BOB Capital Suggests Buying This Pharma Stock Near 52 Week Low For 60% Gains

BOB Capital Markets Ltd is bullish on Aurobindo Pharma Ltd. and has given a buy call for a target price of Rs 850. Recently, the company acquired Veritaz Healthcare for Rs 1.7bn to enter the domestic formulation business.

Stock Overview - Target Price, CMP, 52 Week Low & High

According to the NSE, Aurobindo Pharma's stock opened today at Rs 538 and closed at the Current Market Price (CMP) of Rs 528.59, a downfall of 0.13 per cent. The stocks have the potential to gain 60%, according to the brokerage's target price of Rs 850 and CMP. The stock market has witnessed a downside of over 45%. The stock's 52-week low is Rs 514.10 touched last week on 25th May 2022, and its 52-week high is Rs 1,037.90 touched last year on 27th May 2021.

Aurobindo Pharma's Acquisition of Veritaz Healthcare

Aurobindo Pharma has bought branded generic formulations player Veritaz Healthcare in a Rs 1.7bn all-cash deal - in keeping with management's guidance of entering the India formulations business where it has a sales target of Rs 1bn by FY25. Veritaz services an addressable market worth ~Rs 268bn and based on 9MFY22 numbers, the acquisition is valued at 1x FY22E sales and 9.8x FY22E EBITDA (annualised). The company is promoted by the sons of the Aurobindo Pharma promoter and hence the deal is a related-party transaction. In addition, it is a slump sale and has no debt liability or cash benefits.

Veritaz Healthcare to offer a major boost to Aurobindo Pharma

Incorporated in Sep'06, Veritaz is engaged in wholesale marketing and distribution of branded generic formulations in acute therapeutic areas (anti-infectives, PMS), nutraceuticals and toiletries. The company markets 40 brands across sectors and has 180 registered trademarks. Its largest brands are Fepanil (Paracetamol, sales: Rs 310mn in FY21) and Merogram (Meropenem injectable, sales: Rs 200mn). Veritaz plans to launch products in cardiology/diabetic and orthopaedic/gynaecology segments in the near term. With 900 employees (including 700 representatives) at Veritaz, the acquisition enables Aurobindo Pharma to reach over 70k doctors, 50k retailers and 1,700 stockists in 23 cities.

Brokerage Comments & Vies On The Aurobindo Pharma

According to the brokerage, "While the acquisition offers opportunities for Aurobindo Pharma to build a presence in India formulations, we note that Veritaz has low-value products in highly competitive segments and reasons for the related-party transaction aren't very compelling. This apart, we expect monetisation of Aurobindo Pharma's global IPR in India to have back-ended benefits while the addition of employees and brands/promotions related to the deal will raise overhead expenses from FY23. We await better clarity on the strategy and financial planning post-acquisition before incorporating Veritaz into our estimates."

Buy for a Target Price of Rs 850/share

Aurobindo Pharma is trading at attractive valuations of 5.8x FY24E EV/EBITDA (9.3x FY24 P/E). "We reiterate BUY and maintain our Target Price at Rs 850, based on 7.5x FY24E EV/EBITDA (implied P/E of 12x). Our target multiple reflects a continued 45% discount to other frontline stocks (SUNP, CIPLA, DRRD) due to ARBP's low branded sales and high US exposure," the brokerage has said.

About Company - Aurobindo Pharma Ltd

Aurobindo Pharma Ltd was founded in 1986 by Mr P.V. Ramprasad Reddy, Mr K. Nityananda Reddy and a small group of highly committed professionals. The company commenced operations in 1988-89 with a single unit manufacturing Semi-Synthetic Penicillin (SSP) at Pondicherry. In 1992, Aurobindo Pharma became a public company and in 1995, listed its shares on the Indian stock exchanges. The company is a market leader in Semi-Synthetic Penicillin's, it has also a presence in key therapeutic segments such as neurosciences (CNS), cardiovascular (CVS), anti-retroviral, anti-diabetics, gastroenterology and Anti-biotics.

Through cost-effective manufacturing capabilities and a few loyal customers, the company also entered the high margin speciality generic formulations segment. Today the company is actively engaged in manufacturing active pharmaceutical ingredients and formulation products. Aurobindo Pharma is principally engaged in manufacturing and marketing of active pharmaceutical ingredients, generic pharmaceuticals and related services.

Disclaimer

The stock has been picked from the brokerage report of BOB Capital Markets Ltd. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decisions.