Geojit Financial Services has reaffirmed a BUY rating on Aurobindo Pharma Limited with a target price of Rs 1,540, implying a potential upside of 25% from the current market price of Rs 1,229. The company’s growth in key markets such as the U.S., Europe, and emerging geographies, along with its expanding product pipeline, positions it well for future profitability. This report delves into Aurobindo Pharma’s financial performance, strategic initiatives, and technical analysis, offering actionable insights for investors.

Strong Financial Performance in Q2FY25

1. Revenue Growth:

Consolidated revenue increased by 8% YoY to Rs 7,796 crore, driven by strong sales in the U.S. and Europe.
The U.S. business, excluding Puerto Rico, contributed Rs 3,530 crore (+4.3% YoY) due to higher volumes and new launches.
Europe reported a robust growth of 19% YoY, with revenue at Rs 2,105 crore.
2. EBITDA Expansion:

EBITDA grew by 11.6% YoY to Rs 1,566 crore, supported by stable raw material prices.
The EBITDA margin improved by 70 basis points to 20.1%, with projections for FY25 in the range of 21-22%.
3. PAT Improvement:

Reported PAT rose by 8.6% YoY to Rs 817 crore, partially offset by higher tax expenses.

Key Strategic Developments

1. Product Pipeline:

Aurobindo filed 10 ANDAs in the U.S. during the quarter and received approvals for eight products.
The company launched 14 new formulations, further diversifying its product portfolio.
2. Market Expansion:

Emerging markets posted a stellar growth of 44% YoY, reaching Rs 812 crore.
The company continues to expand into new geographies, supported by a strong product portfolio.
3. Investments in R&D:

R&D expenditure increased to Rs 410 crore, accounting for 5.3% of sales, compared to 4.5% in the previous quarter.

Outlook for Key Segments

1. U.S. Market:

A stable pricing environment and new product launches provide a firm foundation for future growth.
The Penicillin-G facility is expected to break even by Q4FY25, contributing positively from FY26 onwards.
2. Europe and Emerging Markets:

Europe continues its growth trajectory across all key geographies, driven by robust demand.
The company anticipates sustained momentum in emerging markets, supported by strategic expansions.

Technical Analysis

1. Candlestick Patterns:

The stock demonstrates a bullish reversal pattern, indicating potential upside momentum.
2. Fibonacci Levels (52-Week High: Rs 1,593; Low: Rs 959):

23.6% Level: Rs 1,426
38.2% Level: Rs 1,360
50% Level: Rs 1,276
61.8% Level: Rs 1,192
Key Insight:

Sustained movement above Rs 1,276 could lead to a breakout toward Rs 1,426.
3. Support and Resistance Levels:

Immediate Support: Rs 1,192
Major Resistance: Rs 1,426

Valuation and Analyst Expectations

1. Earnings Growth:

Adjusted PAT is expected to grow by 12.6% YoY in FY25 and 19% YoY in FY26.
Adjusted EPS for FY26 is projected at Rs 77.0, compared to Rs 64.7 in FY25.
2. Valuation Metrics:

The stock trades at a P/E of 19.1x for FY25 and 16.1x for FY26, indicating reasonable valuations relative to growth prospects.

Actionable Insights for Investors

1. Accumulate on Dips:

Investors can consider accumulating the stock near the support level of Rs 1,192, targeting Rs 1,540 in the medium term.
2. Long-Term Strategy:

Aurobindo Pharma’s robust pipeline, geographic diversification, and margin expansion make it a strong long-term bet.
3. Risk Management:

Monitor potential headwinds such as pricing pressure in key markets and increasing competition.

Conclusion

Aurobindo Pharma’s focus on innovation, market expansion, and operational efficiency positions it well for sustainable growth. With a 25% upside potential and a well-diversified portfolio, the stock remains an attractive BUY for investors seeking exposure to the pharmaceutical sector.

Disclaimer: This analysis is for informational purposes only. Investors are advised to conduct their due diligence or consult financial advisors before making investment decisions.