Aurobindo Pharma - The Smart Investor

Exhibit 6: Comparative Valuation
Aurobindo Pharma | Initiating Coverage
We have valued APL on a SOTP basis. The base business has been valued at 14x
FY2012E core earnings (`90.2/share), which is at 33% discount (on the back of
low presence in the high-margin domestic formulation business) to the top Indian
generic players and fetches `1,263/share. We have assigned a higher multiple to
APL’s core business compared to the multiple assigned by street and its historical
average, as we believe that the concerns about higher contribution of the API
business is unwarranted given that the company’s FY2012 OPM and RoE are on
par with top Indian generic peers and are likely to sustain going forward.
APL has also seen a substantial spurt in other operating income on the back of
dossier income primarily under the Pfizer agreement and sale of dossiers in
Europe. Other operating income constituted nearly 31.9% of PBT in FY2010.
However, we have assigned a lower multiple as there is lack of clarity regarding
the time-line of the recurring nature of the dossier income. We have valued other
operating income at 7x 50% of FY2012E income (`9.5/share) and ascribed
`67/share.
Exhibit 5: SOTP Valuation (FY2012)
Core business (`90.2/share)
Other Op. income at 50% FY2012E income (`9.5/share)
Total
Source: Company, Angel Research
Multiple
(x)
Per share (`)
14 1,263
7 67
October 18, 2010 4
1,330
We Initiate Coverage on the stock with a Buy recommendation and SOTP Target
Price of `1,330, implying an upside of 19% from current levels.
Comparative Mcap (` cr) Sales (` cr) PE (x) EV/Sales (x) EV/EBITDA (x) RoE (%)
FY2011E FY2012E FY2011E FY2012E FY2011E FY2012E FY2011E FY2012E FY2011E FY2012E
Cadila Healthcare 14,147 4,308 5,100 22.5 17.4 3.4 2.8 17.1 13.5 34.8 34.7
Cipla 26,255 5,902 6,797 23.5 19.1 4.3 3.7 21.3 17.3 17.5 18.9
Dr Reddy's 26,924 8,416 9,797 27.0 20.4 3.1 2.6 16.4 13.2 25.0 25.5
Lupin 18,264 5,645 6,579 22.2 17.8 3.3 2.9 17.7 14.7 31.8 31.2
Ranbaxy 24,362 8,162 9,913 15.1 20.1 3.0 2.4 18.6 12.7 31.3 20.2
Sun Pharma 42,252 4,830 5,581 28.5 24.1 7.8 6.6 24.0 19.8 17.1 17.7
Average - 6,521 7,305 23.9 20.6 4.7 3.9 19.9 15.9 24.3 22.9
Aurobindo 6,521 3,796 4,506 13.6 10.3 2.2 1.8 11.6 8.7 22.7 24.1
Prem /(Disc) % to Avg - - - (43.2) (50.2) (53.7) (54.7) (42.0) (45.0) - -
Source: Company, Angel Research