Lack of near-term triggers may cap upside for Aurobindo
Gains from capex and investments across segments are at least 3 years away
The Aurobindo Pharma stock was down 2.74 per cent after its March quarter results missed Street expectations. Further, the stock does not have any near-term trigger and its valuation is trending higher than the historical average.
The Q4 disappointment was largely due to the weak showing in European operations, which reported a revenue fall of 6 per cent, and the rest of the world business, which was down 19 per cent. Revenue from the US, its largest geography, was flat on a sequential basis and up 5 per cent after adjusting for the divestment of the
Natrol business.
Though the injectables and branded oncology segments saw flattish performance and over-the-counter business posted steady growth, the company faced pricing pressures in its oral solid business. Its anti-retroviral segment, the third largest, after the US and European businesses, posted strong 29 per cent growth
While its global injectables business stood at $395 million at the end of FY21, the company expects this to grow to $650-700 million in the next three years on the back of 54 pending abbreviated new drug applications and 91 approved products, European penems (antibiotic) and oncology injectables, and two additional injectable plants.
In addition to injectables, the company is spending on capex and research and development projects for vaccines, biosimilars, and inhalers to drive growth in the long term. Any meaningful contribution from these opportunities will, however, be back-ended with gains coming in FY24. This means limited room for the company to outperform in the near term.
Kunal Dhamesha and Anas Dadarkar of Emkay Research say: “The near-term pipeline seems more commoditised and offers limited room for outperformance on the growth and margin fronts. Moreover, heavy capex for active pharmaceutical ingredients (API) and formulations capacity and API production-linked scheme will also put pressure on free-cash flow generation in the near term.”
Given a muted March quarter performance, the likely impact on the nearterm performance due to the pandemic, and growth opportunities a couple of years away, some brokerages have cut their FY22 earnings estimates by 3-10 per cent. With the valuation, too, at higher than historical averages and little upside from the current target prices, investors should await an attractive entry point.