Strong injectables portfolio to support Aurobindo Pharma's growth

The stock has been underperforming recent months and trades at a discount to peers

A two-fold jump in injectable revenues, commissioning of new facilities and robust product pipeline is expected to help Aurobindo Pharma post double digit revenue growth over the next couple of years. In addition to the topline momentum, plans to demerge the injectables unit could also lead to value unlocking for the shareholders, say analysts.

The stock which has underperformed peers since the start of the year on muted performance in the US injectables segment (down 11 per cent YoY) in December quarter and expectations of near term weakness could see an uptick on multiple triggers and moderate valuations. Among the key triggers are the growth prospects in its injectables business. The company expects the business to grow two-fold over the next three years from the current levels. 

Analysts at Sharekhan expect the global injectables business which has an annual run rate of $380 million to reach $650 million-$700 million in the next three years backed by increasing approvals, geographic expansions and improving demand traction. The company has a sizeable injectables portfolio with 87 approved and 54 pending abbreviated new drug applications; about 70 products are under development. 

To support its growth and bring down supply risk, the company is setting up a greenfield plant in the US market. This will help it to tap local tenders and boost overall capacity. The company is also setting up a plant in Visakhapatnam (to come up in FY23) which will help cater to demand in non-US markets. Analysts at JP Morgan expect injectables portfolio to help the company maintain growth momentum with annual uptick of 18 per cent over FY21-23.  In addition to injectables, the company is also looking to expand its complex generics presence in biosimilars, inhalers and transdermal patches.

The start of a 450 million dosage vaccine capacity by the end of June this year could open up a new stream of revenue though the upside will depend on pricing of Covid-19 vaccines and demand for non-Covid vaccine portfolio over the medium term. 

Despite the strong prospects in the injectables business, US generics portfolio ($.1.4 billion), European operations ($700 million), rest of the world and active pharmaceutical ingredient businesses, the valuation discount to peers with US dependent earnings growth is unwarranted, according to JP Morgan.