KRChoksey Research has maintained its "BUY" recommendation for Aurobindo Pharma with a target price of Rs. 1,591, offering an upside potential of 33.5%. The company's Q3FY25 results showcased robust growth, driven by strong performances in European and Growth markets. Despite pressures in the U.S. and API segments, Aurobindo's focus on biosimilars, injectables, and complex generics positions it for sustained expansion. Revenue is expected to grow at a 9.6% CAGR between FY24 and FY27, with PAT forecasted to increase at a 15.9% CAGR during the same period.

Performance Highlights

Revenue and Key Segments:

Aurobindo's total revenue rose by 8.5% YoY to Rs. 79,785 million in Q3FY25, surpassing expectations.
The European segment, which comprises 26.6% of total revenue, posted a 22.7% YoY increase, reaching Rs. 21,210 million.
Growth Markets revenue surged 39.2% YoY, hitting Rs. 8,730 million due to improved penetration and product launches.
However, the U.S. segment, which contributes 46% of revenue, experienced a 2.3% YoY decline, attributed to lower specialty and injectable sales.

Operational Metrics

Profit Margins:

Gross margins expanded by 130 basis points (bps) YoY to 58.4%, aided by favorable raw material prices and a better geographical mix.
However, EBITDA margins contracted by 138 bps to 20.4%, mainly due to increased R&D and logistics costs.
Adjusted PAT for the quarter stood at Rs. 8,956 million, a 4.3% YoY decline, although it improved 9.6% QoQ.

Market Strategy and Future Growth Drivers

Focus on Biosimilars and Complex Generics:

Aurobindo is investing heavily in R&D for biosimilars and complex generics, spending Rs. 4,500 million (5.6% of revenue) in Q3FY25.
The company has several biosimilars under development, including those targeting Xgeva, Prolia, and omalizumab. These biosimilars are projected to be commercialized by FY27.
Expansion in Key Markets:

The European market is poised for continued double-digit growth, driven by portfolio diversification and manufacturing efficiencies.
Growth Markets are expected to maintain momentum through deeper market penetration and additional product launches.

Technical Analysis

Current Price Levels and Targets:
The stock currently trades at Rs. 1,192, with a target price of Rs. 1,591 set by KRChoksey, implying a 33.5% upside.

Support and Resistance:

Key support levels are identified near Rs. 1,150 and Rs. 1,100, indicating areas where buyers could potentially enter.
Resistance is expected around Rs. 1,250 and Rs. 1,300, where selling pressure might increase.
Candlestick Patterns:
Recent daily charts have shown a consolidation phase, suggesting a potential breakout upon favorable market conditions.

Fibonacci Retracement Levels:
Based on recent price movements:

38.2% Retracement: Rs. 1,220
50% Retracement: Rs. 1,260
61.8% Retracement: Rs. 1,300

Peer Comparison

Sun Pharmaceutical Industries:
As a leader in the Indian pharma space, Sun Pharma remains a key competitor, especially in the U.S. generics market and specialty drugs segment.

Dr. Reddy's Laboratories:
With a strong focus on biosimilars and global generics, Dr. Reddy's also poses stiff competition to Aurobindo in Europe and North America.

Financial Projections

The table below outlines Aurobindo's key financials for FY24 through FY27:

Investment Recommendation

KRChoksey Research emphasizes a "BUY" rating on Aurobindo Pharma, backed by its potential for sustained growth through expanding markets, product innovation, and strategic investments. The current valuation multiples of 15.0x and 13.2x for FY26E and FY27E EPS respectively make the stock an attractive opportunity for long-term investors.

Disclaimer: Investors are advised to perform their own due diligence and consult financial advisors before making any investment decisions.