Aurobindo Pharma: Strong pipeline of growth levers across spaces

3 Apr 2024 , 11:21 AM

Post analysts of IIFL Capital Services’ recent meeting with Aurobindo’s mgmt, they upgraded their rating on the stock from ADD to BUY, given Aurobindo has several growth levers over near-to-medium term including the recent commercialisation of the Pen-G API plant and the Vizag injectables plant, expected commissioning of the China plant in H1FY25 for supplies to EU markets, US base business growth (exEugia) of 6-8% to be driven by 35-40 new launches pa (Deflazacort will be a limited-competition launch in Q1FY25), Eugia’s near-term growth to be driven by scale-up in Revlimid and launches from plants other than Unit-3, and potential launch of biosimilars from FY26 and biologics CDMO contract with MSD from FY28. Analysts of IIFL Capital Services upgrade FY25/26 EPS by 2-3% to account for higher margins led by the Pen-G project and their TP of Rs1,330 (19x 2YF EPS) implies 21% upside. Although analysts of IIFL Capital Services base case assume an OAI/WL on Eugia Unit-3, an import alert will lead to 5-7% downgrade to their EBITDA estimates in the worst-case scenario.

Eugia Unit-3 CAPA response has been submitted to USFDA and Aurobindo has restarted existing product distribution post the consultation with external cGMP consultants. While non-aseptic production lines have already restarted, Aurobindo remains on track to restart all the 8 aseptic lines by mid-Apr’24. Assuming USD20m revenue impact in Q4FY24, analysts of IIFL Capital Services believe Eugia will clock global sales of USD520-530m in FY24. Base biz volume growth, ramp-up in Revlimid sales from USD45m in FY24 to USD90m in FY25, along with USD15-20m of new product sales (largely from Eugia Unit-1), will help Eugia clock USD600-620m sales in FY25.

Commercial production of Pen-G has started:

With Aurobindo’s external supplies expected to be 50-60% of its overall Pen-G capacity of 15K TPA, analysts of IIFL Capital Services expect Aurobindo’s external Pen-G sales to be USD90/165m in FY25/26, assuming price of USD22/kg & yield optimisation by Sep’24. With 25% core Ebitda margins and incentives of Rs2.4bn p.a., analysts of IIFL Capital Services expect Pen-G project to add ~7-8% to Aurobindo’s FY25/26 Ebitda.

Aurobindo’s base US biz (ex-Eugia) will likely grow at 6-8% Cagr, driven by 35-40 new launches p.a. and volume growth of 5%, assuming mid-single-digit price erosion. As per industry channel checks, US price erosion is expected to remain stable at-least till mid-CY24. Analysts of IIFL Capital Services believe Deflazacort launch in Q1FY25 (mkt size of USD260m) could contribute USD50m sales pa, given Aurobindo will be the sole generic in the market.