HDFC Securities has maintained 'Neutral' on Aurobindo Pharma with target price of Rs 587 as against current market price (CMP) of Rs 623 in its report.
Commenting on the investment rationale, the stock broker said, ''Aurobindo Pharma's (ARBP) results were ahead of expectations by a huge delta (APAT at Rs 4.7 billion vs. Rs 3.9 billion expected) driven by gCymbalta. As per our estimates, gCymbalta contributed USD 50 million on revenues front, USD 40 million on EBIDTA and accounted for Rs 6.3 on EPS in 4QFY14.
ARBP posted revenues of Rs 23 billion, up 49% YoY led by an impressive growth of 130% in US revenues (Rs 11.1bn). Adj for gCymbalta (one off) US revenues were up 67% at Rs 8.11 billion. Reported EBIDTA margins at 32% were the highest ever. Adj for one offs, EBIDTA margins stood at 21%. APAT (adj for forex) at Rs 4.75 billion was up 177% YoY, adj for one offs, APAT stood at Rs 2.6 billion, up 55% YoY.
ARBP's has showcased robust performance in revenues and smart recovery in margins (base business) over the past 5/6 quarters. However, given the risk over Actavis EU business turnaround and high base of FY14 (driven by limited competition opportunities) we believe Aurobindo will witness a phase of consolidation at operating levels.
We expect Aurobindo to post an impressive CAGR of 30% in revenues driven by Actavis acquisition and base business CAGR of 14% over FY14-16E. However, negative EBIDTA margin of Actavis (-6%/-2% for FY15E/16E) is expectd to be EPS dilutive for FY15E/16E by 15/2%, hence we expect an EPS CAGR of mere 4% over FY14-16E for Aurobindo."
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