Aurobindo hits 52-week high; zooms 63% from Feb low on improved performance

Analysts believe Aurobindo has multiple growth drivers in place with investments in vaccines, injectables, biosimilars and PLI, which are expected to be reflected from FY24

Shares of Aurobindo Pharma surged 5 per cent to hit a 52-week high of Rs 646.35 on the BSE in Tuesday’s intra-day trade on the back of heavy volumes. The average trading volumes on the counter had more-than-doubled today. A combined 3.8 million equity shares representing 1 per cent of total equity of the drug maker changed hands on the NSE and BSE till the time of this report.

The stock price of Aurobindo zoomed 63 per cent from its 52-week low of Rs 397.30, touched on February 3, 2023. Thus far in the calendar year it has soared nearly 50 per cent on improved performance. In comparison, the S&P BSE Sensex gained 1.7 per cent.

Aurobindo Pharma is a leading pharmaceutical company that is vertically integrated with business units engaged in formulations, custom synthesis, peptides, R&D and active pharmaceutical ingredient (API).

The company’s revenue in October-December quarter (Q3FY23) rose 6.7 per cent year-on-year (YoY) to Rs 6,407 crore, mainly driven by revenue from the US.

The US business improved 9.3 per cent YoY to Rs 3,001 crore driven by a rise in volume and higher demand, which accounted for 46.8 per cent of consolidated revenue.

The company’s profit after tax declined 13.8 per cent YoY (up 20.0 per cent quarter-on-quarter (QoQ) to Rs 491 crore. EBITDA margin contracted 200bps YoY to 14.9 per cent (+30bps QoQ), primarily due to increased R&D expenses and higher other overheads.

In terms of US business, the company is expected to generate a double-digit growth going forward. Aurobindo aims to commercialise 40 ANDAs in the next 12 months. The company expects to generate strong cash flow from FY25, supported by the Penicillin-G project and biosimilars business.

The US market share recovery, the Penicillin-G project, and the biosimilars business’ new product launches are expected to support the company in generating strong cash flow from FY25, according to Geojit Financial Services.

In the coming quarter, we expect margin to remain under pressure as R&D expenditure is expected to be elevated. However, the company’s new products and upcoming projects are likely to support its long-term performance. In addition, the US business is recovering, and sales have increased due to higher demand, volume and stable price, it said.

The US is expected to follow the trend in the coming quarter and fiscal year. Therefore, the brokerage remains optimistic about the stock and retained its BUY rating. The stock was trading above its target price of Rs 554 per share.

Meanwhile, in the January to March quarter (Q4FY23), Aurobindo’s revenues are likely to increase 10.9 per cent YoY to Rs 6,440 crore on back of higher sales from US business, which are expected to grow 12.2 per cent to Rs 3,060 crore followed by Europe sales up 11 per cent YoY to Rs 1,708 crore, according to ICICI Securities.

Subsequently, EBITDA is expected to deliver a 12.9 per cent YoY to Rs 1,100 crore. EBITDA margins are expected to increase 30 bps YoY to 17.1 per cent. Adjusted profit after tax is expected to de-grow 18.8 per cent YoY to around Rs 596 crore due to higher base on account of an exceptional item in Q4FY22, the brokerage firm said in Q4 result preview.

Analysts at Prabhudas Lilladher expect the margin trajectory to improve from FY24. However, pick up in US sales hinge on timely niche approvals along with stabilization of pricing pressure in base business. The brokerage believes Aurobindo has multiple growth drivers in place with investments in vaccines, injectables, biosimilars and PLI, which are expected to be reflected from FY24.