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How Will Aurobindo Pharma Value Its Injectable Business?

Aurobindo Pharma is reportedly selling stake in injectables business. How will it value it?

<div class="paragraphs"><p>A health worker administers a Covid-19 vaccine. (Photographer: Waldo Swiegers/Bloomberg)</p></div>
A health worker administers a Covid-19 vaccine. (Photographer: Waldo Swiegers/Bloomberg)

Aurobindo Pharma Ltd. is reportedly selling a stake in its injectables business. According to at least one analyst, the proposed sale values the unit at a bigger discount than warranted.

The company plans to sell 30-35% in its stake in the injectable unit for Rs 4,500-5,250 crore ($600-700 million) to a private equity firm, the Economic Times reported. That gives the injectable business a valuation of about Rs 15,000 crore.

The company didn't respond to BloombergQuint's emailed queries. In its exchange clarification, it referred to a restructuring plan announced in November.

Aurobindo Pharma's injectables business reported a revenue of around $400 million (Rs 3,000 crore) in FY21, Vishal Manchanda, pharma analyst at Nirmal Bang, told BloombergQuint. It is expected to grow 30% every year with the management guidance indicating a revenue target of $650-700 million (Rs 4,800-5,200 crore) by the end of FY24, he said.

According to Manchanda:

  • Going by stake sale details reported, the company is valuing its injectable business at five times its FY21 sales.

  • And based on the FY24 guidance of $700 million revenue, the valuation is three times the sales.

That's a discount when compared to Gland Pharma Ltd., an injectable contract development and manufacturing company.

Gland Pharma trades at 10 times its sales. That's after a 150% surge since its market debut in November 2020.

Still, Manchanda said, Aurobindo Pharma is valuing injectables business at 50% discount to its peer. The discount should not be more than 20-30%, he said. More so, when the company itself ascribes a growth potential of 30%.

The product profile of Aurobindo's injectables is similar to those sold by Gland Pharma through its partners in the U.S.

Manchanda also said it's not clear why the company plans to sell a stake in a business with a growth potential of 30%, and how it plans to use the proceeds.

Aurobindo Pharma's total debt stood at Rs 10,599 crore and it had a cash and bank balance of Rs 4,497 crore as of September.

Shares of the company fell as much as 3% after the announcement on Jan. 11. The stock shed more than 3% on Friday again after a warning letter from the U.S. drug regulator for its Hyderabad active pharma ingredient facility.

Injectables Business

Aurobindo has been consolidating its injectables business under fully owned unit Eugia Pharma Specialities Ltd.

It is evaluating "various alternatives or options including demerger" for the subsidiary focused on sterile, injectables, oncology and hormonal products, it said in a Nov. 8 statement.

  • In July, the company approved the transfer of unit-4 at Pashamylaram, Telangana to Eugia Pharma for Rs 938.5 crore.

  • It transferred its penem antibiotic formulations business Auronext Pharma Pvt. on slump-sale basis as a going concern to Eugia Pharma.

Aurobindo Pharma, which already sells injectable in U.S., targets to increase penetration in Europe, the U.K. and other growth markets. Its dedicated injectables facility for these markets would be ready for commercial production in the next 15 to 18 months at Visakhapatnam, according to its FY21 annual report.