Stock To Buy? 2nd Largest Pharma Stock That Dropped 14% In Single Session

Shares in Aurobindo Pharma dropped as much as 14% in trade. The stock fell after reports of the arrest of P. Sarath Chandra Reddy, Whole Time Director of the company. However, the company clarified saying, "Further to the disclosure of even date, Company further learnt that the arrest of Mr. P. Sarath Chandra Reddy, Whole Time Director / Promoter Group of the Company is not in any way connected with the operations of Aurobindo Pharma Limited or its subsidiaries."

Should you buy the stock of Aurobindo Pharma now?

Prior to the arrest several brokerages had a buy call on the stock. "We remain optimistic and retain our BUY rating on the stock with a lowered target price of Rs. 645 based on 12x FY24E adj. EPS," the brokerage said.

KR Choksey has an accumulate rating on the stock. "We apply the same 10.5x multiple on FY24E EPS of INR 59.61 (vs. earlier INR 57.63) and increase the Target Price to Rs 626 (vs. earlier target of Rs 605). Since it indicates an upside potential of 7.9% over the CMP, we maintain our "ACCUMULATE" rating on the shares of Aurobindo Pharma. We do not know if the brokerages would revise their targets post the arrest.

Corporate results

For the first quarter of FY 2022-23, revenue from operations at Aurobindo Pharma was placed at Rs 6,235.9 crore, an increase of 9.4% QoQ, US revenues at US$ 386 Million.
Net Profit at the company was placed at Rs 520.5 crore for the first quarter of 2022-23. Europe revenue in Q1FY23 declined by 2.2% YoY to Rs 1,548 crore, mainly due to Euro Currency depreciation and accounting 24.8% of consolidated revenue.

Revenue from Growth Markets formulations in Q1FY23 increased by 30.8% YoY and accounted for 6.9% of revenue. ARV business revenue for Q1FY23 increased by 28.1% YoY to Rs 380 crore and accounted for 6.1% of revenue. The shares of the company hit a 52-week high of Rs 742 and have dropped substantially since.