Aurobindo's strong European, US prospects keeping analysts bullish

As the pricing pressure in US generics market recedes, the company is also expected to fair well, say analysts, who see growth impetus coming from its recent acquisitions in the US and Europe

The Aurobindo stock is an outlier in the pharma sector, in which many companies have been faced with regulatory, growth, and other issues. 

On Tuesday, it hit a 52-week high, taking the gains to 15 per cent from its February lows. Performance in the US and Europe is a key factor behind the firm figuring in the top pharma picks of analysts. 

The firms has continued to grow well, driven by its large number of filings and niche range of products such as injectables. Thanks to a diversified product basket and limited dependence on any single product, the impact of pricing pressure in the US has also been marginal. As pricing pressure in the US generics market is receding, the firm is expected to fare well, say analysts who see growth impetus coming from its recent acquisitions in the US and Europe.

In Europe, after turning around earlier buys such as that of Actavis, Aurobindo in February acquired Apotex’s commercial operations and some infrastructure in five countries to drive growth further. The European business has already shaped out well in the past few years and contributes about a fourth to the overall top line. 

Analysts expect double-digit margins for the acquired products in a few years’ time, as Aurobindo transfers manufacturing to India to cut costs.

The Street also remains positive on Aurobindo’s US prospects, led by its injectables portfolio and acquisitions. 

The earlier acquisition of Natrol’s US business is well-integrated; it is now likely to conclude the purchase of Sandoz’s portfolio. Ranjit Kapadia at Centrum Broking expects the company to report an impressive performance in the US in FY20 on account of its rich product pipeline and pending filings. 

Meanwhile, expectations remain strong for the March quarter. Analysts at Motilal Oswal Securities estimate revenue growth of 21 per cent year-on-year (YoY), supported by the 26 per cent YoY increase in the formulation business (83 per cent of revenues). The US business is seen growing 27 per cent YoY, and Europe and rest-of-the-world sales by 18 per cent YoY. 

The analysts remain positive on Aurobindo on the back of the high ANDA filings rate, strong pace of approvals, minimal regulatory risks and the company outperforming the industry in the European market. 

Aurobindo is amongst the earnings outperformers for Sharekhan too.