Buy Aurobindo Pharma Import alert on unit VI, already factored in: Anand Rathi

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Aurobindo Pharma
Import alert on unit VI, already factored in, maintain Buy
The US FDA has set an import alert on Aurobindo Pharma’s
cephalosporin manufacturing plant (unit VI) for detention of
products from this plant. We do not expect any major financial
impact of this as the share of this plant for the US market is 3-4%
of revenue. We believe that the recent correction in the stock
price, of ~13%, already factors in this negative.

 Import alert on unit VI. The USFDA inspected Aurobindo’s
cepholosporin facility, unit VI, in Dec ’10 and subsequently set an
import alert for detention of its products for the US market.
However, reasons for the deficiency in unit VI have not yet been
disclosed.
 Details of unit VI. Unit VI manufactured cephalosporin-based
oral and sterile APIs and formulations. It is not clear whether the
import alert is for oral and/or sterile products. Management has
requested the US FDA for clarity and Aurobindo would not make
any shipment from unit VI for the US market till the alert is lifted.
 Financial impact. The share of revenue from this unit (sterile
and oral formulations) for the US market is 3-4% of revenue,
which is not material. We retain our estimates till clarity emerges.
The company’s growth outlook remains strong.
 Valuation and Risk. We believe that the recent correction in the
stock price, of 13%, already factors in the negatives. We maintain
our Buy, with a target of `312. Risks: Delay/failure in execution of
supply contracts.