Visit http://indiaer.blogspot.com/ for complete details Aurobindo Pharma- Initiating Coverage
Aurobindo Pharma (APL), over the years, has transformed itself from being a
low-margin API player to a high-margin formulation player. Consequently, APL’s FY2012
OPM and RoE are at par with top Indian generic peers. Concerns on the debt front are
also receding and the company’s net debt/equity ratio is expected to improve to 0.6x in
FY2012 from 1.1x in FY2010. We expect net sales and recurring profit (excluding other
operating income) to post CAGR of 15.6% and 29.1%, respectively, over FY2010–12. The
stock is currently trading at 13.6x FY2011E and 10.3x FY2012E earnings, which is at 50%
discount to the top Indian generic peers, and is unwarranted due to the improving business
mix, owing to which we believe that the stock is poised for re-rating. We Initiate Coverage
on the stock with a Buy recommendation and an SOTP Target Price of `1,330.
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