UBS: Ranbaxy CFO departure unlikely to affect US FDA resolution process

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UBS Investment Research
Ranbaxy
CFO departure unlikely to affect US FDA resolution process

�� CFO departure likely a professional decision
Rbxy announced President & CFO, Mr Omesh Sethi, has resigned from the co. In a
media comment (Economic Times) he described it as a personal decision as he is
looking at other professional opportunities. We don’t believe this departure is
likely to impact the ongoing dialogue on resolution of US issues with the FDA.
The current team is comprised of senior members from Daiichi and Rbxy mgmt.

�� Teva ‘Gemzar exclusivity’ highlights the potential worst case scenario
Investors are worried whether Rbxy will able to launch Lipitor on time given AIP
issues at Paonta. Teva recently licensed its exclusivity for Gemzar to APP given
manufacturing issues at its facility for a royalty. Our Teva analyst estimates a
royalty rate of 50%. We believe this is potentially the worst case scenario for Rbxy
and not a zero as some investors believe. We however, continue to expect Rbxy to
launch Lipitor generic on time.
�� Raising our estimates for 2010 on high non-op income
We raise our 2010 EPS estimate from Rs 29.26 to Rs 39.14 driven by higher non
operating income (FX gains, gains on sale of assets and investments) during the
first 9 months of the year. Our 2011/12 estimates remain broadly unchanged.
�� Valuation: Maintain Buy, PT Rs 720
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool with a WACC of 11%.


Concall Takeaways
1) Ranbaxy set up a new facility in South Africa and expects the sales for South
Africa and neighbouring region to benefit from the coming quarters.
2) Company filed 7 ANDAs during the quarter.
3) The sales of the domestic formulation business grew at 18% YoY during the
quarter. The full impact of project Virat will be seen by 1QFY11 and the
management expects the domestic sales to show strong growth.
4) The company expects the current run rate of revenue from US business to be
the base and can expect slight improvement going forward.
5) The sales in European market declined by 10% YoY on account of loss of a
large wholesale dealer in one of the markets.


􀁑 Ranbaxy
Ranbaxy, one of India's largest pharmaceutical companies, manufactures and
markets generics, branded generic pharmaceuticals, and active pharmaceutical
ingredients. Ranbaxy's products are sold in over 125 countries. It has
manufacturing operations in 11 countries and a presence in 49. It was
incorporated in 1961 and was listed in 1973. Daiichi Sankyo acquired a 64%
stake in Ranbaxy in 2008. Ranbaxy's key markets, in terms of revenue, are India,
Romania, Russia, the US, and Africa and the EU.
􀁑 Statement of Risk
We believe general risks include FDA approval, the timing of approvals,
competition from competing drug therapies, litigation (including the appeal
process), accounting/disclosure, and product pricing risk from generic
competition. The FDA recently conducted a search of Ranbaxy's office and
facility in the US. The timing and nature of the next step by the FDA is not
known. Profits in the generic pharma business in the US and Europe are volatile,
depending on product prices and competition levels. Sharp rise in rupee against
other major currencies could result in further cost pressure and lower
profitability.