Aarti Drugs Initiating Coverage Research Reports

Aarti Drugs is a high quality proxy play on the pharma industry. The company is climbing higher in the API value chain by selectively expanding into those APIs which are being currently imported and are of higher value. We reduce our earnings estimates for the company by 7% each for FY17/18E. Despite this we expect the company to grow its profits at 17% CAGR over FY16-18E. We lower our target multiple for Aarti from 18x to 14.4x (at 20% discount to formulation companies) owing to a deceleration in growth and a de-rating in the pharma sector itself, on which the company is a proxy play. We maintain our BUY rating on the stock with a target price of INR 560/share (earlier INR 705).

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