Buy Aurobindo Pharma; target of Rs 952: Prabhudas Lilladher

Prabhudas Lilladher's research report on Aurobindo Pharma

We met Aurobindo Pharma at their Hyderabad office and came back confident on management initiatives to address quality control issues and de-risking product, operational and geographical risks. ARBP's success in achieving resolution three times in past 18 months showcased commitment and cohesive organizational structure that professionally manages processes without dependence on key personnel. Noticing the operational risk among large peers in key markets, ARBP strategically envisaged alleviation of concentration risk and regulatory risk on key products/ plants/ markets. It's newly commissioned Unit-16, made to replicate products of Unit-12 for US market, additionally supplies injectable to EU. Likewise, the supply of oral products to EU is also distributed between Unit-15 and Portugal plant. It also plans to set up a new Injectable plant in US to diversify risk in Unit-4 and one more injectable block in Portugal plant to address faster regulatory approval in US and EU, respectively. Similarly, ARBP keeps on evolving its pipeline to move up the value chain. The visibility of gRenvela, Fondaparinux, gToprol XL and gPrevacid ODT increases its presence in complex generics while acquisition of Spectrum pharma, Advent pharma and Apotex Europe will augur well for its prospect in specialty/branded products in FY19E-23E. With filings of 26 products in oncology drugs (Oral, Inj.), ARBP also pushes itself further in the value chain of complex drugs.

Outlook

However, we believe that a large part of valuation gap was attributed due to lack in India formulations. Factoring lack of significant presence in India, we value ARBP at 20% discount to its peers and retain TP at Rs952 (PE 16x of FY21E). We maintain 'Buy'.