Citi is extremely bullish on the prospects of Aurobindo Pharma and here are its views,
expect a scale-up in supply to Pfizer (esp. in Europe) and growing traction in own global operations to drive growth and margins, despite higher overheads on the SEZ (Rs150m/qtr) & CRAMS (cRs100- 150m). Execution of some pending orders (1bn tablets on capacity choking at Unit III) would lead to a strong 1Q and, while 2Q may be subdued (overheads on new SEZ), 2H should be healthy, as SEZ sales pick and tax benefits accrue.
ARBN’s net D/E is down to 1.1x (Mar 10) & is set to dip further as cash flows & net worth rise. The FCCBs due in Aug 10 (US$23m) are in the money & would add to equity (2.2m shares) on conversion. The FCCBs due in May 11 are out of the money & may see an outflow (cS$200m), if not converted. ARBN will be able to redeem these, if needed, thru internal accruals & an ECB (US$125m) it intends to raise soon. Equity dilution risk appears low. Capex would
be limited from here on (cRs5-5.5bn over FY11-12E) & largely funded internally.
Citi has an EPS expectation of Rs 101 and Rs 126 for fy 11 and fy 12 respectively with a target of Rs 1350
