Aurobindo Pharma Initiating Coverage Report By Motilal Oswal

Growth levers firmly in place; initiate with Buy

Focus on niches in US to drive improving profitability and return ratios

We initiate coverage on Aurobindo Pharma (ARBP) with a Buy rating and target
price of INR1,645 (45% upside). We expect ARBP’s valuation gap with peers
(~25% now) to narrow on strong earnings outlook (26.4% CAGR over FY15-17E)
and improving capital efficiency (RoE/RoCE to expand). This would be achieved
through (a) scale-up of differentiated US pipeline (injectables, penems, and
controlled substances), (b) turnaround of EU acquisition (Actavis), and (c)
sustained deleveraging efforts (D/E at 0.3x from 0.7x now).

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