Buy Aarti Drugs, target Rs 796: Anand Rathi
Aarti Drugs is a smallcap company, operating in pharmaceuticals and health care sector.
Shares of Aarti Drugs traded at Rs 531 around 2 pm on 19 June, 2019. The brokerage has set a one-year horizon for the stock to hit the target price.
The company’s API range covers therapies such as antibiotics, anti-inflammatories, cardioprotectants, anti-diarrhoeals, anti-fungals, anti-diabeties, etc. Capacities have been recently added in all these, except antibiotics.
The company will become the largest producer of Metformin once issues with the technology to produce on a large scale are solved.
It now manufactures 550-600 tonnes a month, whereas after the technology is in place it will manufacture 1,000 tonnes a month.
Ciprofloxacin, which is one of its top 10 products, has a 40-50 per cent global market share; growth, though, has been flat.
The company plans to push growth by capturing competitors’ market shares.
Considering the new capacities and volume growth, the brokerage expects a 15 per cent revenue CAGR in APIs over FY19-21.
To boost its formulations business, the company acquired Pinnacle Life Sciences in 2015. At present, this comprises a small part of its business (9.6 per cent of sales).
The company has filed dossiers in Europe and in emerging markets in the last few years. The brokerage expects this business to clock a 12 per cent revenue CAGR over FY19-21.
"We expect the operating margins to expand 192bps by FY21, with a 22.5 per cent Ebitda CAGR over FY19-21, supported by stabilising raw material prices and a better product mix," said the brokerage.
It expect the company's revenue and PAT to clock 14.5 per cent and 32 per cent CAGRs, respectively, over FY19-21.
The brokerage retained buy rating, with an unchanged price target of Rs 796, based on 12 times FY21E earnings per share (EPS).
Delay in the ramp-up of the recently-added capacity and more-than-expected competition in generic APIs are the risk factors for the stock, the broekerage said.