Accumulate Stock Of Aurobindo Pharma, API Sales Grew Strongly By 24% YoY: Prabhudas Lilladher

Top brokerage firm Prabhudas Lilladher has given an 'accumulate' rating to the stock of Aurobindo Pharma. According to the company's report, its API sales grew strongly by 24% YoY on increased demand for key products.

Stock To Accumulate: Target Price

The Current Market Price (CMP) of Aurobindo Pharma is around Rs. 492. Prabhudas Lilladher has estimated a Target Price for the stock at Rs. 550. This stock has the potential to give an 11.78% return, in the upcoming 12 months. This mid-cap stock has a market capitalization of Rs. 27,794 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 492
97Target Price	Rs. 550
Potential Upside	11.78%
52-week high share price	Rs. 742.00
52-week low share price	Rs. 457.00

Quarterly earnings

The company's formulations business sales declined 8% YoY and 11% QoQ at Rs48bn. US revenue came at $331m (down 14% QoQ) against our est of $385mn, primarily on account of volume drop due to low demand, continued price erosion and one-time shelf adjustment. EU sales declined by 9% YoY, while RoW business grew 17% YoY. ARV sales adversely impacted to Rs1.6bn; down 57% QoQ.

Stock Valuation

"We cut our FY23-25E EPS est. by 10-17% to factor in lower margins and US sales. Aurobindo Pharma's (ARBP) performance was weak in H1FY23, given cost headwinds and lower US sales. We believe cost pressures to remain in near term and margin trajectory should improve from H2FY23. However, pick up in US sales hinge on timely niche approvals along with stabilization of pricing pressure in base business. ARBP has multiple growth drivers in place with investments in vaccines, injectables, biosimilars and PLI, which are expected to be reflected from FY24. At Current Market Price (CMP), the stock is trading at 11x FY24E P/E," the brokerage firm stated.

Fresh product launches

The company launched 6 new products including 2 injectable in the US market; Filed 14 ANDAs including 2 injectable. There was sharp volumes decline in injectables, shelf-stock adjustment in Vasopressin and single digit price erosion. It expects to launch 20+ products in FY2023, and expects to file 30+ products every year. Overall reported US injectable sales of US$49mn (down 28% YoY) in Q2FY23. Guidance of +$650mn specialty sales delayed by a year to FY2025 which factors in gRevlimid launch.

Capex

Capex was $81mn in Q2 of which $31mn towards PLI scheme and guided annual capex of $150mn. Net cash stands at $337mn end of Q2FY23 which is kept as reserved and could potentially use for debt reduction and two important projects including Penicillin Project. Additionally, the company will start filings from its Vizag plant from H1FY24 targeting filings for US, Europe and emerging markets. The construction at Vizag plant is complete and the company plan to take exhibit batches in H2FY23.

Disclaimer

The above stock was picked from the brokerage report of Prabhudas Lilladher. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.