Aurobindo Pharma and United Breweries: Weekly Recommendations

The two stocks recommended by SMC Global Securities’ Research Team this week are Aurobindo Pharma and United Breweries. These two stocks have shown great potential with positive financial estimates for the next two financial years. So, let’s go through the details of the two stock recommendations for the period between November 11, 2024 and November 15, 2024.

Aurobindo Pharma Limited

Its CMP was ₹1,325 (as on November 8, 2024) and its target price is set at ₹1,594 with an upside potential of 20%.

Investment Rationale

• Aurobindo Pharma Limited is an integrated global pharmaceutical company headquartered in Hyderabad, India. The Company develops, manufactures, and commercializes a wide range of generic pharmaceuticals, branded specialty pharmaceuticals, and active pharmaceutical ingredients globally in over 150 countries.
• The company has 29 manufacturing and packaging facilities that are approved by leading regulatory agencies including USFDA, UK MHRA, EDQM, Japan PMDA, WHO, Health Canada, South Africa MCC, and Brazil ANVISA.

• During Q1FY25, it filed 8 ANDAs, received final approval for 10 ANDAs, and launched 10 products in the US. Key approvals included Mometasone, Isotretinoin, and Estradiol inserts. A total of 224 specialty and injectable ANDA filings as of June 30, 2024; 170 have final approval. Moreover, recently, it has received final approval from the US Food & Drug Administration (USFDA) to manufacture and market Cephalexin Tablets USP, 250 mg and 500 mg, the product is expected to be launched in Q3FY25.
• The management of the company expects continuous growth from volume gains, new product launches, stable pricing, and significant ramp-up anticipated from Pen-G commercialization starting October 2024. Moreover, confidence in achieving the internal EBITDA margin target of 21%-22% for FY25 with the help of focused investments in R&D and progress in biosimilars and complex products. The company has mentioned that the China plant is expected to be commercialized in Q3 FY25, with a ramp-up in Q4 FY25.
• During Q1FY25, it reported a 10% growth in revenue on account of good performance by its formulation business witnessed a growth of 15% year-on-year to Rs. 6,475 crores which contributed around 86% of the total revenue. The revenues are mainly supported by growth across markets of the US, Europe, and growth markets. Moreover, API business contributed around 14% and revenue increased by 6% year-on-year to Rs. 1,092 crores.
• The growth in the API business is mainly driven by higher volumes on account of improved asset utilization. US formulation grew by 12% year-on-year and recorded revenue of $426 million supported by volume gains, stable demand, and new product launches. EBITDA margin remained at 21.4% supported by stable raw material prices, and operating leverage due to incremental plant utilization.

Shareholding Pattern

Promoter shareholding is highest in the Aurobindo Pharma at 51.82%.

Valuation

In Q1FY2025, the company recorded robust growth and continuously focused on developing complex molecules, differentiated offerings, broad-spectrum products, and newer technologies to improve health outcomes globally. APL continues to expand its manufacturing footprint, backward integrate to build a resilient supply chain, expand its geographic presence, diversify its product portfolio, and be future-ready with expansion into biosimilars. Thus, it is expected that the stock will see a price target of ₹1,594 in 8 to 10 months time frame on a target
P/BVx of 2.50x and FY26 BVPS of ₹637.67.

Risk

• Intensive Competition
• Regulatory Risk

United Breweries Limited

Its CMP was ₹1,927 (as on November 8, 2024) and its target price is set at ₹2,307 with an upside potential of 20%.

Investment Rationale

• United Breweries Limited, part of the HEINEKEN Company, is the largest beer manufacturer in India. The company produces and markets packaged drinking water and soda, internationally recognized beer, and non-alcoholic beverages. Its diverse product portfolio comprises brands such as Kingfisher Strong, Kingfisher Premium, Kingfisher Ultra, Kingfisher Ultra Max, Kingfisher Ultra Witbier, Kingfisher Storm, Queenfisher Premium, Heineken Original, Heineken Silver, Amstel, Heineken 0.0., Kingfisher Premium Water, Kingfisher Soda. Its popular beer, Kingfisher Premium Lager beer, is currently available in 69 countries and leads the way among Indian beers in the international market.

• Recently, the company launched Heineken Silver and Heineken Original, which will be available in the state of Karnataka. The availability of the two iconic beer variants across bars and retail stores marks a significant milestone in Heineken’s ongoing expansion in India, aligned with the company’s focus on enhancing consumer experience through premiumization.
• It has launched Amstel Grande in India, which promises to deliver a very new and unparalleled beer experience to Indian consumers. According to the management, the launch is going to be one of the company’s biggest initiatives over the next 4 to 5 years in the premium segment.
• According to the management, pricing in key states like Rajasthan, Karnataka, and Tamil Nadu has strengthened by the premiumization effort.
• In the quarter ended September 2024, volume momentum continued with 5% overall volume growth and 27% in premium, leading to market share gains within the premium segment. Net sales are up 12% YoY driven by volume & revenue management initiatives.
• In the quarter ended September 2024, investments in capex during the quarter were ₹51 crores, focused on commercial & supply chain initiatives to cater for future growth.

Shareholding Pattern

In the overall shareholding of United Breweries, promoters have the highest shareholding of 70.83%.

Valuation

The company remains committed to growth in the beer category, aiming to capture a wide range of market segments by strengthening its supply chain network and achieving profitable growth with efficient capital deployment. Its emphasis on premium products aligns well with a notable shift in consumer preferences toward international premium mild beers, driven by an increasing demand for unique and high-quality beer experiences. Thus, it is expected that the stock will see a price target of ₹2,307 in 8 to 10 months time frame on one-year average P/BV of 12.18x and FY26 BVPS of ₹189.39.

Risk

• Regulatory risks
• Economic Slowdown

Conclusion

These two stocks, one from the pharmaceutical sector and the other from the beverage sector can reach their target price in the coming 8 to 10 months. But it is always better if you do your analysis before investing and set a stop loss target. To keep track of your invested stocks, open demat account with SMC Global Securities and invest on the go.

Reference:
https://www.smctradeonline.com/research/wise-money/241

Author: All Content is verified by SMC Global Securities.