MOSL: AUROBINDO PHARMA (Buy)-Robust comprehensive plan key to resolve regulatory headwind
Aurobindo Pharma: Robust comprehensive plan key to resolve regulatory headwind
(ARBP IN, Mkt Cap USD5.1b, CMP INR596, TP INR720, 21% Upside, Buy)
- The USFDA has issued a warning letter (WL) to Aurobindo Pharma (ARBP) based on the Corrective and Preventive Action (CAPA) submitted by the company to observations raised by the USFDA following an inspection conducted in Feb'19.
- The WL has indicated deviations related to Current Good Manufacturing Practices (CGMP) and equipment surface, which may impact the quality of APIs manufactured at ARBP's site.
- We have lowered our P/E multiple to 11x (from 13x earlier) to factor in the delay in approvals for the site under WL and regulatory risk at other sites having Official Action Initiated (OAI).
- Accordingly, we have reduced our price target to INR720 (prior: INR840) on 12-month forward earnings basis. While ARBP continues to improve profitability in the EU business, its pending ANDA pipeline remains robust for the US market. It trades at 10x FY20E EPS of INR58 and 9x FY21E EPS of INR65. Maintain Buy.
Aurobindo Pharma is a vertically integrated pharmaceutical group based in India. Co. maintains a product portfolio spread over major product areas encompassing CVS, CNS, Anti-Retroviral, Antibiotics, Gastroenterologicals, Anti-Diabetics and Anti-Allergic with approved manufacturing facilities by USFDA, UKMHRA, WHO, MCC-SA, ANVISA-Brazil for both APIs & Formulations. In addition to Semi-Synthetic Penicillins, Co. has a presence in key therapeutic segments such as neurosciences, cardiovascular, anti-retrovirals, anti-diabetics, gastroenterology and cephalosporins, among others. Co. exports to over 125 countries across the globe.
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