Buy Aurobindo Pharma; target of Rs 790: HDFC Securities

HDFC Securities' research report on Aurobindo Pharma

We resume coverage on Aurobindo with a Buy premised on: 1) strong execution track record exhibited by ~530bps increase in prescription share over the past 4 years in US generics; 2) steady progress on a differentiated pipeline should drive long-term earnings sustainability; 3) turnaround of Apotex business will further drive margin expansion of EU business; and 4) strong FCF generation to aid in reducing leverage. The stock has underperformed the sector over the past year by 17%. At 12x FY22e EPS, it trades at a 20% discount to its historical average and 40% discount to the sector.

Outlook

We rate Aurobindo Buy with a TP of Rs 790 on a target PER of 14x FY22e EPS, in line with its 5-year hist. avg. Risks: higher erosion in the US; delay in plant resolution (Unit I, IX, XI and VII); slower margin improvement in Apotex business and lower debt reduction.