Aurobindo Share price: Sharekhan says BUY, pegs target at Rs 1185
Sharekhan says that Aurobindo Pharma reported a weak performance for the quarter and the adjusted PAT missed estimates. Sales for the quarter at Rs 6002 cr declined by 2.5% yoy, attributable to a 3.6% drop in the formulations segment owing to a 4.5% yoy decline in the US while Europe sales were lower by 6% yoy. The API sales were up 5% yoy for the quarter. The operating profits for the quarter at Rs 1274.6 cr, declined by 5% yoy, while the operating margins 21.2% declined by 56bps yoy and missed estimates
Sharekhan says that Aurobindo Pharma reported a weak performance for the quarter and the adjusted PAT missed estimates. Sales for the quarter at Rs 6002 cr declined by 2.5% yoy, attributable to a 3.6% drop in the formulations segment owing to a 4.5% yoy decline in the US while Europe sales were lower by 6% yoy. The API sales were up 5% yoy for the quarter. The operating profits for the quarter at Rs 1274.6 cr, declined by 5% yoy, while the operating margins 21.2% declined by 56bps yoy and missed estimates. Sharekhan retains Buy recommendation on Aurobindo Pharma with a revised price target of Rs 1185.
Tracking the operating performance, the PAT for the quarter at Rs 800.1 cr declined by 5.9% yoy and missed estimates. Aurobindo’s US business is expected to stage a strong growth ahead. A mix of factors, which includes a sturdy pipeline of new products, expected traction in the lucrative injectables space driven by a strong new product pipeline and commissioning of a new facility for the US coupled with growth in the recently launched products would boost US business’ sales, says Sharekhan.
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Also, Aurobindo Pharma has filed for around 55 ANDA’s in FY21 and this provides comfort on a strong product pipeline that could unveil going ahead. Further the markets of Europe and other regions are gradually opening with the easing of the COVID wave and hence the company expects the patient footfalls to increase as doctors commence OPD’s and elective surgeries. With the demand from Europe and emerging markets also picking up, the company is setting up a green field plant at Vizag to capitalize on this opportunity and expects to be able to cater to the incremental demand. The said plant is expected to be ready within the next 15 months, says Sharekhan.
Aurobindo Pharma currently has a small presence in the complex generics space but is looking to enhance its presence gradually in the segment by focusing on areas of biosimilars, inhalers, transdermal patches and injectables, which bodes well from a growth perspective. The expected commissioning of a 450mn dose vaccine capacity by end of July 2021 provides a new growth avenue for the company. Over the long term, a focus on building and developing a strong portfolio of specialty products (biosimilars, oncology, inhalers, transdermal patches, etc) would be key growth drivers, explains Sharekhan.
Aurobindo Pharma Key positives:
ARV business grew sturdily by 28.7% yoy due to the transition to combination drug TLD (tenofovir and lamivudine)
Aurobindo has launched 19 new products including 10 injectables in the US markets
Aurobindo looks to file to 2 biosimilars each in FY22 and FY23
Aurobindo Pharma Key negatives:
The revenues from the growth markets declined by 18.8% y-o-y while those from the Europe declined by 6%
USFDA clearance for five plants (unit I, IX, XI, VII and US) is yet to be received.
Aurobindo Pharma Key risk:
Delay in the resolution of USFDA issues and product approvals; change in regulatory landscape; and negative outcome of key facility inspection by USFDA can affect earnings prospects
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