300% Dividend Payout: Pharma Stock Hits New 1-Year High; Should You Accumulate?

Generic pharmaceuticals company, Aurobindo Pharma's share price touched a new 52-week high on Monday after recording highest highest-ever sales in Q2FY4 and declaring an interim dividend for the fiscal. Brokerage Prabhudas Lilladher believes that Aurobindo's US business will further scale up. Owing to multiple growth drivers ahead in Aurobindo, PL has suggested to accumulate the stock for a target price of Rs 1,065.

Aurobindo's share price touched a new 52-week high of Rs 1,014.75 apiece on BSE in the early deals of Monday's trade. Currently, the stock is up marginally to Rs 981 with a market cap of nearly Rs 57,490 crore.

Last week, Aurobindo's board approved the first interim dividend of 300% i.e., Rs.3.00 (Rupees three only) per equity share of Re.1/- each on the equity share capital of the Company. The Company has already fixed November 20, 2023 as the record date for payment of interim dividend for the financial year 2023-24 and the said interim dividend will be paid on or before December 4, 2023.

Also, in Q2FY24, Net Profit after Share of Profit/Loss of JV and minority interest at Rs 752 crore, up by 83.6% from Rs 409 crore in Q2FY23. Revenue from Operations increased by 25.8% YoY to Rs 7,219 crore with growth seen across key segments. US formulations (excluding Puerto Rico) revenue increased by 35.7% YoY to Rs 3,385 crore (USD 409 million). Europe formulation revenue increased by 16.7% YoY to Rs 1,769 Cr (EUR 197 million). Growth Markets revenue increased by 24.7% YoY to Rs 564 crore (USD 68 million).

In its research note, Prabhudas Lilladher pointed out "Mgmt highlighted that it intends to file its 3 biosimilars Pegfilgrastim, filgrastim & Trastuzumab (breast cancer drug) before Jan'24. Targeted $150mn capex for biosimilars in coming years. Focus on EU business to be more profitable and grow margins in double digits. Guided
margins to scale up to 20% in H2FY24 post factoring in gRevlimid launch and higher R&D cost. Total PLI capex spend up $188mn as of Q2FY24 end. Expect Biologics CDMO to get commissioned in FY26. Net cash stands at Rs8.3bn vs Rs16bn as of Q1FY24 end."

Further, PL's note said, "Our FY24/25E EPS est. stands increased by ~5% to factor in higher margins and US sales. Aurobindo Pharma's (ARBP) Q2FY24 EBITDA of Rs14bn (up
22% QoQ) with an OPM of 19.4% (up 250 bps QoQ) was 14% above our estimate. We expect the margin trajectory to further improve. Pick up in US sales hinge on timely niche approvals along with stabilization of pricing pressure in the base business."

Lastly, it added, "We believe ARBP has multiple growth drivers in place with investments in vaccines, injectables, biosimilars and PLI which are expected to be reflected from FY25. At CMP, the stock is trading at 16.5x FY25E P/E. We value the company at 16x Sept 2025E EPS and assign a TP of Rs1,065/share (Rs900 earlier). Maintain an 'Accumulate' rating.

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