Pharmaceutical company Aurobindo Pharma's June-quarter (Q1FY27) numbers comfortably beat Street estimates, but Macquarie believes the earnings surprise does little to change the broader investment debate around the stock.
While the brokerage acknowledged that lower research and development (R&D) spending helped margins exceed expectations, it maintained an Underperform rating with a target price of Rs 1,300, arguing that business momentum across key geographies remains mixed despite encouraging pockets of growth.
ALSO READ: Aurobindo Pharma Q1 Results: Profit Jumps 25%, Revenue Rises To Rs 9,150 Crore; Margins Improve
Macquarie's Take
- Maintained Underperform with a target price of Rs 1,300.
- Said Q1 revenue was broadly in line, while EBITDA came in marginally ahead of estimates.
- Attributed the earnings beat largely to lower R&D expenditure, which fell to around 3% of revenue from 4.4% a year ago.
- Noted that geographic performance remained mixed, despite healthy performances in select markets.
- Highlighted that US revenue grew 8% in local-currency terms, supported by higher volumes and new product launches, with 10 product approvals during the quarter.
- Said Europe remained a bright spot, while growth markets also delivered a strong performance.
Q1 Performance
Aurobindo Pharma reported a 25.2% year-on-year (YoY) rise in consolidated net profit to Rs 1,033 crore, while revenue increased 16.3% to Rs 9,150 crore.
Operating performance also remained healthy, with EBITDA rising 17.3% to Rs 1,881 crore, taking EBITDA margin to 20.6% from 20.4% a year earlier.
The company beat Street estimates, aided by lower R&D expenses that supported profitability. Management also highlighted that margins showed no meaningful impact from the loss of gRevlimid exclusivity, while the European business grew 26%, growth markets expanded 38%, the US business grew 8%, and the API business recorded 15% growth.
Macquarie, however, noted that while these trends were encouraging, performance across regions remained uneven. The brokerage also pointed out that adjusted profit benefited from higher other income, while reported profit was impacted by the derecognition of lease receivables.
For investors, the brokerage believes the next trigger will be whether Aurobindo can sustain earnings momentum through stronger underlying business growth, rather than relying on lower costs to support margins.
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