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The Aurobindo Pharma scrip continues to stretch its gains. It has closed about 10% higher over the last three sessions. Over the last month, the stock is up about 27% on expectations of good results, product approvals, strong US business growth and decision to focus on injectables.
The stock is currently trading at 8.1 times its FY15 earnings per share with a consensus target price of Rs 246, which leaves it with an upside of 11%. 22 analysts out of the 26 who track the stock according to Bloomberg have a 'buy' rating on it.
More upside or rerating for Aurobindo according to Spark Capital analyst Harith Ahamed will come if the company is able to alleviate concerns on dollar-denominated debt ($620 million or Rs 3,700 crore), forex losses and suppressed cash flows. Edelweiss analysts highlight that though its profit before tax for FY13 rose sharply, its operating cash flow declined 36% due to higher working capital requirements.
The company is expected to post one of the highest revenue growth in the pharma space in the September quarter. At about Rs 1,900 crore, the company is expected to post a growth of 30% year-on-year, with only Cipla and Sun Pharma expected to grow faster. In addition to its performance in the US, rupee depreciation too will provide a booster to the topline number.
A large part of the gains is likely to come from the formulations business, which constitutes about 60% of overall revenues. US formulation sales will be the mainstay. Analysts at IndiaNivesh Securities expect US formulation sales to grow 43% to $110 million (Rs 660 crore) in the September quarter on the back of key launches in US market in the last 2-3 quarters, including 4-5 injectables and partial products launched from unit VI in the previous quarter after resolution of import alert.
The import alert was a key overhang for the stock and the fact that the FDA has given it the green signal will help the company scale up its volumes from the affected units. Ebidta growth too is expected to come in at 34% while margins are expected to grow nearly 200 bps to 18.6%. Adjusted earnings per share too is expected to grow strongly doubling to Rs 6.52. The company declares its results on November 7.
Another positive, according to analysts, is its focus on injectables. The company, in August, spun off its injectables business into a wholly-owned subsidiary to strengthen and leverage strategic opportunities in that field. The injectables business is a fast growing category, has high entry barriers and fetches better margins. Aurobindo has a portfolio of 100 injectables targeted at the US market. While there are some products in this category, which are in the shortage list, it could move up as the company prepares to file about 15 injectables for approval in FY14.
