Hold Aurobindo Pharma; target of Rs 195: Firstcall Research

Firstcall Research report on Aurobindo Pharma:

Aurobindo Pharma reported a net profit of Rs. 186 mn in the current quarter against net loss in Q1 FY13. High forex and finance costs of Rs. 2064.50 mn and Rs. 331.1 mn respectively in corresponding quarter in the previous year amounted to net loss of Rs. 1289.10 mn. The EBDITA has increased by 119.5% in the current quarter. Though the top line increased by about 41.27% in June quarter against the corresponding quarter in the previous year, growth rate has been a low 9% over the previous march quarter. Total expenditure of the company has increased by 30.55% in current quarter. The company was able to report profit of Rs. 186 mn which fell by 83% against the previous Q4 FY13 as finance cost and forex losses fell by 23% and 16.5% respectively in the current June quarter.

Aurobindo Pharma has high finance costs as it has dollar denominated foreign loans. Thus rupee depreciation gain from exports is negated by high interest burden from dollar denominated foreign loans. Debt equity ratio has also increased to 1.3 in 2013 from 1.1 in 2012. The company needs to restructure its high debt to perform in highly competitive generic export oriented Indian pharmaceutical industry which is already showing signs of slowdown due to high inflation and poor macro economic environment. Thus we recommend ‘HOLD’ for the scrip.

At the current market price of Rs.182.90, the stock P/E ratio is at 13.91 x FY14E and 9.43 x FY15E respectively. Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.13.15 and Rs.19.39 respectively.

Net Sales and EBDITA of the company are expected to grow at a CAGR of 21% and 26% over 2012 to 2015E respectively. On the basis of EV/EBITDA, the stock trades at 7.72 x for FY14E and 6.86 x for FY15E.

Price to Book Value of the stock is expected to be at 1.78 x and 1.50 x respectively for FY14E and FY15E.

We expect the company to restructure its debt and improve its financial fundamentals in the coming quarters. We recommend ‘HOLD’ in this particular scrip with a target price of Rs 195 for Medium to Long term investment.

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