Stock Analysis on Aurobindo Pharma Limited

May 6, 2024

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Aurobindo Pharma Ltd. – Committed to healthier life!

Aurobindo Pharma Ltd., established in 1986 and headquartered in Hyderabad, is a global pharmaceutical company focusing on generic pharmaceuticals, branded specialty pharmaceuticals, and active pharmaceutical ingredients (APIs). With a diverse portfolio and a strong international presence, Aurobindo serves key therapeutic segments across 150 countries, backed by extensive R&D capabilities.

Product Portfolio of AUROPHARMA

Aurobindo’s service segments include formulations and APIs. Its diverse product portfolio consists of biosimilars, dermatology, respiratory, vaccines, peptides, oncology, hormones, and sterile products.

Subsidiaries: Aurobindo boasts 85 subsidiaries, 6 joint ventures, and 2 associate companies, enhancing its global footprint and diversification efforts.

Growth Strategies of Aurobindo Pharma Ltd

Diversification into injectables with a focus on EU and emerging markets.
Expansion into untapped global markets like China.
Clinical trial studies for biosimilar products.
Strong focus on the domestic formulation market.
Enhancing manufacturing capacity with specialized facilities:
- Commissioning a specialized injectable facility in Vizag to meet rising demand.
- Installation of the Lyfius plant for Pen-G and the 6-APA plant.
Aggressive product expansion in the US market:
- Filed 7 ANDAs and received approval for 16 products in Q3FY24.
- Launched 21 products, including 4 specialty and injectable products.

Financial Highlights of Aurobindo Pharma Ltd

Q3FY24 Performance

Revenue: Rs.7,352 crore (15% YoY increase).
Operating profit: 68% YoY growth to Rs.1,601 crore.
Net profit: Surged by 91% YoY to Rs.936 crore.
EBITDA margin: 22% (highest ever).
Gross margin: 57%.

Financial Performance

Revenue and PAT growth: 15% and 30% respectively over the last twelve months.
ROE & ROCE: Average of 14% and 16% respectively for FY18-23.
Debt-to-equity ratio: 0.24, indicating a robust capital structure.

Industry Outlook

Indian pharmaceutical industry poised to reach US$ 57 billion by FY25.
Projected CAGR of over 10% to reach US$ 130 billion by 2030.
Favorable regulatory environment with up to 100% FDI allowed for pharmaceutical projects.
Increasing focus on research and development, with government allocation for research and healthcare.
Growing emphasis on innovation and technology adoption to meet global healthcare demands.

Growth Drivers

Government Allocation:
- Rs.3,201 crore (US$ 419.2 million) allocated for research.
- Rs.83,000 crore (US$ 10.86 billion) allocated for the Ministry of Health and Family Welfare in Union Budget 2022-23.
Global Demand for Generic Drugs:
- Indian pharmaceutical industry projected to grow at a CAGR of over 10% to reach US$ 130 billion by 2030.
- India supplies over 40% of generic demand in the US.
Cost Advantage and Efficient R&D:
- India offers medicines at costs 30%-35% lower than the US and Europe.
- R&D costs in India are approximately 87% less than in developed markets.

Competitive Advantage

Compared to competitors like Lupin Ltd, Mankind Pharma Ltd, etc, Aurobindo Pharma Ltd has the following advantages

Undervalued stock with potential for P/E expansion.
Strong margin and earnings growth compared to competitors like Lupin Ltd. and Mankind Pharma Ltd.

Outlook

Aurobindo is poised for robust growth amidst US drug shortages.
Diverse product portfolio meets market needs.
Targeted FY24 EBITDA margin: 20%.
New facilities in China and Vizag enhance market presence.
Pipeline includes high-margin biosimilars and peptides.
Strategic initiatives ensure sustained success.

Valuation

Aurobindo Pharma Ltd. is positioned for growth amidst heightened drug shortages, particularly in the US market.
With its expansion initiatives and optimization of product mix, Aurobindo Pharma Ltd. is poised to capitalize on market opportunities, warranting a BUY rating with a target price (TP) of Rs.1,361 by 28x FY25E EPS.

Risks

Forex Risk: Exposure to forex fluctuations due to significant operations in foreign markets.
Regulatory Risk: Vulnerability to regulatory changes, especially scrutiny by agencies like USFDA, impacting operations.