[T.S.R:10955] Aurobindo Pharma Ltd - report

Aurobindo Pharma Ltd

Company Description

Aurobindo pharma, head quartered in Hyderabad, manufactures generic pharmaceuticals, APIs and Intermediariers. Aurobindo is the largest Active Pharmaceutical Ingredients manufacturer in India under FDA approved facility. It has a presence in key therapeutic segments like antiretrovirals, CNS, cardio-vascular, gastroenterology, SSPs, cephalosporins, etc. The company is marketing products globally, in over 125 countries.

Investment Rationale

High-end Vertically Integrated operations Aurobindo Pharma has high-end vertically integrated operations, which helps company to execute its key projects in recorded time and also to emphasize on regulated markets.

Strong product pipeline

Aurobindo has diversified product portfolio focusing on therapeutic areas like CNS, CVS, antiretrovirals, cephalosporins, diabetology, etc. The global market size of Aurobindo's product pipeline (patented + generic) stands at US$209 billion whereas the share of US, EU and ROW is 49%, 25% and 26% respectively.

US Generic market…… rapidly gaining momentum

Aurobindo pharma would experience majority of its growth from the US market mainly due to strong pipeline of products, huge generic opportunity and increasing customer base. We expect that the revenue from the US market would witness a robust growth rate of more than 60% during FY09-FY11E.

Dossier licensing and supply arrangements – huge potential for growth

Aurobindo has diversified its stream of business, which includes sale of dossier and supply arrangements thereby. In this the company sales dossiers to different pharma companies for which in return Aurobindo has been receiving milestone income for the same. Subsequently these supply arrangements would increase and drive the capacity utilization for the company. Aurobindo has entered into agreements with Pfizer for dossier licensing and supply arrangements. We expect that going forward Aurobindo would enter into more such arrangements and thus significantly driving the revenue.

Our view

We have positive view on the company mainly due to attractive valuations and positive factors that justify the growth. We believe the valuations of the company to improve further mainly due to improving business mix and stability. The strong diversified pipeline of products clearly reflects the growth visibility.

At the current market price of Rs 707.1 the company is trading at 8.3x FY10E EPS of Rs 85.7 and 5.3x FY11E EPS of Rs 133.4. We have valued the company using earnings multiple. We maintain our BUY recommendation with a target price of Rs 942, implying an upside potential of 33.2%. At the target price, the stock would be valued at 11x FY10E EPS of Rs 85.7.

 

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