Retail Research

25th May, 2021

Equity Fundamental

Short Term Call

Company Name: Aurobindo Pharma Limited

CMP: Rs1,013.8 Target*: Rs1,065.0 BSE: 524804 NSE: AUROPHARMA

Aurobindo Pharma Ltd. is a leading global pharmaceutical company, producing generic formulations and Active
Pharmaceutical Ingredients (APIs). The Company is a vertically integrated generic pharmaceutical company focused
on developing a broad spectrum of products including a complex and differentiated product portfolio. The Company
offers a wide range of products and is globally the seventh-largest generic company by revenues and the second in
India. It has carved a niche for itself in developing high-quality APIs and finished dosage forms, especially in regulated
markets.

The current market cap of the stock is Rs59,420 crore. The stock is virtually held by all mutual fund AMCs with the
top three HDFC Trustee Co., BNP Paribas holding and Nippon life India Trustee 4.05%, 1.26%, and 1.11% respectively
in the non-promoter category as on March 2021.

Investment rationale:

Deep industry experience with diversified product base: Aurobindo has 33 years of experience in the
pharmaceutical industry with eight research facilities and 29 global manufacturing and packaging facilities. It is
operating in 155 markets deriving >92% of revenues outside India. The company is the second-largest and top 10 in
the generic prescription of the US and European healthcare industry. The Company commands a large portfolio in
formulations (87% of revenue) with 1,200+ products and has 17 formulations manufacturing facilities in India (11),
the Netherlands (1), Portugal (1), Brazil (1), and the US (3).

The Company also participates in Antiretroviral (ARV) tenders floated by various independent and government
agencies by multi-lateral organizations like the United States Agency for International Development (USAID), The
President’s Emergency Plan for AIDS Relief (PEPFAR) and other health ministries of various countries.

Huge product pipeline in regulated markets: The Company derives nearly 75% of revenues from the highly
regulated markets of the USA (49.7%) and Europe (25.6%). It has filed 634 ANDA applications cumulatively of which
approval for 434 is already received while 29 are under the tentative approval category and rests are under review.
It has the largest ANDA filings of 108 under the CNS (Central Nervous System) therapy while CVS (Cardio Vascular)
and ARV (Anti-Viral) have 92 and 41 ANDA filings. The top three-segment has a combined addressable market size of
>57 billion USD as on Dec 2020.

Strong market outlook: Specialty drugs are used to treat complex or rare chronic conditions. In developed markets,
around 44% of spending in 2019 was focused on specialty products and is likely to touch 52% in 2024. Global
pharmaceutical spending is expected to touch USD 1.6 trillion by 2024 growing 3-6% CAGR over the next four years.
 Short Term Call

The USA continues to rank at the apex of the world’s pharmaceutical spending, contributing about 41% of the total
market. The spending is likely to grow from US$510 billion in 2019 to US$605-645 billion by 2024. India is now
looked upon as the pharmacy of the world. Besides being the largest provider of generic drugs globally, India’s
pharmaceutical industry meets 50% of the global vaccines demand, 40% of the generic medicine demand in the US,
and 25% of the entire demand for medicines in the UK. During 2014-19, the domestic market grew at a CAGR of 9.5%
to reach US$22 billion which is slated to touch >USD30 billion by 2024 growing 8-9% CAGR.

Strong financials; Attractive valuation: The Company has a very small component of debt. The net D/E of Aurobindo
turned to negative 0.04x in Q3FY21 from 0.21x in Q3FY20. The company generates an EBITDA margin of >20% while
return ratios are between 17-18%. Recent quarter performances have also been robust. During Q3FY21, it reported
8% yoy growth in sales while adj. net profit grew 16.4% yoy. The margin improved by 100 bps to 21.5%. At current
price, the stock’s 1-Yr forward PE is trading at 15.9x which is below the average industry PE of 39.7x.

Why Now?

Sr. No. Parameters Score

Recent financial performance (management

1
guidance, return and margin profile, growth and
cash flow)
2 Overall corporate governance (Promoter pledge,
credit rating, audit qualified opinion etc)
Recent stock price movement-worst is over for
3
stock, all negatives in the price (valuation, 52W
H/L, below average PE etc)
Beneficiary of recent macro and industrial
4
developments (Regulatory, Fiscal/Monetary
policy, favourable industrial outlooks etc)

- Neutral - Positive - Negative

Duration of recommendation: Short to Medium term

*Please refer to our call guide mentioned below.

Recommendation History

Date Stock Price Target Price Recommendation Status

06th Oct, 2020 843.3 886.0 Buy Closed – Target achieved
22nd Apr, 2021 987.3 1,037.0 Buy Closed – Target achieved

Call Guide:
The above recommendation is meant for short term investment purpose with holding period between 1-90 days and target upside upto 5% (+/- 0.5%). The
recommended price is previous day’s closing NSE price (except the stock only listed on BSE). In case of gap-up opening the call is termed "Not Entered" only if
stock price does not come within +1% of previous close price on the day of call; partial profit is generally not advised; Call can be rationalized (changed) by
Fundamental team at their discretion; generally to average or exit at loss (cut-loss strategy).

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 Short Term Call

SBICAP Securities Limited I Monica Chauhan I Tel.: 022-4227 3499 I email: monica.chauhan@sbicapsec.com

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Name Qualification Designation

Monica Chauhan C.A. Research Analyst – Equity Fundamentals

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 Short Term Call

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