Aurobindo Pharma weathers scrapping of Sandoz deal

KS Badri Narayanan Chennai | Updated on April 09, 2020 Published on April 09, 2020

Shares of Aurobindo Pharma jumped even after it pulled out of the Sandoz deal. However, analysts remained cautious on the stock, downgrading it.

Novartis and Aurobindo Pharma last week announced the mutual termination of the agreement to sell the Sandoz US generic oral solid brands and dermatological business portfolio to Aurobindo.

US FTC approval

The primary reason identified was failure to obtain the required transaction approval from the US Federal Trade Commission (FTC) within anticipated timelines. The deal meant revenues of nearly $750-850 million with operating profit at 27 per cent (as disclosed by Novartis AG). Credit Suisse has downgraded the stock to ‘underperformer’ from ‘neutral’ and reduced the price target to ₹345 from the current ₹450.

According to it, the Sandoz deal was EPS accretive and an important catalyst for Aurobindo Pharma. With the Sandoz deal being called off, the company is now exposed to USFDA risks, CS said, and added the probability of further escalation of unit VII OAI flag still exists.

JP Morgan too downgraded the Aurobindo Pharma stock to ‘neutral’ from ‘overweight’ with a reduced target of ₹450 from its earlier target of ₹730. Similarly, Citi too cut the price target, but was somewhat liberal at ₹690. It had earlier fixed a target of ₹820.

Emkay Global believes that investors’ focus will now shift back to Aurobindo’s own portfolio, which is currently grappling with regulatory challenges in the US and likely to see moderate single-digit growth in the interim. USFDA flag for Unit IV is a key monitorable in the near term, said Emkay, which retained its ‘hold’ rating on the stock with a revised price target of ₹420.

Published on April 09, 2020

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