AstraZeneca - Premium Valuations To Sustain As Compared To Peers: HDFC Securities

HDFC Securities Retail Research

Valuation and Recommendation:

Astrazeneca Pharma India Ltd. has strong portfolio of products (~90% chronic) that caters mainly to super-specialists and specialist doctors. The top 10 brands are leaders in their respective segments and contribute a large part of business. Key earnings driver are-

1. strong demand for its core products (top 20 products account for more than 80% of revenues),

2. healthy new product launch pipeline and

3. Strong traction in traded goods business (bought from AstraZeneca UK/Sweden).

Strong cash rich balance sheet enables it to look out for acquisition/in-licensing opportunities. We expect 14.5% compound annual growth rate in sales and 27%/45% CAGR in Ebita/profit after tax over FY23-25E.

It would be led by better gross margin and expansion in overall margin. We feel that premium valuations for AstraZeneca can sustain due to superior earnings profile as compared to peers and leadership position in key brands/therapies.

We recommend investors to buy the stock in the band of Rs 4350- 4398 and add more on dips to Rs 3884 (46.5 times FY25E earnings per share) for base case target price of Rs 4803 (57.5 times FY25E EPS) and bull case target price of Rs 5095 (61 times FY25E EPS) over the next two- three quarters.

Key Risks

1. Jan Aushadhi/Pradhan Mantri Bhartiya Jan-Aushadhi Pariyojna (PMBJY)

2. Product concentration risk

3. Regulatory risk

4. E-pharmacy and pharmacy chains

Company Background

AstraZeneca is engaged in the business of manufacture, distribution and marketing of pharmaceutical products and co-ordinates clinical trial services with the overseas group company.

AstraZeneca India is the Indian subsidiary of UK-based AstraZeneca Plc. The company's only manufacturing facility is located at Yelahanka, Bengaluru.

The company's focus therapeutic areas are oncology, cardiac, respiratory, renal and metabolic. It is the third largest player in oncology segment in India.

Company has built strong brand identity consisting of innovative brands such as Brilinta, Forxiga, Xigduo, Symbicort, Onglyza and Kombiglyze. It also co-ordinates for clinical trial services with other overseas companies of AstraZeneca group.

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