Broker's call: Aarti Drugs (Buy)

| Updated on June 18, 2019

Anand Rathi

Aarti Drugs (Buy)

CMP: ₹523.25

Target: ₹796

Key takeaways: a) The company’s API (active pharmaceutical integredient) range covers therapies such as antibiotics, anti-inflammatories, cardio-protectants, anti-diarrhoeals, anti-fungals, anti-diabeties, etc. Capacities have been recently added in all these, except antibiotics. The company will become the largest producer of Metformin once issues with the technology to produce on a large scale are solved. It now manufactures 550-600 tonnes a month, whereas after the technology is in place it will manufacture 1,000 tonnes a month. Ciprofloxacin, which is one of its top 10 products, has a 40-50 per cent global market share; growth, though, has been flat. The company plans to push growth by capturing competitors’ market shares. Considering the new capacities and volume growth, we expect a 15 per cent revenue CAGR in APIs over FY19-21.

b) We expect the operating margins to expand 192 bps by FY21, with a 22.5 per cent EBITDA CAGR over FY19-21, supported by stabilising raw material prices and a better product mix.

Valuation: We retain our ‘Buy’ rating, with an unchanged price target of ₹796, based on 12x FY21e EPS.

Risks: Delay in the ramp-up of the recently-added capacity; more-than-expected competition in generic APIs.

Published on June 19, 2019

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor

You May Also Like