The good show continues
Aurobindo Pharma (ARBP IN) reported earnings in line with our estimates. The strong momentum is sales as well as adjusted PAT growth continued for nine consecutive quarters now, albeit at a slower pace for this quarter, partly due to high base of past year. We remain confident on execution pace of ARBP in key US market and improvement in operating leverage in Europe market. We raise our EPS estimate for FY15/FY16 by 13% and 12% to Rs60 and Rs72, respectively. Accordingly, we raise our price target to Rs1,293 from Rs1,154 earlier, based on 18x FY16 earnings. We maintain BUY rating on the stock.
Domestic formulation drive earnings for the quarter
At current market price of Rs229, the stock is trading at 12.4x FY15E EPS of Rs18 and 10.9x FY16E EPS of Rs21. JBCP has allayed investor concerns of cash on books by using it for capital expenditure. JBCP has envisaged capex of Rs1.4bn to be spent in next 12-18 months. As per the press release, this capex is progressing as per schedule. We expect sales as well as profitability to grow at higher rate once, this project is commissioned, which could be the trigger for re-rating of JBCP. The political turmoil has adversely impacted business in Russia and Ukraine. We may review our estimates and price target, post management interaction, to factor adverse impact on business due to political tension in Russia/Ukraine and any incremental business from new project. Currently, we have BUY rating on stock with price target of Rs295, based on 14x FY16 earnings.
Higher operating margin drives earnings for the quarter
Sales of Cadila Healthcare (CDH IN) was marginally below expectation, while PAT was better than estimates, primarily due to better-than-expected operating margin and lower tax. We raise our EPS estimate for FY15/FY16 to factor cost rationalization and improved operating margins. Accordingly we raise our price target to Rs1,636 (from Rs1,553 earlier) based on 24x FY16E earnings and reiterate BUY rating on the stock.
Sales of Torrent Pharmaceuticals (TRP IN) grew less than our estimate, while adjusted PAT grew more than our estimate due to higher other income and lower tax. We raise our FY15E and FY16E estimate by 14% and 4.7% to factor higher other income. Accordingly we raise our price target to Rs1,010 (from Rs964 earlier) based on 18x FY16 earnings. We remain positive on TRP’s execution capabilities in both domestic as well as international market. However, we downgrade TRP to HOLD based on valuation.
USFDA concern to remain as overhang; downgrade to HOLD
We reduce our PAT estimates for FY15/FY16 by 22%/14% to Rs4.3bn and 5.9bn, respectively to factor gradual recovery in US business, higher fixed cost on account of commsioning of new plant at Baroda and recently acquired unit with no incremental sales, and higher cost associated with remediation measures. The currency headwinds is also expected to adersely impact promotional business of IPCA. Accordingly, we lower our price target to Rs747 (from Rs868 earlier), based on 16x FY16 earnings. We also downgrade rating to HOLD from BUY due to limited upside from current levels.