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Centrum Broking
Aurobindo Pharma (Buy)
CMP: ₹603.15
Target: ₹870
The management of Aurobindo Pharma expects its formulations business to outpace the growth of API segments. Management indicated AuroMedic to gain growth momentum starting from Q3 FY20. Additionally, the Sandoz deal will be forthcoming soon and ARBP is in touch with FTC for its approval.
The company has started using generic manufacturing base and shorter lead times in Europe which will inflate margins in the future. ARBP’s net debt stood at $591.6 million. During the quarter, $131 million was paid off and the management guided debt-reduction of $150-200 million in FY20E. The company is undertaking detailed procedures for Unit III post form 483 and has brought in a third party consultant to comply with the USFDA. Plant II inspection is expected at the end of fiscal year FY20E and management guided for CAPA submission by the end of Q3 FY19 for all three facilities.
Considering the growth in formulation business and margins to sustain with increased number of launches in the US over coming two years. Our estimates include consolidation of Sandoz numbers in 2HFY20E. Considering the export concentration of the business, We are valuing the business at 15x FY21E EPS of ₹60, with a ‘Buy’ rating and target price of ₹870.
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