Pharmaceutical giant Aurobindo Pharma might have posted a strong January-March quarter with profits after tax surging 29.7% on-year basis and gross margins going up 2.9% from a year-ago period, but the stock has little steam left now after jumping over 159% since its March lows. Trading at Rs 761 per share on Friday morning, the stock has helped investors pocket mammoth gains even during a time when the overall equity market sentiment was weak globally. However, now the rally has almost reached its peak. While some brokerage firms are revising their calls, some retail their previous analysis but the target price set by all is almost close to where the stock price is now.
Aurobindo Pharma has been gradually treading up the complexity curve for sterile products, with a range of approvals, including colored products, PFS products, large volume lyophilized products, and complex API products. For sterile sales in the USA to reach US$400-500 million, analysts say the firm will need progress in other complex filings such as triamcinolone injectable, iron products, peptides, and depot injections. “ However, progress in these areas has been understandably slow, while its inhalation (pMDI’s as well as Advair, though none in clinics) and biosimilars (Avastin filing for the EU in 1QFY22) products are yet to be filed, with meaningful profit contribution unlikely before FY2024,” said analysts at Kotak Securities. The brokerage has downgraded the stock from ADD to REDUCE with a fair value of Rs 730.
Shares of Aurobindo Pharma after seeing a strong rally in the previous months are now among some of the stocks on the bourses that are positive year-to-date. The stock price is up 67% since the beginning of the year. Aurobindo Pharma also maintains a strong cash balance on account of anticipation of the Sandoz deal, which will be deployed back in business, according to the company. With strong focus on the future, management expects the firm to file 50-60 products over the coming few years. With this increase in R&D cost is also expected to shoot up.
“Over FY20–22E, Aurobindo Pharma’s R&D is likely to increase, EBITDA margin would remain flat, and earnings would rise at a 6% CAGR. With the OAI status at four facilities and a warning letter at a fifth one, execution risks persist.,” said Edelweiss Securities. The brokerage said the stock is trading at 15x FY22E earnings as it maintains the HOLD call with a target price of Rs 825 per share. Interestingly when foreign investors were leaving the Indian markets, FII investment in Aurobindo Pharma went from 21.4% at the end of December 2019 to 22.3% at the end of the March quarter. Although the stock has a BUY rating from Motilal Oswal the target price is at Rs 880 per share. The brokerage firm said it remains positive on Aurobindo Pharma on account of a robust ANDA pipeline, pending approval, as well as a niche product pipeline build-up for the developed markets.
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