Buy This Mid-Cap Pharma Stock For Target Price Of Rs 645, Q1FY23 Revenue Rose 9.4% YoY: Geojit

Healthy product pipeline to boost growth

Aurobindo Pharma's revenue in Q1FY23 rose 9.4% YoY to Rs. 6,236cr, driven by moderate performances of its segments. EBITDA margin contracted 570bps YoY to 15.5%, primarily due to increased transportation costs, driven by higher gasoline prices in the US. Resultantly, its PAT declined 9.7% QoQ to reach Rs. 521cr. Although margins are expected to remain under pressure in the near term, increased volume, healthy product pipelines and expected higher injectable sales are anticipated to support the company's financial performance in the medium to long term. Hence, we reiterate our BUY rating on the stock with a revised target price of Rs. 645 based on 12x FY24E adjusted EPS.

Stock outlook

On Friday, 26 August, the stock of the company closed at Rs 549.85 apiece, after a fall of 0.99%. The stock's 52 week low is Rs 503.45 recorded on 20 June 2022 and the 52 week high is Rs 767.35 recorded on 15 September 2021, respectively.

Return on investments

Over the week, the stock has fallen 3.42%. Whereas, in the past 1 and 3 months, the stock moved up by 4.5% and 2.61%, respectively. In the past 1 year, the stock gave a negative return of 21.35%. In the past 3 years, the stock gave a negative return of 6.81%. In the past 5 years, it gave a negative return of 24.9%.

Steady decline in margin

Aurobindo Pharma's Q1FY23 revenue rose 9.4% YoY to Rs. 6,236cr, driven by strong volume growth, which was, however, partially offset by price erosion. Formulations grew 9% YoY and +8.95% QoQ, while API rose 11.6% YoY and declined 0.7% QoQ. US business grew 10% YoY, driven by shifting sales from the past quarter and a rise in volume. Corrosion in the euro slowed down its European business by 2.2% YoY. Domestic mix stood at 9% vs 10% in Q4FY22. Persisting high input and operating costs pulled down EBITDA 20.2% YoY and 1% QoQ to Rs. 964.7cr. As a result, EBITDA margin shrank 570 bps YoY to 15.5%. Finance costs stood at Rs 15cr, up 13.6% YoY and 58.8% QoQ due to volatility in multiple currencies. Tax rate was 23.4% versus 24.3% in Q1FY22. PAT declined 9.7% QoQ to Rs. 521cr.

Key concall highlights

• Capex during the quarter stood at $53 million, excluding $8 million on the PLI project and $22 million on the acquisition of business. Hence net free cash flow stood at $3 million.
• Aurobindo Pharma is confident of achieving double-digit YoY growth in injectable sales in FY23, supported by new launches, and is on track to reach sales of $650-700 million by FY24.
• The company expects the European business to grow 5-8% in the long term.

Strong product pipeline

The new development of oral, oncology and injectable products should increase market share and enhance volume. In Q1FY23, the company received final approval for 10 ANDAs, launched seven new products, and filed 13 new ANDAs (four injectables) for approval. As many as 43 new products of the company are waiting for approval and 180 oral products are under development.

Buy for a target price of Rs 645

Due to rising production costs, we anticipate that margin will remain constrained in the upcoming quarter. However, going ahead, the management expects margins to improve from Q3FY23 onwards as additional volumes are expected to provide economies of scale and help combat inflation. It is also confident in its guidance of achieving $650-700mn injectables sale by FY24. Aurobindo Pharma's strong new product pipeline and acquisitions are strong catalysts. "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. 

Disclaimer

The stock has been picked from the brokerage report of Geojit. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.