Hold Aurobindo Pharma; target of Rs 1133: Sharekhan

Sharekhan's research report on Aurobindo Pharma

Aurobindo reported a good Q3, as it outperformed our estimates on EBITDA and PAT front where sales grew by 13.8% YoY to Rs 727 crs (1% below our estimates), EBITDA grew by 67% y-o-y to Rs. 1,601 crore (3.7% above our estimates) and adjusted PAT grew by 86% y-o-y to Rs. 895 crore. The surge in sales was led by 25% y-o-y growth in the U.S region (highest ever cc sales of US$ 458 mn), followed by 13% y-o-y growth in the Europe business (cc sales of Euro 200mn). Healthy product mix led by gRevlimid (US$ 20 mn) resulted in a 220bps increase in gross margin to 56.7% and subsequently increased EBITDA margin by 610bps to 20.7% in Q3FY2024.

Outlook

This closure of lines in Eugia Unit-3 costs Aurobindo USD20 million and USD2-3 million remediation cost per month. We believe the shutdown of lines will impact Aurobindo’s sales and there is no clarity on these lines opening in early FY25E. Hence, we downgrade the stock to HOLD. At the CMP, the stock is trading at ~18.3x/15x its FY2025E/FY2026E EPS, we would like to allot a P/E of 16x to arrive at a TP of Rs. 1,133.