Macquarie Research: Ranbaxy target price is Rs 450

Ranbaxy Laboratories
At the inflection point
Company Profile
 Ranbaxy, 65%-owned by Daiichi Sankyo, is one of the largest integrated
pharmaceutical companies in India with a presence across 46 countries and
manufacturing facilities located across seven countries. The company has a
substantial presence in the global generics business with a focus on new drug
development in anti-infectives, inflammatory/respiratory, metabolic diseases,
oncology, urology and anti-malaria therapies. The international business
contributed 78% of Ranbaxy’s Rs73bn sales in CY09. Further, Ranbaxy is the
second largest player in India and its domestic business contributes ~22% of
sales.
Business fundamentals
 Management exudes confidence on FDA and DoJ issue: RBXY indicated
the potential for a “comprehensive settlement of issues” with the FDA and DoJ
over the next three to six months. We believe such a settlement, even with a
likely penalty payment, would be a favourable outcome. Event risk still
remains; however, management commentary for the first time was quite
bullish on this issue and did provide some comfort.
 Exclusivity pipeline: Ranbaxy has already monetized: Valtrex (launched in
November 2009), Flomax (one-time settlement of US$50m), and Imitrex
(launched in February 2009). Opportunities going forward include Nexium API
supply, Nexium product launch, Flomax, Aricept, Valcyte, Lipitor, Actos and
Diovan.
 India business: Project Viraat is on track with 1,500 sales people recruited in
the last nine months for the domestic market and 31 new products launched
this quarter in India (domestic sales to benefit starting 2HCY10).
 Europe business: While Romania continues its high growth momentum,
Germany and UK are the most consistent performers in the Europe region.
 Management change: Arun Sawhney, recently took over as managing
director from Atul Sobti. Mr Sawhney has been with Ranbaxy as president of
Global Pharma since April 2008 and was next in line behind Mr Sobti,
enabling for a smooth transition.
Key triggers
 Comprehensive settlement of FDA and DoJ issues and the launch of
exclusivity products in the US.
Valuation and recommendation
 Ranbaxy, after adjusting for exclusivity value, trades at 32x CY11E earnings.
A favourable DoJ resolution remains the key upside risk to our Neutral call.