You are using an older browser version. Please use a supported version for the best MSN experience.

Aurobindo Pharma shares in a sweet spot among bitter pharma pills

LiveMint logoLiveMint 05-07-2017 Ami Shah

Mumbai: Even as most large pharmaceutical companies are largely off investors’ radar, there is one stock that still rules—Aurobindo Pharma Ltd is doing well on the back of a diversified portfolio and a strong set of regulatory approvals.

A Mint analysis showed that among Nifty stocks, the Hyderabad-based pharma company has been among the top three bets for at least the last five quarters. This analysis in based on the highest percentage of “buy” or “outperform” ratings of the total brokerage ratings assigned to each Nifty stock. Currently, 89.47% or 34 of the 38 brokerages tracking the stock have a “buy” or “outperform” rating on it. Two of them have a “hold” or “neutral”, while two others have rated it a “sell”, “reduce” or “underperform”.

In a 29 June note, brokerage firm Prabhudas Lilladher Pvt. Ltd said it had maintained a buy rating on the stock.

“With potential for the approval of 5-7 complex generics and many limited competition drugs, there is a strong possibility of rerating of Aurobindo Pharma, from the current valuations of 13.8 times and 15.5 times PER (price earnings ratio) for FY18E and FY19E respectively vs peers’ trading range of 18-21 times,” analyst Surajit Pal said in a note.

The brokerage expects the valuation gap to narrow down in fiscal year 2018-19. Aurobindo has one of the highest number of generic product approvals in recent times in the US market, boding well for the company. Peers such as Dr. Reddy’s Laboratories Ltd and Sun Pharmaceutical Ltd have been facing warning letters from USFDA (Food and Drug Administration) for their plants, which has impacted earnings of these companies.

Persistent regulatory hurdles and pricing pressures in the US have been weighing on most pharmaceutical companies. The issue gains prominence because of the magnitude of the impact it could have on the revenue of these companies.

For most leading pharmaceutical companies, the US market accounts for at least half of their revenues. Also, Aurobindo has a diversified portfolio, and the company is well-placed to monetize on its R&D (research and development) pipeline.

In a note on 13 June, IDFC Securities, which has an “outperformer” rating on the stock, said the broad base business mix differentiates Aurobindo from its peers.

“Irrespective of the ongoing price erosion trends especially in the oral solids business, the company remains optimistic on growing overall US sales on the back of continued strong growth momentum in its non-OSD (oral solid dosage) franchises e.g. injectables, controlled substances, nutraceutical and OTC,” IDFC Securities said in the note.

More From LiveMint

image beaconimage beaconimage beacon