Accumulate Aurobindo Pharma; target of Rs 160: Emkay

Emkay Global Financial Services is bullish on Aurobindo Pharma and has recommended accumulate rating on the stock with a target of Rs 160 in its August 8, 2012 research report.

“Aurobindo Pharma, US biz (contr. 26%) grew 6% YoY & was flat QoQ at USD60mn due to lower sales contribution from partners (reduced by 50% YoY to 35-40% this quarter) and no significant contribution from Plavix & Combivir. API biz (contr. 47%) grew 28% YoY to Rs5.9bn led by 15% growth in Ceph APIs. Europe & RoW (contr. 15%) grew 36% YoY to Rs1.9bn led by new product launches. Dossier income stood at Rs68mn In spite of Rs depreciation by 8% QoQ, gross margins were flat at 50% because of growth coming from low margins API business Staff and other expenses were higher by 25% as the company is trying to create its own distribution network in regulated markets vs. partnership model earlier.” 

“Management has guided for 15-20% growth in top-line on back of 25 new launches in US out of which 3 will be in the controlled substances space. The company has 152 ANDA approvals from USFDA, including 126 final approvals and 26 tentative approvals EBITDA margins are expected to improve to 16% going ahead led by better capacity utilization at Unit VII and launch of recently approved products from Unit III. In the long run, top-line growth and margin expansion will happen only when the USFDA’s import alert on its Unit VI gets resolved. USFDA is expected to conduct inspection in Q3FY12.”

“We expect Aurobindo to report 20% revenue growth in FY13 and 15% growth in FY14. We expect EBIDTA margins to improve from 13% in FY12 to 17% in FY13/ 14E. Earnings will grow at 14% CAGR over FY12-14E. We maintain accumulate on the stock with a target price of Rs160. At CMP, the stock trades at 7x FY13E and 6x FY14E EPS,” says Emkay Global Financial Services research report.

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