Aurobindo Pharma Ltd. share price target

A Warning Letter has been issued to Aurobindo Pharma Limited (Aurobindo) for its Unit-XI, an Active Pharmaceutical Ingredient (API) unit in Srikakulam, one of the three plants that received Official Action Indicated (OAI) status in May 2019. The letter mainly pertains to the ongoing issues regarding impurities in Sartan's. The company proposes to enter into dialogue with the US FDA over the next 1520 days to decide a future course of action. From Unit XI, the company...

Aurobindo Pharma has received a warning letter from the USFDA for Unit XI, API manufacturing facility in Srikakulam district, Andhra Pradesh. This action follows the earlier inspection of the site by the USFDA and issuance of Form 483 with three observations in February 2019. Post inspection, USFDA had classified this plant as Official Action Indicated (OAI). Apart from Unit XI, the company has OAI status on Unit I (API facility) and Unit IX (Intermediate facility). Unit XI is the largest API plant of the company followed by Unit I. According to the management, there are just ~15...

Aurobindo Pharma's revenue grew 31% on a YoY basis to `5292 crs. in Q4. Growth was led by all business segments with the US and growth markets reporting sharp growth of 43% and 38% respectively on a YoY basis. Consolidated EBITDA increased to `1,060 Cr vs. `804 Cr in Q4 last year, an increase of...

Having fallen 18-20% over the trailing month on regulatory concerns related to three API/intermediate plants, the stock is now available at 14x FY20E EPS, a ~15% discount to its five-year historical average. We believe the concerns are misplaced as only 5-6 products (out of 100+ pending) are dependent on these plants. With high visibility on FY21E EPS of Rs 53.2 driven by the Sandoz acquisition, we see this as a good entry point for investors and expect at least ~15% upside in the near term as this acquisition materializes. Upgrade to BUY. We upgrade ARBP to BUY owing to attractive valuations after the recent fall in stock price. Our TP at Rs 800 is unchanged (15x FY21E EPS).

Progress on OAI and Sandoz integration key stock catalysts Aurobindo Pharma (ARBP) saw soft operating leverage in Q4 despite best-ever US sales at US$ 352mn, partly led by Spectrum integration and higher injectable sales. Revenue/EBITDA beat estimates by 8%/13% but gross margins at 55.2% saw moderate expansion QoQ (provisioning for Valsartan recall). Management is fairly confident about FY20 growth and expects Sandoz FTC approvals by Jul'19 end. We retain our FY20/FY21 EPS of Rs 49/Rs 52. Sandoz integration...

US key growth driver; acquisitions to strengthen US basket After filing ANDA in the US in 2003, the company has come a long way as current ANDA filings are at 541. US revenues have grown from ~US$100 million in 2009 crossing $1 billion sales as on 2017. In rupee terms, US sales have grown at 17% CAGR to | 9031 crore in FY15-19. US formulations now constitute 46% of total turnover, up from 30% in FY13. Post acquisition of Sandoz' US dermatology and oral solid businesses, Aurobindo will become the second largest generic player in the US by number of prescriptions. Due...

Sales growth trends comforting; approval pace/execution hold key US/growth market/ARV and favorable FX drive revenues: Sales increased 31% YoY to INR53b (our estimate: INR49b), primarily led by sales growth of 30% YoY in US formulations (USD353m; 47% of sales), 38% YoY in growth market (INR3b) and 96% YoY in ARV (INR3b). EU sales were up 14% YoY at INR13b, partly led by the acquisition of Apotex operations. Moreover, ARBP exhibited healthy traction in non-betalactum API sales (+25% YoY to INR3b). Lower opex counterbalances gross margin contraction: Gross margin (GM)...

Scenario analysis for OAI units warning letter partly priced in The USFDA has classified three of Aurobindo Pharma's (ARBP) facilities API units 1 & 9 and intermediate unit 11 under OAI (official action indicated). These units were inspected in Feb'19 and received a total of 14 observations. Common 483s were around a lack of root cause analysis and production equipment validation. While existing sales won't be hit, we believe resolution at these sites will be key to future growth. In the worst case (WL), there could...

resolution three times in past 18 months showcased commitment and cohesive organizational structure that professionally manages processes without dependence on key personnel. Noticing the operational risk among large peers in key markets, ARBP strategically envisaged alleviation of concentration risk and regulatory risk on key products/ plants/ markets. It's newly commissioned Unit-16, made to replicate products of Unit-12 for US market, additionally supplies injectable...

Aurobindo Pharma's revenue grew 22% on a YoY basis to `5270 crs. in Q3. Growth was led by all business segments and markets. US and growth markets reported growth of 27% and 36% respectively on a YoY basis. Consolidated EBITDA increased to `1,086 Cr vs. `1,025 Cr in Q3 last year, an increase of...