Buy Aurobindo Pharma; target of Rs 874: PLilladher

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26 Aug, 2025 12:21

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Prabhudas Lilladher` s research report on Aurobindo Pharma “Aurobindo Pharma, strategy to leverage on its manufacturing and strong product filings capability is likely to result in strong earnings growth. Unlocking Injectable Portfolio with launches of more products from Unit IV would accelerate growth and margin expansion in US. We believe that main drivers for Aurobindo are a) Business mix improvement with more formulation sales, b) Scaling up of Aurolife’s control substances sales c) Scale‐up of injectable business and d) Higher operating cash flow to reduce debt. Formulation growth will be driven by injectables and orals. It has filed 22 products from Unit IV (NPNC injectable/ophthalmic) and expects approval of 3-5 products to start with. It is targeting US$25-30m sales from this unit in FY14E. The company plans to file 100 products from this facility, addressing brand size of US$40bn and hopes to achieve sales of US$200-300m in 3-5 years. One-off opportunities in Cymbalta and Avelox (March 2014) would provide boost for growth, margin and operating cash flow in FY14E-16E.” “Management revised maintainable operating margins to 22-24% in FY14E-16E. Core EU formulation sales of US$100m are from six key markets – UK, Netherlands, Italy, Spain, Germany and Portugal. It expects to turn profitable in EU in FY15E, while FY14E is earmarked for operation break-even. The company’s EU acquisition would include additional sales of US$430m in FY15E, while we expect improvement in EBITDA margin in FY16E. The stock currently trades at PE 12.2x and 10.9x of FY15E and FY16E, which is at a significant (20%) discount to mid-cap peers (average PE 14-16x for mid‐caps). Better cash flow from launches of high margin and limited competition drugs to further reduce capital gearing ratio and narrow valuation differential with peers in the industry. Our SOTP valuation of Aurobindo’s set target price at Rs874, implies 21% upside at current valuation. We maintain ‘BUY’,” says Prabhudas Lilladher research report. 

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