Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Aurobindo Pharma — Growth drivers intact,
risk-reward positive; a new Buy
Initial Opinion
Business transformation on track; Still value left
We initiate coverage on Aurobindo (ARBP) with a Buy rating and PO of Rs262.
Our PO is pegged at 13.5x FY12E, 25% discount to peers to factor import alert by
FDA. We are upbeat on Aurobindo’s transformation into a global formulations
player and believe concerns over USFDA import alert at its cephalosporin facility
are overblown. Monetization of strong pipeline (especially US) and scale-up of
MNC alliances driving capacity utilization would be ARBP’s key growth drivers.
MNC alliances, US portfolio to drive business visibility
ARBP’s supplies to Pfizer have been instrumental in scaling up US sales (80%
CAGR over FY07-10). Monetization of 200 ANDAs, including niche products
(non-beta lactams, injectibles) from FY12E would sustain 20%+ growth in the US.
RoW entry and scale-up of US/EU supplies should help drive MNC alliance
revenues to US$246mn in FY13E (19% of sales) from US$47mn in FY10 (6% of
sales).
Muted earnings growth till 1QFY12E; expect pickup thereon
We expect ARBP’s EBITDA (ex-dossier income) margins to expand 160bp
cumulatively by FY13E (mostly back-ended). Surge in formulation sales aided by
MNC alliances, traction from niche portfolio and operating leverage should be key
drivers for 23% core EBITDA CAGR. We expect high base of FY11, cost
pressure and FCCB premium in 1QFY12 to result in earnings pick-up from
2HFY12.
Steep valuation gap unwarranted; Risk-reward favorable
We expect long gestation (~2 yrs) for import alert resolution for Unit VI, factored in
our FY12E earnings (less than 6%). Current valuations at 10x FY12E P/E, 40%
discount to sector are undemanding given the business transformation, improving
returns profile (RoE at 25%), reduction in leverage (from 114% now to 46% in
FY13E) and potential upside from MNC alliances. Key risks: (a) USFDA import
alert to remain overhang, (b) execution challenges, and (c) currency fluctuation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Aurobindo Pharma — Growth drivers intact,
risk-reward positive; a new Buy
Initial Opinion
Business transformation on track; Still value left
We initiate coverage on Aurobindo (ARBP) with a Buy rating and PO of Rs262.
Our PO is pegged at 13.5x FY12E, 25% discount to peers to factor import alert by
FDA. We are upbeat on Aurobindo’s transformation into a global formulations
player and believe concerns over USFDA import alert at its cephalosporin facility
are overblown. Monetization of strong pipeline (especially US) and scale-up of
MNC alliances driving capacity utilization would be ARBP’s key growth drivers.
MNC alliances, US portfolio to drive business visibility
ARBP’s supplies to Pfizer have been instrumental in scaling up US sales (80%
CAGR over FY07-10). Monetization of 200 ANDAs, including niche products
(non-beta lactams, injectibles) from FY12E would sustain 20%+ growth in the US.
RoW entry and scale-up of US/EU supplies should help drive MNC alliance
revenues to US$246mn in FY13E (19% of sales) from US$47mn in FY10 (6% of
sales).
Muted earnings growth till 1QFY12E; expect pickup thereon
We expect ARBP’s EBITDA (ex-dossier income) margins to expand 160bp
cumulatively by FY13E (mostly back-ended). Surge in formulation sales aided by
MNC alliances, traction from niche portfolio and operating leverage should be key
drivers for 23% core EBITDA CAGR. We expect high base of FY11, cost
pressure and FCCB premium in 1QFY12 to result in earnings pick-up from
2HFY12.
Steep valuation gap unwarranted; Risk-reward favorable
We expect long gestation (~2 yrs) for import alert resolution for Unit VI, factored in
our FY12E earnings (less than 6%). Current valuations at 10x FY12E P/E, 40%
discount to sector are undemanding given the business transformation, improving
returns profile (RoE at 25%), reduction in leverage (from 114% now to 46% in
FY13E) and potential upside from MNC alliances. Key risks: (a) USFDA import
alert to remain overhang, (b) execution challenges, and (c) currency fluctuation.
No comments:
Post a Comment