Buy Aurobindo Pharma; target of Rs 835: Emkay Global Financial

Emkay Global Financial's report on Aurobindo Pharma

Q4 was solid on strong execution across markets (5% revenue beat), sharp gross margin expansion (+290bps qoq) and debt reduction (-US$87mn qoq). EBITDA was 12% higher, while margins were 130bps above estimate at 21.4%. US was in line but mix was weak, with lower injectables/higher Oral solids. Q1 should see a qoq fall, but FY21 trajectory should continue with 50-60 launches (25 already approved). Outside the US, ARV should continue to remain strong with recent tender wins. Key positives from Q4 results/commentary: 1) debt to shrink by US$200-250mn in FY21 and ARBP to be debt-free by FY22, 2) US momentum to stay with 50+ filings/launches, 3) gross margin trajectory to improve to 58-59%, if INR/USD stays at current levels.

Outlook

We upgrade FY21/22E EPS by 6%/4% and revise TP to Rs835, as we roll over to 15x Jun’22E EPS. Retain Buy and maintain significant OW in EAP. Key risk: any meaningful slowdown in the US trajectory/regulatory issues in key plants.

Aurobindo Pharma 05062020-emkay

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