Aurobindo Pharma - IndiaNivesh

Aurobindo Pharma Ltd (APL) is an integrated pharmaceuticals company with major focus on exports. Predominantly being the API supplier, company has increased its revenue contribution from formulation business by more than 60% in the last 5-6 years. Apart from majorly focused in USA formulation & API business, company has healthy presence in Europe & African markets also. In Africa, APL is focused in ARV formulations.

We are of the view that company's operational efficiencies are likely 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.

At CMP of Rs 165, the stock is trading at P/E multiple of 9.4x of FY13E & 8.4x of FY14E earnings estimates. Earlier at market price of Rs 113 (for details refer “Management Meet Update” released as on 9th April 2012) we had recommend buy on the stock with target price of Rs 150 & further upgraded to Rs 196, which has been achieved in Dec 2012. However, due to negative news flow like, seize of ~96 acres of land of Aurobindo's Research Centre and fixed deposit of Rs 30 million by ED in connection to a case related to AP based politician & delay in unit VI clearance from USFDA, the stock has corrected from ~Rs 200 level to current level. We believe that current price correction is over done. In our opinion the stock is offering a good entry point. From current level of Rs 165, the stock has upside potential of ~19%. Hence, we revise our rating from Hold to BUY with the target price of Rs 196 (valuing at 10x of FY14E).

Source : Equity Bulls

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