Why This Pharma Stock Is Upbeat Even After US FDA Action

While Aurobindo Pharma's share price was up as quarterly results impressed the street, concerns about the U.S. Food and Drug Administration’s (FDA) inspection status on the company's plant in Telangana weighed on optimism. 

What Happened: In the March quarter, Aurobindo Pharma reported an 80% rise in net profit to ₹909 crore from ₹508 crore in the previous year.

The Hyderabad-headquartered pharma company's revenue gained 19% to ₹7,580 crore in the quarter. EBITDA increased 68% year on year to ₹1,687 crore, while EBITDA margin expanded to 22.3% from 15.5% from the previous year. 

The FDA had given the firm an “official action indicated” (OAI) status for the inspection it conducted at the facility of Eugia Pharma Specialities, a subsidiary of Aurobindo. 

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Brokerage Views: CLSA downgraded the stock to "outperform" with a target price of ₹1,320. The brokerage reasoned that while the Q4 revenue was in line with estimates while profit and EBITDA beat expectations. FY25 will be affected by no major product launches, the brokerage said, adding that the OAI status for Eugia III might delay potential product launches for the company. 

Bank of America maintained its "buy" call and hiked its target price to ₹1,350. BofA reasoned that the strong quarter was overshadowed by the Eugia status. The brokerage argued that the risks for the company had been priced in and there were growth drivers beyond Eugia for the company. They see a 22% margin in FY25 with upside from Pen-G (penicillin).

Kotak Institutional Equities downgraded the stock to "sell" slashed the target price to ₹980. The brokerage believes that growth from key initiatives, including complex filings, biosimilars and Pen-G was captured in the current stock price. 

HDFC Securities maintained its "add" call and increased the target price to ₹1,300. The brokerage sees steady growth visibility and value unlocking in key research and development assets (biosimilars, respiratory and specialty) while flagging OAI on Eugia III as a key concern. 

Price Action: Shares of Aurobindo Pharma surged 2.02% to ₹1,220.50 early morning on Tuesday. 

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