Buy Aurobindo Pharma; target of Rs 870: ICICI Securities

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ICICI Securities research report on Aurobindo Pharma

Aurobindo Pharma’s (Aurobindo) Q4FY20 performance was above our estimates of revenue/EBITDA/adj. PAT by 5.1%/13.1%/21.0% respectively. Revenues grew 16.4% YoY to Rs61.6bn (I-Sec: Rs58.6bn), EBITDA margin improved 180bps YoY to 21.8% (I-Sec: 20.3%) and adjusted net profit grew 40.3% YoY to Rs8.6bn (ISec: Rs7.1bn). US revenues declined 1.2% QoQ to US$413mn but was above our estimate of US$407mn. Company reduced debt by US$87mn in Q4FY20, taking cumulative debt reduction of US$365mn in FY20. We remain positive on Aurobindo’s long-term outlook considering its strong US pipeline with potential to launch >30 products every year, significant balance sheet improvement with constant net debt reduction every quarter and increasing revenue contribution from complex generics (injectables, opthalmics, penems, etc.). Reiterate BUY.

Outlook

We raise our earnings estimates by 5-6% to factor in higher revenue in US & emerging markets with better gross margin. We maintain BUY on the stock with a revised target price of Rs870/share based on 14xFY22E earnings (earlier: Rs824/share). Key downside risks: regulatory hurdles, currency volatility and delay in US launches.

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