Prabhudas Lilladher recommended accumulate rating on Aurobindo Pharma with a target price of Rs 921 in its research report dated November 12, 2020.
Prabhudas Lilladher's research report on Aurobindo Pharma
We increase our earnings estimate by 5% for FY21E and FY22E on the back of early normalization of Auromedics (Gx-Injectable) in US. The 2Q earnings were higher than our estimate due to much higher growth in EM and ARV. ARBP guided 1) injectable revenue contribution to increase to US$650-700m (v/s current US$350m) in next 2-3 years, 2) launch at least one biosimilar in US and Europe market in FY23E, 3) Will not eye big ticket M&A and incremental CAPEX would be only on new product filings and capacity expansion. We believe ARBP Natrol divestment plan, termination of Novartis deal and increased focus on injectable products would lead to lower leverage ratio than expected earlier and better earnings growth with healthy EBITDAM.
We rollover our valuation to FY23E (FY22E earlier) and derive a new TP of Rs921 (earlier Rs808) based on 13x PE of FY23E EPS of Rs71. We upgrade our rating to Accumulate (earlier Hold). Escalation of regulatory issues for Unit-I, IX, VII, XI and Aurolife would be key risk in our earnings estimate.
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