Buy Aurobindo Pharma; target of Rs 800: HDFC Securities

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HDFC Securities’ research report on Aurobindo Pharma

The strong YoY performance in revenue, EBITDA and PAT for 4QFY19 and FY19 was supported by a 6-7% fall in the currency, continued launch momentum in the US and new business opportunities arising out of product withdrawals by bigger players like Teva/Mylan. At US$ 353mn, US sales grew 31% YoY. It was largely aided by an 86% YoY growth in injectable revenues in the US and new business opportunities. With 40+ product approvals, ramp up in injectable revenues and integration of Sandoz portfolio, we expect US segment to achieve US$ 2.3bn sales by FY21E (~33% CAGR) Europe and RoW segments continued the momentum with 14% and 38% YoY growth respectively. However, Ex-Apotex, European segment remained flat YoY. We expect both these segments to grow at 8-10%YoY over the next two years. EBITDA at Rs 10.6bn, up 32/-3% YoY/QoQ, was boosted by a ramp up in the US and currency depreciation. The margin was at 20.0%, up 18/-56bps YoY/QoQ. With acquisition cost of Rs 362mn, reported PAT at Rs 5.8bn, grew only 10% YoY (Adj PAT was up 17% YoY). Net debt jumped 49% YoY to Rs 48bn in FY19. The increase was attributed to two acquisitions – Spectrum in the US and Apotex portfolio in Europe. The increase in working capital on account of higher inventory is intentional (to capture new business opportunities in the US). We expect a gradual moderation.

Outlook

We upgrade ARBP to BUY owing to attractive valuations after the recent fall in stock price. Our TP at Rs 800 is unchanged (15x FY21E EPS).

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