Aurobindo may ride out storm: analysts

Aurobindo may ride out storm: analysts

Bangalore:The US drug regulator’s import ban on two plants of Aurobindo Pharma Ltd will not significantly dent the company’s revenue, analysts said, even as the drugmaker’s shares dropped to a year’s low on Thursday and at least one brokerage downgraded its stock.

The US Food and Drug Administration (FDA) recently notified a ban on importing drug formulations from two Aurobindo plants in Andhra Pradesh without issuing a warning earlier. Only one of these has begun operations.

The stock plunged two days in a row. On Thursday, Aurobindo’s shares declined 19% in intraday trading to a 52-week low of 165.35 on the Bombay Stock Exchange, before recouping some of the loss to end at 170.50, down 16.81%, on a day the benchmark Sensex closed down 3% at 17,632.41 points.

“The market has clearly overreacted," said Ranjit Kapadia, vice-president for institutional research at HDFC Securities Ltd, “because the maximum impact of this development on the company’s revenue at 4% is not really significant."

Deutsche Bank AG, Emkay Global Financial Services Ltd and First Global Stockbroking Ltd also capped the revenue loss at 4% and are maintaining their top ratings on the stock.

Goldman Sachs Group Investment Research, though, downgraded Aurobindo to “neutral" from “buy" on concerns of uncertainty.

Aurobindo’s revenue in 2009-10 had increased 16% to 3,575.4 crore.

A big worry, though, relates to the large number of approvals Aurobindo has sought from the FDA for generic drugs manufactured at its operational plant in Andhra Pradesh.

“Out of the 30 ANDAs (abbreviated new drug applications) the company has filed from the Unit VI plant, about 20 have already received approval, while 10-12 are pending," said Deepak Malik, a senior research analyst at Emkay.

The company’s Unit VI plant, which manufactures antibacterial drug cephalosporins and was named in the alert, contributes about $30 million (Rs136 crore) in USsales to Aurobindo’s overall revenue.

Ranbaxy Laboratories Ltd, Lupin Ltd and Sun Pharmaceutical Industries Ltd’s US subsidiary Caraco Pharmaceutical Laboratories Ltd received similar import bans in recent years. The ban hit Ranbaxy’s revenue by around 15% and Caraco’s by 60%.

Analysts said it was unusual that Aurobindo received an import alert from the US regulator without a warning letter preceding the notification.

Generally, “the US FDA inspects a facility and observation on practices which might not be up to their standards. Then it gives a company between 15 days to a few months to respond", said Malik. “If it is not satisfied with the response, it issues a warning letter, and when it does not get an adequate response, it issues an import alert, which is really a ban."

“We are surprised that ARBP (Aurobindo) received an IA (import alert) without...WL (warning letter)," Deutsche Bank said in a research note. “We believe that this is (a) revised strategy adopted by FDA to prevent dumping of stocks between WL and IA."

Aurobindo said it has not received a direct communication from the US regulator.

“We don’t have an understanding yet of what an import alert is because we are new to an event like this. We learnt of it from the US FDA website and are trying to talk to them to understand what this constitutes," said Tathagato Roychoudhary, senior manager, investor relations, Aurobindo.

The company expects to bring operations at its plant back to normal in three-six months, he added. Until then, it will not send any further shipment to the US.