Motilal Oswal's research report on Aurobindo Pharma
ARBP delivered a 2QYF23 earnings miss, led by lower-than-expected US and ARV sales. Sales from Europe (EU) were stable YoY in CC terms, with a pickup in API sales. We cut our FY23/FY24 earnings estimate by 18%/13% to factor in: a) reduced demand for Injectables, led by shelf stock adjustment, b) considerable price erosion in the base portfolio in the US segment, c) adverse currency impact in the EU business, and d) increased R&D spends. We value ARBP at 11x 12M forward earnings to arrive at our TP of INR500. We downgrade our rating on the stock to Neutral, given: a) the headwinds in the US Generics segment, b) the rising concerns related to the arrest of Mr. P. Sarath Chandra Reddy (a Whole-Time Director), c) the reduced operating leverage, and d) the limited upside from current levels.
Outlook
We cut our earnings estimate by 18%/13% for FY23/FY24 factoring, a) reduced demand for injectables, led by shelf stock adjustment, b) considerable price erosion in base portfolio in US segment, c) adverse currency impact in EU business and d) increased R&D spend. We value ARBP at 11x 12M forward earnings to arrive at price target of INR500.
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