Buy Aurobindo Pharma; target of Rs 265: Emkay

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Buy Aurobindo Pharma; target of Rs 265: Emkay

Emkay Global Financial Services is bullish on Aurobindo Pharma and has recommended buy rating on the stock with a target of Rs 265 in its May 9, 2011 research report.

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Emkay Global Financial Services is bullish on Aurobindo Pharma and has recommended buy rating on the stock with a target of Rs 265 in its May 9, 2011 research report.

"Aurobindo Pharma, Q4FY11 results were in-line with expectations. Revenues up 25% YoY to Rs 11.5 billion, EBITDA up 25% YoY to Rs 2.1 billion and APAT up 26% YoY to Rs 1.2 billion. Revenue growth was driven by 51% growth in US and 33% growth in ARV formulations. Base EBITDA margins remained flat YoY and declined 194bps QoQ on account of one-time inventory write-off in US and consultancy fees. On account of sustained momentum in key business Verticals."

"US business (contributed 30%) grew by 51% YoY. The higher than expected growth in US is a positive surprise as its Unit VI was imposed with USFDA Import Alert Ban in Feb 2011. ARV formulations grew by 33% YoY (contributed 15%). Dossier Income stood at Rs 267 million. EBITDA margins declined by 194bps QoQ due to one-time provision for inventory to the tune of Rs 80 million and Rs 20 million towards legal & consultancy charges. Supply agreements with Pfizer and AstraZeneca will drive revenue growth in Europe & RoW markets. We expect these markets to clock revenue CAGR of 50% over the next 2-3 years. Aurobindo has strong product pipeline in the US with 209 filings, 134 approvals and 85 launches - 102 are final and 32 have tentative approvals. Management has guided for dossier income of Rs1.5bn for FY12 which will help the company to offset erosion in margins. EBITDA margins are expected to improve by 100bps over the next 2 years led by better capacity utilization from its Unit VII."

"We expect Aurobindo to report 16% revenue growth in FY12 and 20% growth in FY13. We expect EBIDTA margins to improve from 17.1% in FY11 to 18% in FY13E. Earnings will grow by18% CAGR over FY11-13E. We value the company at 13x FY12 EPS of 20.4 with a target price of 265 and Buy rating. At current price, the stock trades at 9.2x FY12E EPS of Rs 20.4 and 7.5X FY13E EPS of 24.8 which is at a discount to its peers," says Emkay Global Financial Services research report.

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