Hold Aurobindo Pharma; Sharekhan, target Rs 1133

Hold Aurobindo Pharma; Sharekhan, target Rs 1133

The research report dated February 20, 2024 by Sharekhan suggested a Hold rating of Rs 1133 for Aurobindo Pharma.

Sharekhan's Aurobindo Pharma study report

In the third quarter, Aurobindo exceeded our projections for EBITDA and PAT. Sales climbed 13.8% YoY to Rs. 727 crore, which was 1% less than our expectation. EBITDA expanded 67% YoY to Rs. 1,601 crore, which was 3.7% more than our estimate, and adjusted PAT increased 86% YoY to Rs. 895 crore. The Americas area had the largest yearly rise in sales, with CC sales of US$458 million, accounting for 25% of the total. The Europe business saw the second-highest annual growth, with CC sales of EUR 200 million. In the third quarter of fiscal year 2024, a healthy product mix lead by gRevlimid (US$20 million) produced gross margin expansion of 220bps to 56.7% and EBITDA margin growth of 610bps to 20.7%.

Prospects

Aurobindo is paying $2–3 million in cleanup charges in addition to US$20 million each month for the shutdown of lines at Yujia Unit-3. There is uncertainty over the opening of these lines in early FY25E, and we anticipate that line closures will negatively affect Aurobindo's sales. We lower the stock to Hold as a result. The company is now trading at about 18.3x/15x its FY2025E/FY2026E EPS at CMP. To get at a TP of Rs. 1,133, we would want to give a P/E of 16x.