Buy Aurobindo; target of Rs 825: Axis Direct

Axis Direct's research report on Aurobindo

Q1 better than peers; Sevelamer to drive earnings Gross margin improved 50 bps QoQ and EBITDA margin 170 bps QoQ on 8% QoQ growth in US sales and improving revenue mix (higher formulations and lower API/ ARV sales). However, PAT declined 11% YoY/ 3% QoQ on higher depreciation due to commissioning of new units. Despite high single digit to low double digit price erosion, the company expects US business to grow on the back of new launches/ capacity and ramp-up of Sevelamer franchise (OS^ and tablets with USD 116 mn in FY18 sales and over ~75% margin).

Outlook

We maintain BUY with TP of Rs 825 (17x FY19E EPS), as we expect growth to pick up with improving execution (R&D), launch momentum with increased capacity in H2FY18 and lower concentration risk. Outstanding Form 483 on unit IV injectable unit remains a concern.