Nirmal Bang bullish on this mid-cap stock; here's why

Brokerage firm Nirmal Bang is bullish on pharma major Aurobindo Pharmaceuticals Limited (APL) and has a 'Buy' rating on the stock with a target price of Rs 864 per share. So, if you compare it with the current market price, the stock has an upside potential of over 30 per cent.

On Tuesday, the shares closed 1.61 per cent lower at Rs 662.75 amid selling pressure on Dalal Street. With a market capitalisation of around Rs 38,000 crore, the shares stand lower than 5 day, 20 day, 50 day, 100 day and 200 day moving averages.

Nirmal bang noted that there are reports that APL is in the advanced stages of finalization of the demerger of its injectables business. The injectables business (Eugia) is expected to be demerged into a separate company and listed.

"There might be a fresh infusion of capital by the new investor in Eugia and also a stake sale by the promoter. If the same goes through at the expected valuation (US$3.5bn to US$4bn), the rest of the business, which would remain in the existing listed entity, would be available at an EV of Rs10bn, implying an EV/Sales multiple of

The brokerage firm believes that there is a significant upside to the valuation of the remaining businesses, which could inch up to 1.5x to 2x of FY21 sales. The injectables business, which is being demerged, is just 15% of revenue.

"We maintain our earnings estimates on Aurobindo Pharma Limited (APL) and reiterate our Buy rating on the stock with a target price (TP) of Rs864, valuing it at 16x March’24E EPS. APL may be on a rerating journey over the next two years, led by multiple events," it added.

Recently, the company also acquired the business and certain assets of Veritaz Healthcare Limited (VHL) for a cash consideration of Rs 171 crore.

Veritaz operates in the pharmaceutical industry in India and sells branded generic formulations and other healthcare-related products. Anti-infective and pain management are the major portfolios contributing to the revenue of Veritaz.