Aurobindo Pharma (ARBP IN, INR 144, upgrade to Buy)
We met Aurobindo (ARBP) management. ARBP sees higher growth visibility from incremental approvals in US, which along with potential FDA resolution would aid higher margins. ARBP has received 8 approvals that would aid growth in the US. Moreover, post FDA approval of Unit-IV/VI, there is a good visibility of 4-5 product launches in injectibles space. We revise up FY13E-14E earnings by 12-13% and upgrade to ‘BUY’.
New launches to drive US growth
ARBP is confident of achieving 21-24% growth in the US business by FY14, led by 25-30 launches. The company has off-late launched eight new products and has been able to garner decent market share in 3-4 products. Moreover, AuroLife will se scale-up sales to USD12mn/quarter revenue from USD7-8mn in Q1FY13, driven by Hydrocodone/Acetaminophen launch, a controlled substance product.
Launch of injectible products aids long-term growth visibility
Unit-IV and Unit-VI have been inspected by end Sept 2012 and the company expects to get FDA approval over the next 3-4 months, which would trigger launch of a couple of injectibles. The company expects its injectibles subsidiary Auro Medics sales, to scale-up from USD3-4mn/quarter revenue to USD10-12mn/quarter by H2FY14.
Capacity ramp up and FDA resolution of Unit-VI will aid margin
With new launches, higher capacity utilisation and FDA resolution margins are likely to return to 16-18% by FY14E. Moreover, margin in Q1FY13 were also impacted by higher inventory build up in the US, which will be liquidated over the next 2-3 quarters. Hence, we expect recovery in margin by 200-250bps QoQ from Q2FY13.
Outlook and valuations: Bright prospects; upgrade to ‘BUY’
We revise up FY13/14E earnings 10-12%. Further, USFDA approval for Unit-VI will also allay investors’ concerns. Our revised earnings for FY13E and FY14E is INR13.5 and INR19.0. We upgrade from ‘HOLD’ to ‘BUY’ with a revised TP of INR190 (30% upside).
Regards,
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