Stocks to Watch: Aurobindo Pharma – BUY - Restructuring to bring windfall gains, analyst says; valuations low against peers; target price Rs 1200-1250

Why is Aurobindo Pharma making news? Which major decision will impact the company and what will be the impact on the stock price? Zee Business’ Devanshi Asher has this detailed report. Take a look!

The stocks of Aurobindo Pharma gained on Friday riding on the news of company’s restructuring plans. This stock ended around Rs 994 on the NSE. Under the restructuring plans, Aurobindo Pharma board has given its approval to transfer its Unit-4 which is related to its injectable business to its subsidiary Eugia Pharma Specialties.

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The company has said that it wanted to consolidate its injectable business and bring it under one roof, which the company has finally approved. This will enable easier decision making going forward, the company has said. It is also likely to usher value unlocking for the company, Asher said.

Market experts are of the view that this decision will likely have a positive impact on the business and create value for the company. Globally, the injectable business is valued, highly, she further said.

The Aurobindo Pharma stocks are currently available at a discount, she said. This move could possibly trigger a rerating of the company, Asher said.

The global injectable business of Aurobindo Pharma was worth USD 500 million in FY2021. In its guidance, the company has indicated that it would take the revenues from its injectable business to USD 700 million over the next 3 years.

If one looks at the global deals (acquisitions) for injectable segments, it has been at a premium of 17-25 times the EBITDA. Meanwhile, Aurobindo Pharma stocks have been trading at a discount, she further said.

As an example, she said that the stocks of Gland Pharma were currently trading at a PE multiple of 55.4 while Aurobindo Pharma stocks were trading at PE multiple of 18.2. The company stocks may see a catching-up now, she said.

The company is also cash rich. The analyst see a target price of Rs 1200.

Analyst Sandeep Jain calls this a prized stock and was bullish on it. He said that the valuations are not expensive which serves the purpose of investors willing to make a move in this stock. It is one of the bigger beneficiaries of the PLI (Performance Linked Incentive) scheme. He recommended buying in it.

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He puts the target price at Rs 1200-1250 over the next 6-9 months.