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Recommendation Rationale

* Growth Driven by Base Business: Aurobindo reported revenue of Rs 8,286 Cr in Q2FY26, broadly in line with expectations. Revenue grew 6.3% YoY and 5.3% QoQ, supported by strong performance in its core base business. Consolidated growth was maintained despite limited contribution from Revlimid, which is expected to taper off entirely from Q3 onwards. Gross margins expanded by 88 bps YoY and 126 bps QoQ, reflecting a structural improvement driven by a superior formulation mix, a leaner cost structure, and an improved product mix across the U.S. and Europe. EBITDA stood at Rs 1,678 Cr, translating to a margin of 20.2%. Management reiterated its guidance of maintaining EBITDA margins in the range of 20–21% for FY26.

* Ramp-up in Pen-G: The Pen-G facility continues to progress well, currently operating at around 40–50% utilization, translating to an annualized output of approximately 6,000 MT. The company aims to gradually scale up production to 15,000 MT, contingent upon the implementation of the Minimum Import Price (MIP) policy.

* New Launches: On the new launches front, Aurobindo remains focused on strengthening its U.S. and European portfolios through a mix of complex generics and differentiated oral and injectable products. The company continues to enhance its presence in chronic therapies and hospital channels, while the Lannett acquisition is expected to meaningfully expand its footprint in the U.S. and Europe, steadily adding injectables and higher-margin Rx products.

* Outlook: Aurobindo remains well-positioned to sustain its growth momentum over the coming quarters, supported by pricing stability in the U.S. base business, continued strong traction in Europe, and healthy uptake in growth markets and ARVs. The company reiterated confidence in achieving its FY26 EBITDA margin guidance of 20%– 21%, driven by an improving product mix, stronger operating leverage, and manufacturing efficiency gains. Key strategic platforms—including Pen-G backward integration, scaling of the China sterile facility, and commercialization of biosimilar and peptide portfolios—are expected to serve as meaningful value drivers over the medium term, with incremental contributions anticipated from FY27 onward. Furthermore, the Lannett acquisition is set to enhance the company’s presence in the U.S. injectable and institutional channels, supporting sustained revenue visibility. Notably, no new greenfield capex is planned for the next three years, underscoring the company’s focus on optimizing existing assets and driving returns on invested capital.

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