IndiaNivesh maintains 'buy' on Aurobindo, target Rs 196

Aurobindo Pharma has informed the stock exchange that USFDA has lifted the import alert for Unit VI Cephalosporin facility. Thereby, it allows company to resume the supply of 9 products to US market f

Due to limited competition, demand for Cephalosporin products in US market & backward integration, management is confident to regain 50-60% market share going forward, IndiaNivesh said in a report. This development to be positive for the company and Unit VI may add incremental revenue ~$18 million annually, the report added.

In the last two years, company has been under scrutiny by USFDA for cGMP issues for Unit VI & unit III. In the past, many approvals from the unit III & current lifting of import alert for unit VI would be positive development on regulatory part & this
would improve company’s credibility. Currently, the brokerage believes that company’s most of regulatory issues are behind it, which would reduce stock volatility. The brokerage is also of the view that operational performance would be key driver for stock going forward.

IndiaNivesh expects the company’s operational efficiencies to improve going forward from here onwards mainly on the back of positive measures taken by management in the past, incremental revenue growth from US business, increase in asset turnover linked with higher capacity utilization which would lead to improvement in ROCE.

According to the brokerage, the stock is trading at attractive valuations and continue to maintain BUY rating on the stock with the target price of Rs 196. (Valuing at 10x of FY14E estimates).