Aurobindo Pharma Ltd (APL) has launched a new division, AuroSource, to provide contract research and manufacturing services to innovator pharma & biotech companies. It intends to position itself as a provider of manufacturing (intermediates, APIs, pre-formulations and formulations) and research services across the life cycle (from pre-clinical to commercial stages). At a later stage, APL would also look at providing medicinal chemistry and other discovery services.
APL intends to start with providing pre-clinical services and pre-launch quantities before gradually expanding into other areas. It is already in discussions with two to three players and expects some revenues in 2HFY11. However, it is too early to quantify the upside – we leave estimates unchanged.
APL indicated that its current capacity is adequate to take care of contract manufacturing requirements. It would set up an R&D facility at Pashamylaram (Andhra Pradesh), with c150 scientists, for contract research.
Aurobindo Pharma is expected to report an EPS of Rs 72, 103 and 126 for FY 10, 11 and 12 respectively. Citi Research has recommended a BUY with a Target of Rs 1,350, sounds reasonable at FY 11 earnings expectations.
Edelweiss Research maintain ‘BUY’ on the stock and rate it ‘Sector Outperformer’ on relative return basis. ARBP is our top pick in the pharma sector.