Recommendation Review: Aurobindo Pharma

We had recommended Aurobindo Pharma to readers in DSIJ Vol. 28, Issue No. 7 (dated March 24, 2013), when the scrip was trading at Rs 165. This was despite the fact that the company had put up a poor performance in FY12 following the import alert from the US FDA on two of its facilities. However, it came back with a bang in FY13. Importantly, the high debt levels of the company have been brought within the management’s control, and therefore, Aurobindo is now worth taking a fresh look at. Our recommendation was also backed by factors like the strong growth expected in the formulations business, lower dependency on the Active Pharmaceutical Ingredients (API) segment and the growing R&D investments. The scrip was positioned well on the valuations front too, with the recommended price of Rs 165 discounting its TTM earnings by 19x. 

After our recommendation, the company managed to put in a better performance. Its bottomline stood at Rs 18.60 crore as against a loss of Rs 128.91 crore in June 2012, as a result of which the scrip witnessed a decline. However, we had advised investors to hold the counter despite the dip in prices. The scrip has bounced back now and is trading
at Rs 213, giving an appreciation of 29 per cent, which we feel is good. Considering the volatile conditions in the market, we recommend that investors book profits in the counter at the current levels.