Aurobindo Pharma Ltd (Auro) is one of the largest vertically integrated pharmaceutical companies. Over the past few years, the company has drastically shifted its focus from APIs business to generic formulations.
Outlook and Valuation: We believe Aurobindo Pharma is better placed as compared to its peers on the back of relatively better performance despite pricing pressure in the US. We expect revenue and PAT to grow at a CAGR of 9.5%/7% over FY17-20E on the back of new product launches mainly in complex generics, volume growth in existing products and ramp-up in Europe business. Importantly, recent observations of the USFDA to its unit-IV facility (which makes injectables) at Hyderabad, remains a concern. The USFDA has issued Form 483 with 9 observations to the company’s unit 4, citing deficiencies in maintaining manufacturing standards. However, none of the observations are related to data integrity or are repetitive in nature. We recommend ‘BUY’ rating on the stock with a target price of Rs 644 based on 13.5x FY20E EPS
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