Buy Aurobindo Pharma; target of Rs 257: ICICIdirect.com

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Buy Aurobindo Pharma; target of Rs 257: ICICIdirect.com

ICICIdirect.com is bullish on Aurobindo Pharma and has recommended buy rating on the stock with a target of Rs 257 in its May 11, 2011 research report.

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ICICIdirect.com is bullish on Aurobindo Pharma and has recommended buy rating on the stock with a target of Rs 257 in its May 11, 2011 research report.

"Aurobindo Pharma's Q4FY11 results were almost inline with our estimates. Net sales increased by 26% to Rs 1154.4 crore, above our expectation of Rs 1091 crore, boosted by higher US sales. However, EBITDA margins increased only 22 bps on YoY to 18.7% mainly on the back of higher raw material cost and incremental one time expenses relating to cGMP issues at Unit VI. EBITDA increased by 27.7% YoY to Rs 214 crore inline with our estimates of Rs 224 crore. The growth at net profit was restricted to 12% to Rs 125 crore (as against of our expectation of Rs 117 crore) due to lower forex gains and EO expenses. Despite import alert on the products manufactured at Unit VI facility, US sales posted strong growth of 51% YoY on the back of huge product basket and incremental sales from Unit VII."

"During the quarter, Aurobindo filed 9 ANDAs with the USFDA and received final approval for 4 ANDAs and tentative approval for 2 ANDAs. Total filing as on 31 March 2010 stood at 209. To strengthen and focus on each segment (i.e. API & Formulation) further, the board has formed a restructuring committee to explore and evaluate all restructuring options like spin-off or demerger or any other suitable form to enhance shareholder value."

"Aurobindo Pharma is currently trading at ~9x FY12E EPS of Rs 22.3 and ~7x of FY13E EPS of Rs 28.5, which is steep discount to industry peers on account of the cGMP issues at Unit VI, legacy issues like API model and high leverage etc. Despite import alert from Unit VI, the US business witnessed robust growth. The improvement capacity utilisation at Unit VII will further improve profitability going ahead. We expect total revenues and adjusted profit to grow at a CAGR of 17% and 20%, respectively between FY10-13E. We value stock at Rs 257 based on 9x FY13E EPS of Rs 28.5 and maintain our strong buy rating on the stock. Existing share holders who bought the stock at Rs 191 at the time of initiation can continue to hold," says ICICIdirect.com research report. 

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