Topic: Relationship of Aurobindo Pharma Ltd with Nifty 50
Author: Atharva Mehetar (Roll No. 0222094)
Introduction: Hyderabad-based Aurobindo was incorporated in 1986 and manufactures generic formulations and active pharmaceutical ingredients (APIs). Aurobindo generates 90% of its sales from international markets. The company currently holds a strong position in the US, where it is the fifth largest generic pharmaceutical company as per the IMS National Prescription Audit, measured by total prescriptions dispensed for 12 months ending June 2018. Aurobindo is a vertically integrated company, meeting around 70% of its API requirements in-house. Aurobindo has 26 manufacturing facilities for its API and formulations businesses.
Objective: To calculate the beta of Aurobindo Pharma Ltd and find out its significance.
Views and reviews
Aurobindo Pharma CFO S. Subramaniam’s comments after Q1FY24 earnings (August 24, 2023): Our financial performance in Q1 was on the back of a positive business environment in key market, as well as our continued focus on driving growth and efficiency. We remain committed to strong execution in the coming quarters while adhering to the highest quality standards. Some of the key highlights for the coming quarters are summarised below. Q1 clearly indicated the prices for now have been flat. We remain optimistic in Q2 in terms of the margins. Our endeavour is to achieve an internal target of 18%+ EBITDA for the year, plus margin on special product, and we are on track. PLI facilities and investments are targeted to be completed before 1st April, 2024. Commercialisation of some of our other new projects in China and India by Q1 FY25. With the above actions, including commercialisation of PLI and other projects over a period of time and stabilisation of the manufacturing processes, EBITDA margin is expected to cross 20% based on the current market conditions. The board of directors have decided to explore the possibility of restructuring of Eugia vertical.
Aurobindo Pharma CFO S. Subramaniam’s comments after Q4FY23 earnings (May 23, 2023): While our financial performance FY23 indicates our resilience to withstand economic adversity on the back of our strong fundamentals, we remain focused on continuing our growth and we are cautiously optimistic on the business growth going forward. We are committed to deliver good performance in the coming quarters, while adhering to the regulatory and quality standards.
Data Collection
The data for the period July 1, 2022 to June 30, 2023 has been downloaded from NSE’s website and Friday’s closing price was found out. The weekly returns of Nifty 50 are represented as X and that of Aurobindo Pharma Ltd as Y.
Data Analysis
Y = 0.0039 + 0.9050X
tstat = (2.2295)
N = 50
R2 = 0.0938
F = 4.9706
The above equation shows the relationship between Nifty 50 (X) and Aurobindo Pharma Ltd (Y). The positive sign means there is a positive relationship, which means if X rises, Y also rises and vice-versa. If Nifty 50 (X) rises by 1 unit, Aurobindo Pharma Ltd (Y) rises by 0.9050 units. N means there are 50 observations. The t-stat for b is 2.2295, which means b is statistically significant at 5% level. R2 = 0.0938 means that 9.38% of Aurobindo Pharma Ltd (Y) is explained by Nifty 50 (X) and the balance 90.62% is error due to the variables which are not in the model.
Since the F = 4.9706 is more than the tabulated F value (F 0.05,1DF,48DF = 4.043), the overall model is statistically significant at 5% level.
Conclusion
Since the beta of Aurobindo Pharma Ltd is 0.91, the shares of the company are good for a long-term investment.