Analysts remain positive on Aurobindo Pharma, expect stock to return 8-30% after Q3 earnings

Aurobindo Pharma shares continued to decline on February 11, falling a percent intraday on top of a 2 percent loss in the previous session after December quarter earnings.

The stock was quoting at Rs 754.55, down Rs 6.10, or 0.80 percent on the BSE, at 1112 hours IST.

Aurobindo’s revenues grew around 22 percent YoY to Rs 5,270 crore, largely led by the US (around 46 percent of sales) and API segment (around 17 percent of sales). The US sales were up around 22 percent YoY, while API segment sales were up around 20 percent YoY. Other geographies also reported healthy growth.

Gross margin (GM) fell 340bp YoY to 55 percent (-200bp QoQ), partly due to one-time provision for penalty on supply failure of some products in the US market, and change in product mix. EBITDA margin also contracted around 300bp YoY (-100bp QoQ) to 20.6 percent.

R&D spend was higher by around 120bp YoY to 4.8 percent (as a percentage of sales), partially offset by lower other expense (down around 150bp YoY). Adjusting for forex gain and acquisition-related exceptional expense, PAT increased around 5 percent YoY to Rs 690 crore.

Aurobindo has maintained its guidance of 30 percent YoY growth in injectable sales. Further, the company filed 10 ANDAs, including 4 injectables, taking the cumulative ANDAs pending for approval to 122. ARBP maintained its guidance of strong pace of filing over 4-5 years.

Brokerage houses remained positive on the stock and expect the stock to return 8-30 percent after the third-quarter earnings.

Brokerage: Credit Suisse | Rating: Outperform | Target: Rs 840 | Return: 10 percent

We maintained outperform call on the stock with a target price at Rs 840 apiece after strong Q3 earnings performance.

High debt of $1.6 billion constrained room for further inorganic growth. The extent of competition in Ertapenem is most important in near term.

Brokerage: Citi | Rating: Buy | Target: Rs 1,000 | Return: 31 percent

Company reported strong topline with softness on margin. We have a buy call on the stock with a price target at Rs 1,000, implying a 31 percent potential upside.

It is best placed to navigate the changing generics landscape. Aurobindo can gain volume share as peers rationalise portfolios.

Brokerage: CLSA | Rating: Outperform | Target: Rs 820 | Return: 8 percent

We have outperform call on the stock with a price target at Rs 820 as the key surprise in Q3 earnings was 9 percent QoQ increase in US sales with near-flat price QoQ.

Aurobindo is likely to complete the three recent acquisitions through the first half of FY20. Acquisition could together add more than $1.2 billion to its topline.

Focus over the next two years will be on integrating acquisitions.

Brokerage: Motilal Oswal | Rating: Buy | Target: Rs 940 | Return: 24 percent

We tweak EPS estimate for FY20/FY21 to Rs 59/64 to factor in lower gross margin/other income and roll target to 15x (unchanged) 12-month forward earnings to arrive at price target of Rs 940 (prior: Rs 920).

With strong ANDA approval rate, good compliance track record, robust ANDA pipeline, and better business prospects in the EU market, we remain positive on Aurobindo and maintain buy on the stock.

Meanwhile, Aurobindo Pharma closed the acquisition of Apotex’s commercial operations and certain supporting infrastructure in five European countries.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.