Multiple triggers help Aurobindo Pharma hit fresh highs


Aurobindo Pharma continues scaling fresh highs as news flow remains favourable. While the pharma giant was recently in the news over vaccine-related developments, it has also received a significant win in the bulk drug production linked incentive or PLI scheme. The stock that saw fresh 52-week highs on Monday continues trading near the same.

The PLI scheme aims at promoting the manufacturing of critical key starting materials (KSMs)/drug intermediates and active pharma ingredients in the country. To promote domestic manufacturing of critical bulk drugs, the government is allowing manufacturing under the Production Linked Incentive (PLI) scheme.

The bulk drug PLI scheme included 41 molecules but half of the incentive was allocated towards the top four fermentation products say, analysts. Aurobindo has won approval for three of these top four products, reports indicate. Aurobindo is the only winner in two (Penicillin G and Erythromycin) and hence is eligible for the full incentive, while for one molecule it will share incentive with Karnataka Antibiotics, suggest reports.

The combined margin on these three products could be 25-30% together with incentives, say analysts at Credit Suisse. “Overall, Aurobindo has committed capex of ?3040 crore and, in our view, is eligible for incentives of ?2400 crore over six years [FY24 to FY29]” they add.

As the development bodes well and boosts forward growth visibility, in the near-term progress on the vaccine front, new product approvals etc are to drive earnings. The company has recently entered an exclusive pact with American firm Covaxx to develop a covid-19 vaccine. This opens up a large business opportunity as the vaccine, once developed, will be supplied to India, the United Nations Children’s Fund (Unicef) and distributed for non-exclusive supplies to other emerging markets.

Aurobindo has the capacity to manufacture 220 million doses in multi-dose presentation and is building additional facilities to have a total capacity of about 480 million doses by the June quarter. This, as per analysts, will provide growth triggers. “We believe Covid-19 vaccines will result in 10-20% upside to our FY22-23 sales estimates for Dr Reddy’s, Cadila, and Aurobindo” said analysts at HSBC Global Research in a recent report.

The growth triggers for Aurobindo include key injectable approvals in the US. The company derives the majority of its revenues from the US and Europe. Strong outlook for US generics, including injectables, cost competitiveness, and potential gains from Covid-19 vaccine are key reasons for Aurobindo remaining amongst the pick of HSBC Global Research.

News Source:- livemint

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