Nuvama Institutional Equities has maintained its 'Buy' rating on Aurobindo Pharma, increasing the target price to Rs 1,753 from Rs 1,680. This new target suggests a 17.17% upside from its recent closing price of Rs 1,496. The brokerage firm highlights Aurobindo Pharma as being at a significant inflection point, driven by strategic investments and a shift towards complex pharmaceutical modalities.
Key Drivers for Aurobindo Pharma's Growth
Nuvama's bullish outlook on Aurobindo Pharma is underpinned by several factors:
- Pen-G Unit: The Penicillin-G (Pen-G) unit is identified as a near-term earnings trigger, expected to reach a 60–80% utilization rate. This could generate Rs 700 crore in revenue, including a Rs 240 crore Production-Linked Incentive (PLI) payout.
- Strategic Investments Yielding Returns: Over half of Aurobindo Pharma's Rs 15,500 crore capital expenditure over the past five years is now poised to deliver returns, with the remainder expected to contribute by FY29. Nuvama projects a revenue/PAT CAGR of 15%/24% with a 200 bps expansion in Return on Capital Employed (RoCE) by FY28.
- Lannett Acquisition: The recently concluded acquisition of Lannett is anticipated to contribute up to $500 million in revenue, bolstered by respiratory products, including the upcoming launch of generic Advair (gAdvair).
- Adquey Launch: Aurobindo's first novel asset, Adquey, is slated for launch within months, with peak sales projected between $250–300 million.
- European Business Expansion: The robust European operations, which clocked EUR1 billion in revenue, are expected to grow further to EUR1.2 billion by FY28E.
- China Unit Turnaround: The China unit is projected to transition from a loss-making entity in FY26 to registering $10 million in EBITDA by FY27E, driven by strong export momentum and plans to expand capacity by 3.5 times.
- Biosimilars and Biologics CMO: These high-margin businesses are set to offer long-term upside, with meaningful contributions expected from FY29E. Specific biosimilars like Omalizumab and Denosumab, alongside a manufacturing contract with MSD for biologics CMO, are key components.
Challenges and Outlook
While the outlook is largely positive, Nuvama noted that a continued Official Action Indicated (OAI) at Unit III delays some launches, though US revenue contribution from this unit is minimal at 3%.
Overall, Nuvama reiterates its 'Buy' rating for Aurobindo Pharma, citing its strategic pivot into complex modalities, successful M&A, and significant capital expenditure delivering future growth, with the stock currently trading at 16x FY28E EPS.