Neutral Aurobindo Pharma; target of Rs 1300: Motilal Oswal

Motilal Oswal's research report on Aurobindo Pharma

Aurobindo Pharma (ARBP) delivered better-than-expected 4QFY24 performance, led by strong traction in US generics and sustained benefit of reduced raw material prices. After two years of earnings decline, ARBP has delivered a strong 46% YoY growth in earnings in FY24. We expect 15% earnings CAGR over FY24-26, driven by 12%/10% sales CAGR in the US/EU market and 140bp margin expansion. While ARBP continues to build its US generics pipeline, it is also progressing well on biosimilars and Pen-G project to drive better sales prospects and profitability. However, the current valuation of 19x FY25E EPS of INR66 and 17x FY26E EPS of INR74, leaves limited upside from current levels. Maintain Neutral.

Outlook

We raise our earnings estimate by 9%/6% for FY25/FY26, factoring in a) improved profitability due to the ramp-up of the Pen-G project, b) continued benefit from lower raw material prices, c) robust sales traction in growth markets. We value ARBP at 18x 12M forward earnings to arrive at a price target of INR1,300.