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UBS has initiated coverage on Aurobindo Pharma Ltd. (ARBP: IN) with a Sell rating and set a price target of Rs 1,333.00.
The firm pointed out that while Aurobindo Pharma has a significant presence in the US and EU markets, contributing to 75% of its revenues and approximately 85% of its EBITDA, the company's growth trajectory is expected to remain modest, with a mid-single-digit compound annual growth rate (CAGR).
UBS's assessment highlighted concerns over the US generic market, which is anticipated to face a decline. The firm also noted that with over half of the US branded market transitioning to biologics, the opportunities for small molecule products are diminishing.
This shift poses a challenge to Aurobindo Pharma's earnings growth potential.
Despite Aurobindo Pharma's efforts to diversify its business model, including ventures into biosimilars and large-scale API/Intermediate projects like penicillin G, as well as expanding into new markets such as India and Indonesia, UBS remains cautious.
The firm believes that the projected profit contributions from these new endeavors will be minimal over the next three years.
The UBS report also considered Aurobindo Pharma's financial projections, stating that the company's mid-single-digit earnings growth profile for its base business, excluding gRevlimid, and a 12% return on equity (ROE) by the fiscal year 2026, are low compared to the high price-to-book value (P/BV) of 2.5 times forecasted for the same period.
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