Aurobindo Pharma Europe growth and biosimilar pipeline offset softer US business

Investment View and Q4FY26 Overview

In its May 22, 2026 result update, ICICI Securities retained its BUY rating on Aurobindo Pharma following a subdued Q4FY26, while noting that FY26 performance was broadly in line with management guidance.

Aurobindo Pharma is an export-oriented global producer of generic formulations and APIs. Its vertically integrated business spans CNS, anti-retroviral, cardiovascular, antibiotics, gastroenterological, anti-diabetic and anti-allergic therapies. The company is also expanding into complex injectables, oncology oral solids and biosimilars.

Q4FY26 Financial and Segment Performance

Aurobindo Pharma reported Q4FY26 revenue growth of 5.6% year on year to Rs 8,853.3 crore. US formulations, which represented 40% of revenue, declined 13% year on year to Rs 3,542 crore, reflecting waning gRevlimid traction and pending approvals from Eugia III. Europe, representing 37% of revenue, grew 30% to Rs 2,795 crore.

EBITDA was flat at about Rs 1,801 crore, while EBITDA margin declined 104 basis points to 20.3%. Gross margin improved 216 basis points to 61.3%, but this was offset by increases of 165 basis points in employee expenses and 155 basis points in other expenses. Adjusted PAT increased about 7% year on year to Rs 969 crore.

Broker Assessment and Key Monitorables

ICICI Securities said quarterly performance was slightly below its expectations, principally because US underperformance was greater than expected. Nevertheless, FY26 revenue growth of 6% was consistent with management's single-digit growth guidance, while the FY26 EBITDA margin of 20.4% was marginally below the approximately 21% guidance.

The broker considers the strong gross profit margin and consistently healthy European traction constructive. It expects the resolution of Eugia III observations, stronger launch momentum across geographies, and progress in biosimilars and biologics, including the CMO engagement for Merck Inc, to be important determinants of investor sentiment. Improvement in EBITDA margin is a key monitorable as Aurobindo Pharma expands R&D and diversifies into more complex products.

Growth Outlook and Management Priorities

Management aspires to reach US business revenue of US dollars 2 billion within two years, including in-licensing opportunities and the Lannett acquisition. The Lannett transaction is expected to close by Q2FY27, subject to FTC approval, and ICICI Securities includes it in its estimates.

Management expects double-digit constant-currency growth in Europe, supported by more than 10 products from the China facility. Europe currently earns an EBITDA margin just above 20%, which management expects to improve. The company also expects its EBITDA margin to sustain and progressively rise above 21% in FY27.

Newer Businesses and Biosimilar Pipeline

PenG production exceeded 10,000 metric tonnes, with capacity utilisation above 80%. External PenG sales contributed Rs 100 crore in Q4FY26.

• CDMO Unit I, with initial capacity of about 60 KL, is due for commissioning by end-2026, while customer stockpiling is anticipated in 2028.
• A greenfield drug-substance facility is expected to begin commissioning in FY29 and contribute revenue from FY31.
• Omalizumab and Denosumab are expected to enter filing with the EMA, Health Canada and USFDA during 2026.
• Bevacizumab is approved in Canada and the UK and is under EMA review.

Management expects biosimilar gross margin of 65% to 70%, potentially rising to 70% to 75% with product-mix maturity, despite 70% to 80% price erosion in most markets.

Estimates, Valuation and Risks

ICICI Securities values Aurobindo Pharma at 18 times FY28E EPS of Rs 99.3 to derive its Rs 1,785 target price.

Key risks: A slower ramp-up of new US launches and unforeseen expenses related to recurring regulatory issues.