Near-term growth and cost challenges to weigh on Aurobindo Pharma stock

While valuations are now attractive, product approvals and progress on the injectable guidance are among key long term term triggers

Aurobindo Pharma
Aurobindo Pharma | Photo: Wikipedia
Ram Prasad Sahu
2 min read Last Updated : Jun 01 2022 | 11:37 PM IST
Pegged back by a weak showing in the US and EU markets and cost pressures, Aurobindo Pharma delivered a weaker-than-expected performance in the March quarter. The muted performance and near-term margin outlook led to a downward revision of earnings estimates of up to 15 per cent. While the stock gained about 2 per cent in a weak market on Wednesday, further gains will depend on the pace of approvals and uptick in the base business.

The company reported a 3.3 per cent year-on-year (YoY) fall in overall sales largely on account of a 4.5 per cent decline in the US market which accounted for 47 per cent of consolidated sales. The US sales were lower than expected on account of sharper than expected price erosion and lack of meaningful launches. Sales in the European market (27 per cent of revenues), too, were weak falling a per cent while its growth markets and active pharmaceutical ingredients (API) reported a 15-28 per cent uptick.

The company has retained its guidance of achieving sales of $650 million to $700 million from the injectables segment over the next three years aided by a strong product pipeline. However, in the near term (next two quarters) there could be pricing pressures for its base business which coupled with higher costs could impact the margins.

“We expect cost pressures to remain in the near term and margin trajectory should improve from the second half of FY23. However, pick up in US sales hinges on timely niche approvals along with stabilisation of pricing pressure in base business," say Param Desai and Akshaya Shinde of Prabhudas Lilladher Research. The brokerage believes that the company has multiple growth drivers in place with investments in vaccines, injectables, biosimilars and production-linked incentive scheme, which are expected to be reflected from FY24.

At the current price, the stock is trading at an attractive valuation of just under 11 times its FY23 earnings estimates. Most brokerages have a buy or accumulate rating for the stock. In addition to valuations, Motilal Oswal Research is positive on the company’s robust complex product pipeline comprising injectables/biosimilars, comprehensive product offering in the generics space and a healthy free cash flow generation. 

One subscription. Two world-class reads.

Already subscribed? Log in

Subscribe to read the full story →
Subscribe to Business Standard digital and get complimentary access to The New York Times

Quarterly Starter

₹900

3 Months

₹300/Month

SAVE 25%

Smart Essential

₹2,700

1 Year

₹225/Month

Save 46%

Super Saver

₹3,900

2 Years

₹162/Month

Subscribe

Renews automatically, cancel anytime

Here’s what’s included in our digital subscription plans

Access to Exclusive Premium Stories Online

  • Over 30 behind the paywall stories daily, handpicked by our editors for subscribers

Complimentary Access to The New York Times

  • News, Games, Cooking, Audio, Wirecutter & The Athletic

Business Standard Epaper

  • Digital replica of our daily newspaper — with options to read, save, and share

Curated Newsletters

  • Insights on markets, finance, politics, tech, and more delivered to your inbox

Market Analysis & Investment Insights

  • In-depth market analysis & insights with access to The Smart Investor

Archives

  • Repository of articles and publications dating back to 1997

Ad-free Reading

  • Uninterrupted reading experience with no advertisements

Seamless Access Across All Devices

  • Access Business Standard across devices — mobile, tablet, or PC, via web or app

Topics :Aurobindo PharmaValuationsGlobal Markets

Next Story