Buy Aurobindo Pharma; target of Rs 904: Khambatta Securities

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26 Aug, 2025 12:21

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Khambatta Securities's research report on Aurobindo Pharma

Aurobindo‟s revenues grew 20.1% q-o-q and 17.5% y-o-y to Rs 44,462 mn in 2Q FY18 exceeding our expectations. Revenue growth was driven by 9.9% y-o-y growth in US and 38.6% y-o-y growth in Europe during the quarter. API business also revived during the quarter and grew at a modest 5.0% y-o-y.  Adjusted EBITDA increased 30.6% q-o-q and 20.3% y-o-y to Rs 11,276 mn during 2Q FY18. Adjusted EBITDA margin increased 202 bps q-o-q and 58 bps y-o-y to 25.4% in 2Q FY18, exceeding our expectations, mainly due to lower than expected Cost of Goods Sold as percentage of revenues during the quarter.

Outlook
We believe the company‟s margins will improve in the medium term, aided by launch of new products resulting in better product mix over the long term. Hence, we have valued the business at 18x FY 2019E EPS of Rs 51.3 i.e Rs 924 per share. We assume a target EV/EBITDA multiple of 12.0x for FY 2019E EBITDA, to arrive at a target price of Rs 873 per share. Aurobindo‟s DCF valuation is Rs 909 per share. Consequently, using a weighted average methodology we arrive at a share price of Rs 904, generating a 25.3% upside potential in the medium term. Hence, we reiterate our “Strong Buy” rating for Aurobindo Pharma common stock.
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