Pending order pipeline, turnaround in US key for Aurobindo:BoAML

Moneycontrol BureauDespite delivering good performance, undervaluation in pharmaceutical giant Aurobindo Pharma continues. Bank of America Merrill Lynch (BoAML), in a report, says that concerns over contraction in its US business and reduction in Research & Development are main concerns for investors. Also, pursuance of expensive Mergers & Acquisitions and inferior cash conversion abilities continue to weigh on Aurobindo. However, the brokerage house expects growth to happen for the company. “ARBP’s R&D spend is the lowest among larger peers on account of low investments in high risk proprietary products (e.g. Biologics, NCE). However, with the patent expiry pipeline remaining robust, we believe there exist enough opportunities in the non-proprietary generic space to achieve strong growth,” it says. The company’s R&D spend is lowest amongst its peers and BoAML expects it to increase in coming years as Aurobindo starts investing in more complex products. It also expects cash conversion ability of the company to improve by end of this fiscal. Launches, too, will see a pick-up in coming quarters.“While ARBP received approvals for 49 ANDAs in FY16, it was able to launch only 28 due to capacity constraints. We expect pickup in launches as the company ramps up new facilities dedicated for EU, injectable plant at Jedcherla and OSD plant at Naidupet,” the report says.Concerns over latest acquisition of Teva’s business in UK and Ireland, are overdone and the acquisitions won’t overstretch the company’s balance sheet.