Aurobindo Pharma - Emerging as global leader in API - Centrum

Aurobindo Pharma (APL) is the second largest producer of APIs globally after Teva Pharma, Israel. With the recent decision of Teva to discontinue API production at its various global sites, APL is set to benefit. The company's formulation business (56% revenues) is likely to grow at 30% CAGR till FY16 whereas its API business (44% of revenues) is expected to grow at 15% CAGR till FY16. APL has one of the largest product portfolios of both API and formulations. The management aspires to reach $2bn (Rs1,100bn) by FY16. We have a Buy rating for the scrip with a target price of Rs245 giving 36% upside over CMP.

- Dominant global player: APL is the second largest manufacturer of API globally after Teva, Israel. APL is likely to benefit from the gradual exit of Teva from the API business. The company has seven world class manufacturing facilities for API. The company is gradually moving from API to formulations resulting in margin expansion.

- Licensing arrangement with MNC pharma companies: APL has entered into contracts with Pfizer, Astra Zeneca and others for the supply of formulations for the developing and developed markets. The company also supplies API to generic producers in US and Europe. APL has also entered into an agreement to supply 8 APIs for the Japanese market.

- Large product pipeline: APL has filed 170 DMFs with US FDA, 1429 DMFs with European authorities and 534 DMFs for the RoW markets. The company has filed 268 ANDAs with US FDA of which 164 have been approved. The company offers a basket of over 100 products to the four large distributors in the US.

- Entry into new markets: APL has launched its generic products in Italy, Germany, Spain and Portugal and expects good growth from these countries. The company has forayed into S. Africa, Canada, Japan and Australia and expects good growth from these markets.

- Valuation: At the CMP of Rs180, the stock trades at 11.3x FY13E EPS of Rs16.0 and 5.9x FY14E EPS of Rs30.6. We have a Buy rating for the scrip with target price of Rs245 giving 36% upside from CMP.

Source : Equity Bulls

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