Aurobindo's strong run to continue

Even as Indian pharma majors as Sun Pharma, Lupin and Dr Reddy's have taken a beating on the bourses, Aurobindo continues to show resilience. At Monday's close of Rs 847.20, the stock is a shade lower than its all-time high of Rs 860.80 made last month. Notably, analysts see more gains on the back of an improving business outlook.

Aurobindo, unlike its larger peers, has not seen any stress over approvals for new launches nor does it see any FDA-related issues deterring growth in the US, which is world's largest healthcare market. In fact, post a strong September 2015 quarter performance and looking at the company's strong pipeline for launches in the US, many analysts have upgraded their target price for the stock. Analysts at HSBC have upgraded their target price from Rs 901 to Rs 955 while IIFL has assigned a two-year target price of Rs 1,220.

Aurobindo's US formulations (about 44 per cent of total revenues) marked a 26 per cent growth as it received 13 approvals for launches in September 2015 quarter, one of the best approval rates in the industry. Further approvals continue to flow as it recently got approval for launch of generics of Sildenafil indicated in pulmonary arterial hypertension. Though this approval is comparatively smaller there are big approvals that Aurobindo has received for many larger and interesting products like generics of Evista (osteoporosis treatment), Baraclude(hepatitis B drug) and Abilify (psychotropic drug) in the recent past. Since the products have been recently introduced in the US market, their contribution should be material in second half, feel analysts at HSBC who anticipate many more approvals before March 2016.

Amongst peers, Aurobindo has emerged as one of the topANDA filers, says Sarabjeet Kour Nangra at Angel Broking who adds that the company has been an aggressive filer in the last few years and is now geared to reap benefits, even though most of the filings are for highly competitive products. Further, over next three years, there are about $70 billion worth drugs going off-patent in the US and Aurobindo is well-placed to tap this opportunity, says Nangra.

It is not just about the approvals and launches for generics, but complex molecules and injectables portfolio that the company is building. IIFL's analysts say, "Injectables portfolio would also get a leg up from complex filings in peptides, penems, oncology and hormones especially peptides in the near-term where for instance an Angiomax approval can make meaningful contribution". They have built in 32 per cent CAGR is Aurobindo's US revenues, driven by lagged effect of recent key approvals like Entecavir, Abilify, Namenda and Prilosec and a 25 per cent CAGR in EPS over FY15-18 for the company.

The OTC business, too, is shaping well in the US, post the Natrol acquisition last year. TheActavis acquisition in Europe is also likely to become profitable by next fiscal, feel analysts. The sourcing of related APIs from India is likely to boost European profitability. All these will further boost the company's earnings.