Buy Aurobindo Pharma; target of Rs 910: Motilal Oswal

Motilal Oswal's research report on Aurobindo Pharma

Aurobindo Pharma (ARBP) will acquire the dermatology and oral solids business (sales of USD0.6b in 1HCY18) from Sandoz for a cash consideration of USD900m (includes net working capital of ~USD220m). ARBP guided for sales of USD900m and a company-level EBITDA margin for the first 12 months post completion of the transaction (likely in 1QFY20). Accordingly, the deal turns out to be at an attractive valuation of ~1x EV/sales and ~4.3x EV/EBITDA. The acquisition would add ~300 products (commercialized ones as well as those in the pipeline) and enhance manufacturing capabilities in the US. This would complement the company's existing US business. We expect incremental PAT of ~USD92m on a 12-month basis from this deal. We raise our FY20 EPS estimate by 20% to INR59 to factor in this acquisition.

Outlook

We value ARBP at a 12-month forward P/E of 15x (unchanged) and revise our target price to INR910 (prior: INR750). Re-iterate Buy.