Aurobindo has high earnings visibility with 25+ product launches (next six months), low product concentration and high approval rate. Superior R&D and manufacturing execution provide confidence in its ability to transition to complex products in the medium term — a necessity for large-cap pharma.
We expect valuation (16x FY18E PE) discount to the sector to narrow on 21% EPS CAGR over FY16-19E. We initiate at Buy (top large cap pharma pick) and PT of R1,150. Best placed in the near term.
Over the past three years, Aurobindo has shown superior execution on all key business. We expect this trend to continue and the company to report 21% EPS CAGR over FY16-19E, led by US business (23% growth).
Earnings visibility is high with 25-plus launches expected over the next six months (all approved by FDA) and with both the largest ANDA pipeline and timely and highest approval rate among peers.
Aurobindo is trading at 15.6x FY18E P/E (30% discount to the sector). The valuation gap has narrowed over the past three years, led by better earnings growth, improved balance sheet, and execution.