Aurobindo Pharma Ltd - 325.00 Rs

Established in 1986, Aurobindo Pharma Ltd (APL) has come a long way to become India’s top five pharmaceutical companies and undisputed world leader in certain product categories. It has successfully transformed itself from a single-product API manufacturer to a fully integrated multi-product player, encompassing intermediates, APIs and formulations. After ensuring a firm foundation of cost effective production capabilities, APL eventually entered the high margin speciality generic formulations segment, with a global marketing network. Today it operates in over 100 countries and markets over 180 APIs and 250 formulations. It is one of the largest players in Semi Synthetic Penicillin and Cephalosporin space and is backward integrated into manufacturing key raw material P-Gen. The company mainly operates in six primary therapeutic categories of antibiotics, anti-retrovirals, cardiovascular/diabetology, central nervous system, gastroenterology and anti-infectives/allergies apart from having small presence in anti-inflammatory, anti-histamines, anti-asthmatics, erectile dysfunction etc. Presently, APL derives nearly 70% of the revenue from the sale of APIs and intermediates while about 30% comes from formulations. And in couple of year company intends to take this ratio to almost 50:50. As company is focusing to expand its presence in regulated markets like USA, UK and European countries, exports constitute to around 55% of total revenue.

Over the years APL has made mammoth investments in building a mega infrastructure for APIs and formulations to eventually emerge as a vertically integrated company. Hence it is able to offer products at a competitive price as the cost of production is very low. Today it boasts of having 11 state-of-the-art manufacuturing facilities across the globe, around 6000 employees, 20 overseas subsidiaries and half a billion dollar revenue. Remarkably, almost all the company’s facilities are approved by regulatory authorities such as the US FDA, UK MHRA, MCC (South Africa), ANVISA (Brazil), Health Canada and the WHO. However its overall capacity utilisation at API plants is less than 60%. Its R&D unit is spread across 1 lakh sq ft and has 700 scientists busy in developing intellectual property in the area of non-infringing processes and resolving complex chemistry challenges. Interestingly, APL is one of the largest DMF filer with the US FDA from India with 114 DMFs filed to date. Besides it has filed 100 ANDAs in US and 40 ANDAs in Europe, out of which 62 approvals (both final and tentative) have been received from US and only 7 approvals from Europe. Importantly, company has the infrastructure to market the new products at the shortest lead time and convert the approvals into invoicing. So the additional product pipeline is expected to improve the income stream in coming years coupled with improved capacity utilization. In order to increase its foot hold in Europe, company acquired Pharmacin in Netherlands with a portfolio of 203 market authorizations; and Milpharm in UK having 100 market authorizations.

For future, company is planning to invest around Rs 200 cr in SEZ at Jedcherla near Hyderabad, and Rs 160 cr in Pharma city near Visakhapatnam. It is also setting up one more state-of-the-art R&D facility exclusively to meet the needs of increasing business of contract research. Further, APL is constantly looking to grow inorganically and scouting to make few acquisitions in Europe especially in Italy, Spain & Portugal. Meanwhile company has sold off its loss making Chinese subsidiary catering to the local Chinese markets. In short, company is on track to make a strong presence in select premium markets such as US, Canada, Europe and Australia leveraging on the large product portfolio, well balanced therapeutic presence, world class manufacturing infrastructure and experienced marketing resources. To fund its growth plan APL has raised nearly Rs 900 cr thru FCCB route to be converted into equity shares @ Rs 1014 and Rs 879 in tranches.

Financially, on a standalone basis, APL is estimated to clock a turnover of Rs 2400 cr and profit of Rs 280 cr for FY08. To be on a conservative side, even if total FCCB gets converted at an average of Rs 550 the diluted equity works to Rs 35 cr having Rs 5 as face value. So the diluted EPS on a standalone basis for FY08 works out to Rs 40. Whereas, for FY09 it can post an EPS of Rs 50. Surprisingly, scrip hit a new low of Rs 233 in the recent carnage and has now bounced backed to Rs 320~330 levels. However on a consolidated basis it may report a topline and bottomline of Rs 2600 cr and PAT of Rs 240 cr for FY08 primarily driven by negative contributions from overseas subsidiaries. Still the consolidated EPS comes to Rs 34 considering Rs 35 cr as diluted equity having Rs 5 as face value. Investors are recommended to buy at current levels with a price target of Rs 550 in a year.

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