Aurobindo Pharma Q3 Review - Business Outlook Stable; Outcome Of U.S. FDA Inspection Remains Key: DRChoksey

DRChoksey Research Report

Aurobindo Pharma Ltd. had strong revenue growth driven by the U.S. formulation segment with the support of the specialty and injectable segment. The profitability margins have expanded with stable pricing in the U.S. and a trend of decline in raw material costs.

The major concern with the company is the recent Food and Drug Administration inspection in the Eugia unit 3 plant which received nine observations. Due to this, Aurobindo Pharma has stopped manufacturing temporarily which will have an impact of $20 million in Q4 FY24E revenue.

We believe this downside risk may persist unless they adhere to regulations.

Overall, the business outlook remains stable, although with an emerging risk from the impact of U.S. FDA inspection in the injectables facility.

Currently, the stock is trading at price-to-earning multiples of 15.7 times and 13.9 times based on FY25E/FY26E EPS, respectively.

We introduce FY26E estimates; expect FY23-FY26E revenue compound annual growth rate of 10.5% and corresponding adjusted PAT CAGR of 29.6%.

We apply a PE multiple of 14.2 times to our FY26E earnings per share of Rs 71.63 and maintain our target price of Rs 1,090 per share.

Accordingly, we maintain our rating of 'Accumulate' on the stock, with a potential upside of 7.2%.

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