INSUBCONTINENT EXCLUSIVE:
Prabhudas Lilladher has a Buy on Aurobindo Pharma with a target price of Rs 909.
The current market price of Aurobindo Pharma is Rs
624.45.
Time period given by the brokerage is one year when Aurobindo Pharma price can reach the defined target.
View of the brokerage on
the company: While Aurobindo has not yet confirmed the plant where the two batches were manufactured, we believe that those products were
In CY17, Aurobindo had FDA observations for the newly commissioned betalactum plant, Unit-16, which were later resolved in Q4FY18
Aurobindo also manufactures cephalosporin/betalactum injectable for US market from Unit-12
No such manufacturing issues have been found by US FDA since CY12
The new Unit-16 however has been facing teething issues like stability and consistency of product quality, which in our view common for any
newly commissioned plant
The Tazo-Pip dosage strength of 3.375gm contributes 65 per cent of total Rx prescribed for the medicine in US and
Aurobindo has Rx share of 63 per cent in the dosage strength
Aurobindo had revenues of US$25m from Tazo-Pip in US in FY18
The withdrawal of two batches was more likely agreed upon with FDA, while the company achieved resolution of Unit-16
The company has set up X-ray machines (in all injectable units) to automate the identification process of particulates in vials since June
Hence, the recalled batches most likely belonged to older batches, which could be part of the negotiations with USFDA
Therefore, we find the recent recall may not trigger new FDA visit of the plant.
While the recall of the batches may be sentimentally
negative, it will not impact our earnings estimates of Aurobindo
The stock trades at PE 12.8x and 11.7x of FY19E and FY20E respectively
Aurobindo is one of the two cheapest stocks (other one is Zydus Cadila) among the largecap peers
We maintain ‘Buy’ and retain target price at Rs 909
