Ranbaxy-Risk/reward profile remains favourable: UBS

Visit http://indiaer.blogspot.com/ for complete details �� ��


UBS Investment Research
Ranbaxy
Risk/reward profile remains favourable
􀂄 Consensus remains divided
We are 97%/103% ahead of consensus earnings for 2011/12. We believe consensus
remains divided on whether Ranbaxy will be able to resolve its US FDA issues and
launch FTFs—Aricept and Lipitor as scheduled. We believe a successful launch
will result in significant upside potential from the current share price.


􀂄 Update on US issues in the Q3 earnings call
We expect updates on any meetings management may have had with the US FDA,
and progress on its remedial plans and the likely steps it will take, at the Q3
earnings conference call.

􀂄 Nexium supplies are likely to be a meaningful earnings driver
We view commercial supplies to AstraZeneca of the active pharmaceutical
ingredient for Nexium from Q311 and formulation supplies from early 2011 as a
meaningful earnings driver. Nexium contributes Rs9.19 to our 2011-14 EPS
estimates. Management is increasing its focus on India and emerging markets to
drive the base business’ medium-term growth, while reducing exposure to noncore
markets to improve the cost structure. .

􀂄 Valuation: maintain Buy rating and price target of Rs720.00
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. We assume a WACC of
11%. We add Rs15/share as the risk adjusted value of the Valcyte opportunity.