Oh No! Aurobindo

Aurobindo Pharma’s stock has been under a cloud over the past three months and has corrected 20% during this period. First, there was report of a fire at its Srikakulam unit. The second news was Aurobindo Pharma USA getting named as one of the six companies accused of conspiring to shore up prices of Doxycycline Hyclate DR and Glyburide.

At its current price, analysts say the selling may have dried out. “The negatives are priced in. The company has good visibility, both in terms of earnings and product launches. Most of its plants are clear of any USFDA-related regulatory concerns,” says Param Desai, pharma analyst at Elara Securities.

Analysts also add that the drugs that were mentioned in the complaint filed in the US have no material impact as they have a negligible contribution to overall sales. “Aurobindo is not present in the Doxycycline Hyclate DR market and company’s secondary sales from Glyburide were immaterial at $1.1 million in FY16. We do not see a major impact from this complaint given the drug’s negligible exposure to company’s sales (0.1% of US sales and <0.05% of total sales),” mentions a Motilal Oswal Securities report.

While the fire at the Srikakulam unit should also not have any material impact, analysts feel that US President Donald Trump’s intention to make medicines even more affordable in US can lead to some pricing pressure for Indian generics, but Aurobindo might be in a better position than its peers to deal with any pressure on prices as no single product contributes more than 3% of its US sales.  

Then, Aurobindo has one of the best approvals to launch track record among Indian generic players operating in the US. Since the beginning of FY16, Aurobindo has received 880 ANDAs approvals and has launched more than 55 products (highest among Indian peers).

Its US sales are expected to grow at 19% CAGR over FY16-19 and in H2FY17 it expects to launch 25 ANDAs with 20 oral solids and 6-7 injectables. At the current price of Rs.711, the stock trades at 14x estimated FY18 earnings and at a 25% discount to its large-cap peers. Analysts reckon that this discount is likely to narrow in the coming days.