I chose to value Aurobindo Pharma based on a screen of high growth, low PE ratio companies for which the EPS growth rate has been greater than stock price growth rate.
Numbers and Narratives
Aurobindo Pharma is a mature pharmaceutical company that is witnessing a second lease of growth. I expect it to continue growing better than the industry average for the next 5 years while keeping its industry average margins.
The core numbers that I arrive at based on the story are
- Compounded revenue growth for next 5 years = 12% (14% last 5 years)
- EBIT margin in year 5 = 20% (industry average)
- Initial cost of capital = 9.99%
I’ve used the above numbers along with the financial information to compute my DCF valuation for Aurobindo Pharma as seen below.
As you can see, the valuation price came out to ₹1396.12, about 43% higher than the current trading price of ₹975.55.