Street mixed on ED action against Aurobindo

The street has mixed views on Aurobindo Pharma following attachment of some of its assets by the Enforcement Directorate in connection with the money laundering probe against YSR Congress chief Jagan Mohan Reddy and his associates. The properties attached allegedly include 96 acres of APL Research Centre, a 100 per cent subsidiary of Aurobindo Pharma, and fixed deposit of Rs 3 crore of the company.

While most experts see it as incrementally negative for the stock and expect a rebound soon, some are of the view that the development is sentimentally-negative as it reflects the corporate governance issues of the company.

The company’s shares slipped 3.72 per cent through the day to close at Rs 179.90 on the Bombay Stock Exchange (BSE). It touched a low of Rs 170.55 on Thursday.

However, the company, which had contested the ED’s attachment, maintains that there has been no wrong doing on its part.

“The company has full regards for law and the legal process and that it is in the process of appealing the decision before the Appellate Tribunal. The company maintains that there has been no wrong doing on its part and hopes that the truth will prevail,” Aurobindo Pharma told the BSE on Thursday.

“This attachment order does not have any material implications on the current and future business operations of the company,” it added.

The street is also hopeful that the stock will rebound as the development was expected and is unlikely to have a direct impact on the company’s business.

“Although it will have legal ramifications, it does not really impact the company’s business in specific unless the whole thing becomes more complex and is blown out,” says Nitin Agarwal of IDFC Securities.

Agrees Praful Bohra, senior research analyst, Nirmal Bang. According to Bohra, the move, though “incrementally negative”, is part of an ongoing process and was expected. “The problems regarding the land allotment and assets were not hidden. Earlier also, there were investigations and related inspections,” said Bohra, adding that investors would look forward if the company has to bear any such additional liability, which may lead it to red.

In October 2012, the ED had issued various order alleging irregularities in land transfer and sale of villas and apartments at Hyderabad. The order includes properties from various others such as Hetero Drugs, Dubai-based Emaar Properties, its joint venture Emaar MGF and others, apart from Aurobindo Pharma. Although Aurobindo Pharma contested the matter before the adjudicating authority under the Prevention of Money Laundering Act, 2002, the authority confirmed the attachment, paving way for the ED to immediately confiscate the properties.

“It is sentimentally negative for the company as this points out and reflects on the corporate governance issues of the company rather than the impact on its earnings per share,” said a pharma sector analyst.