Revenue grew by 4% YoY but declined 6.1% QoQ, primarily due to a drop in gRevlimid sales in the US and price erosion in the API segment. Despite the headwinds, performance was supported by momentum in Europe and growth markets, along with an incremental contribution from the ARV market.

• EBITDA Margins Decline; FY26 Guidance Remains Intact: Gross margins were impacted by 28 bps QoQ and by 56 bps YoY. EBITDA margins decreased by 100 bps YoY and QoQ. EBITDA stood at Rs 1,603 Cr with a 20.4% margin, and excluding gRevlimid, EBITDA grew 12% YoY. Management guided for a 20–21% EBITDA margin in FY26, backed by mix optimisation and efficiency gains.

• Capex Done; Ramp-Up Next: The company has invested Rs 7,000 Cr in the last 2-3 years toward biosimilars, Pen-G, and US/China plants. With no major greenfield capex ahead, commercial ramp-up is expected to drive ROIC and valuations.

Sector Outlook: Positive

Company Outlook & Guidance: Aurobindo Pharma remains confident in sustaining its growth momentum in FY26. It targets high single-digit revenue growth (excluding one-offs), with continued strength in Europe and North America. The company aims to maintain EBITDA margins at 20–21%, supported by a favourable product mix, stable input costs, and operational efficiencies. Over the past two years, Rs 7,000 Cr has been invested in biosimilars and Pen-G (API), with future valuations expected to hinge on returns from these investments. Margin expansion will be further supported by the injectables and biosimilars scale-up and contributions from the Lannett acquisition. Strategic investments in CMO and biologics are expected to fuel long-term growth. Importantly, no new greenfield capex is planned for the next three years, reflecting a focus on optimising existing assets.

Current Valuation: PE 18x for 1HFY27E Earnings (Earlier Valuation: PE 20x/FY26E)

Current TP: Rs 1,400/share (Earlier TP: Rs 1,500/share)

Recommendation: BUY

Financial Performance

Aurobindo Pharma's Q1FY26 results came in below our expectations. The company reported a revenue of Rs 7,868 Cr, up 4% YoY but down 6.1% QoQ. This was due to a drop in gRevlimid sales in the US and price erosion in the API segment. Despite the headwinds, performance was supported by momentum in Europe and growth markets, along with incremental Contribution from the ARV market.In North America, Aurobindo recorded revenue of $408 Mn (4.3% YoY degrowth in constant currency), with an estimated $30 Mn contribution from gRevlimid. The decline was driven by gRevlimid erosion, seasonal moderation, and inventory destocking. Despite this, injectable sales rose 11% QoQ, aided by 15 new launches. Europe maintained its growth momentum with a 9% YoY rise to €241 Mn, putting the company on track to cross €1 Bn in annual revenue by FY26-end. API revenues fell 16% YoY to Rs 916 Cr, impacted by pricing pressure and rising import competition. ARV segment posted strong 55% YoY growth, supported by tender wins and volume uptick. Growth markets rose 9% to Rs 772 Cr. EBITDA stood at Rs 1,603 Cr, with margins at 20.4%, impacted by a sharp drop in gRevlimid contribution. However, adjusted for gRevlimid, EBITDA grew 12% YoY, highlighting strong operational resilience. R&D spend was Rs 367 Cr (4.7% of sales), reflecting continued focus on complex generics and biosimilars. Capex for the quarter stood at Rs 610 Cr ($73 Mn), primarily directed toward biosimilars and new facility expansion. A net cash inflow of Rs 819 Cr ($98 Mn) boosted the company’s net cash position to Rs 1,170 Cr ($140 Mn), while gross debt declined to Rs 7,380 Cr ($884 Mn). PAT for the quarter was Rs 824 Cr. Upcoming Pipelines and Growth Drivers: Aurobindo resumed operations at its Pen-G manufacturing facility in Jul’25 following regulatory clearance, with early signs of improved yields and output. The company received EU approvals for its biosimilar portfolio, with commercial launches expected to begin in H2FY26. Revenue contribution from both Pen-G and biosimilars is expected to start from Q3/Q4FY26. Additionally, the China facility has already commenced invoicing during Q1FY26, while the US-based Dayton site remains a key near-term growth driver, currently awaiting regulatory approval.

Outlook

Growth Momentum and Margin Resilience to Drive FY26 Performance Aurobindo Pharma remains optimistic about sustaining its growth trajectory in FY26, aiming for high single-digit revenue growth (excluding one-offs) with continued momentum in Europe and North America. The company also intends to maintain EBITDA margins around 21%, supported by a favourable product mix, stable raw material costs, and improved efficiencies.

Strengthens Manufacturing and Complex Generics Capabilities Capacity Expansion continues to be a key focus, with the China OST plant now commercialised and expected to contribute meaningfully in FY26. The US-based Dayton OST facility is scheduled for commercial launch later this year, and the Raleigh plant is set to become fully operational soon, expanding into transdermal and respiratory therapies. Aurobindo is also building a robust pipeline in complex generics, including a respiratory partnership with a global pharma major.

Biosimilars and Pen-G Revival to Support Long-Term Growth In the biosimilars segment, the company is making steady progress with recent approvals and pipeline advancement, particularly in regulated markets. The Penicillin-G plant in Kakinada, previously halted due to a fire, is expected to resume post regulatory clearance, having earlier demonstrated promising yields. Management remains confident in the growth potential of biosimilars and Pen-G, underpinned by ongoing investments, compliance, and capacity expansion.

Valuations & Recommendation

Aurobindo Pharma’s future outlook remains strong, supported by upcoming product launches and strategic initiatives in areas such as entry into Biosimilars, peptides, and CDMO services. We maintain our BUY recommendation on the stock with a TP of Rs 1,400/share.

Key Risks to Our Estimates and TP

• The USFDA inspection and issuing of WL/OAI or 483 observations may impact the revenue growth.

• Entry of new players may increase pricing pressures in the injectable portfolio.

• Delay in the launch of Biosimilars in the market.

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