CLSA has initiated coverage on Aurobindo Pharma with sell rating and target price of Rs 630, citing likely slow growth in US business and muted earnings growth. The stock fell more than 3 percent intraday Friday. Aurobindo Pharma has entered the big league of Indian pharma companies through a strong US ramp-up and an acquisition in Europe. Its US sales have grown 4-fold to USD 950 million over the last five years driven by its strategy of launching high-volume, low-value products. However, the brokerage sees several challenges leading to a muted 11 percent adjusted earnings compound annual growth rate over FY16-18. It believes US growth could slow down to mid-teens despite a pipeline of 159 products awaiting approval. According to it, even if Aurobindo receives 40+ approvals annually, it will be difficult to match past growth. Also, a leveraged balance sheet is likely to restrict large inorganic growth options, it says.
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