Aurobindo at a record high, price-to-earnings at 32% discount to peers

MUMBAI: Aurobindo Pharma continues to be a bargain in the pharmaceutical space despite the stock hitting a new lifetime high on Monday. The stock is trading at 10.4 times its price-to-earnings (P/E) multiple for 2013-14 against an average 15.3 times of mid-cap pharmaceutical companies, which means the stock is at 32% discount to its peers.

For the next fiscal, the stock is trading at 8.7 times to its P/E multiple compared with an average 15.3 times, which is at a 52% discount to the industry average.

“At the current market price, Aurobindo Pharma trades at mere 7.5 times to its fiscal year 2015 earnings, making it an attractive company,” said Meeta Shetty, analyst at HDFC Securities. “We expect traction in revenues to continue going ahead. The company has strategically built product pipeline for the next 5-6 years targeting the US market.”

Analysts have given the company a robust earnings outlook on back of strong US product pipeline. The US generics, which contribute 58% to Aurobindo Pharma’s formulation business, are seen as a key growth driver.

The company has 157 pending approvals, of which half are in injectibles and controlled substances. The company’s management plans to scale up these businesses significantly over the second half of this fiscal.

“The re-rating of Aurobindo Pharma stock is on the cards, on the back of robust performance over last few quarters and its promising business outlook. We continue to maintain strong ‘Buy’ recommendation on the stock, and have increased its price target to Rs 343 from Rs 252,” said Daljeet S Kohli, head of research at IndiaNivesh Research.

Aurobindo Pharma has entered into high-margin therapies like oncology, hormone and differentiated products like peptides, with the recent acquisitions of Celon Laboratories and Silicon Life Sciences.



“The re-rating of Aurobindo Pharma stock is on the cards, on the back of robust performance over last few quarters and its promising business outlook. We continue to maintain strong ‘Buy’ recommendation on the stock, and have increased its price target to Rs 343 from Rs 252,” said Daljeet S Kohli, head of research at IndiaNivesh Research.

Aurobindo Pharma has entered into high-margin therapies like oncology, hormone and differentiated products like peptides, with the recent acquisitions of Celon Laboratories and Silicon Life Sciences.
“We have revised fiscal year 2014 and 2015 earnings per share (EPS) upwards by 24% and 18%, respectively, on the back of improved earnings visibility,” said Siddhant Khandekar, analyst at ICICI Securities. Aurobindo Pharma’s consolidated net profit rose 5.7% year-on-year to Rs 235 crore in the quarter to September. Total income from operations increased 27.6% to Rs 1,913 crore.

Shares of Aurobindo Pharma gained 3.07% to close at Rs 268.45 on the BSE on Monday. Analysts say Aurobindo Pharma has witnessed consistent improvement on its revenue and operating margin fronts over the last six quarters, driven by resolution of US FDA compliance issues, better product mix and less focus on low margin drugs.

“We expect 50% earnings CAGR over fiscal year 2013 to 2015. We believe sustainable operational performance will restore confidence over execution, resulting in valuation re-rating of the stock,” said Perin Ali, analyst at Edelweiss.