Aurobindo Pharma achieved target price of Rs 412, book partial profit, wait for December-2013 quarter - IndiaNivesh

Since 9th April 2012 (at prevailing market price of Rs 113) post management meet, we are bullish on Aurobindo Pharma and had upgraded our target price from Rs 150 upto Rs 412 level in gradual manner in the last one and half year. Yesterday (26th Dec 2013) once again stock achieved our target price of Rs 412 and closed at Rs 403 level. Till date since our recommendation, the stock has yielded 264% return.

Spectacular turnaround performance of the company in the last one and half year is attributed to a) improvement in base business linked with many launches in US market, b) focus on injectable & complex launches in the same market, c) gradual declining in remedial cost which was associated with its facilities (unit VI& unit XII) under USFDA scrutiny, d) substantial improvement in EBITDA margins. Additionally, company's investment in front end team expansion across the geographies (including Europe & ROW markets) has started yielding dividend & most of these subsidiaries has turned EBITDA positive.

Excellent performance in the previous quarter (Sep 2013) has increased investor's confidence in company's business. Considering all aforesaid developments and positive outlook for the company, we were of the view that valuation expansion is on the cards for Aurobindo. Inline with that, stock has achieved our target price of Rs 412 & valuations have expanded almost 55% in last one month (Post Q2FY14 results). Comparing with peers valuations, Aurobindo is still trading at 15-20% discount to its peers. We believe that given the positive business outlook, likely free cash flow generation & improvement in gearing ratio of the company, stock's valuation are likely to expand further.

Currently we maintain our target price of Rs 412 and temporarily put rating under review. We would like to see the December-2013 quarter performance of the company for further revision in our rating and target price. Though we maintain positive outlook but due to more than 100% run up by stock price in the last three months, we advise investors to book partial profit at current level and re-enter at lower levels.

At CMP of Rs 403, the stock is trading at P/E multiple of 16.2x of FY14E &11.7x of FY15E.

Source : Equity Bulls

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