While this decision might have affected the short-term outlook, for those looking for a long term growth, the stock offers a good investment opportunity. As far as financial performance is concerned, the company has been a real winner. After establishing a growth in sales during the past two years (sales grew by 33.4 per cent and 86.4 per cent in 1997-98 and 1998-99 respectively ), the company is now giving more weightage to improve the added addition business.

And the results for the first quarter clearly show that attempt to increase the value additional chain have been successful. For the first quarter period ended 30th June1999, sales stood at Rs 183.06 crore - up 76.29 per cent from Rs 103.85 crore in the corresponding period in the previous year. At the same time, operating profit has risen by 110 per cent resulting in higher OPM which improved from 12.81 per cent to 15.27 per cent. This was possible only due to a change in its sales pattern. The contribution from the semi-synthetic penicillins (SSP bulk drug) sales have declined from 55 per cent (as the percentage of total sales) to 48 per cent. Nor that bulk drug sales has shown a lower growth. The segment has maintained its sales growth at over 52 per cent.

Another change which took place during the first quarter was an increase in exports sales as a percentage of total sales. Domestic sales during the first quarter stood at 58 per cent of the total sales as compared to 64 per cent in the corresponding period in the previous year. For 1998-99, export sales accounted for 39 per cent of the total sales.

Export sales during the first quarter showed an impressive jump of110 per cent to Rs 77.7 crore. If the growth in exports sales are maintained, repeating the 1998-99 sales growth would not be a major problem.

Another factor which can help Aurobindo in the long term is the company's decision to invest Rs 50 crore in R&D over a period of three years. Overall, the financials of the company continue to show an improvement and it will not have any problem in servicing the increased equity which doubled on account of a bonus issue in the ratio of 1:1.

On the latest earnings (annualised Rs 78), the stock gets a price multiple of around 7. With the company's focus on formulation business which will result in higher profit margins, the market is also likely to increase its discounting for the stock in the medium-to-long term. The formulation business gets a higher discounting on the exchanges in comparison of bulk drug business. In any case, even if the discounting does not show a major improvement, the company's sales/profit growth would ensure a decent capital appreciation inthe long term. As far as the technical position of the stock is concerned, the stock is in a major uptrend. The long term medium-to-long term support for the stock exits in the range of Rs 370-Rs 410. The stock is unlikely to dip below these levels in the next few months. However, a break below these levels would weaken the technical position of the stock.