Buy Ranbaxy Laboratories -Disappointment due to lower share in Aricept; Anand Rathi

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Ranbaxy Laboratories
Disappointment due to lower share in Aricept; maintain Buy
Ranbaxy’s 4QCY10 results belied our estimates mainly due to
the lower-than-expected market share in Aricept (para IV). Its
revenue dropped 6.5% yoy, to `21bn (vs our estimated `22.5bn).
EBITDA margin declined 720bps yoy to 11%, which along with
higher depreciation resulted in a 73% fall in adjusted profit.

 Aricept sales impacted by authorised generic. Ranbaxy
launched Aricept (Donepezil, para IV) with 180-day exclusivity in
Nov ’10. However, Greenstone launched an authorised generic of
the same. This led to a significant price erosion of 70% and
Ranbaxy could garner only a 30% market share.
 Lower estimates factoring in lower Aricept revenue. We lower
our CY11 revenue estimates by 9% and PAT by 37% to factor in
lower revenue from Aricept (`4.2bn in CY11e vs. earlier estimate
of `13bn). However, we largely maintain our CY12 estimates.
 Base business revenue stabilising. The base business (excl. para
IV) revenue is stabilising and we expect 15%+ growth in CY11-12
led by strong growth in India, stabilising US business at
~US$300m plus, growing emerging markets and Nexium supply
to Astra Zeneca.
 Valuation and risks. We maintain a Buy with a revised target of
`630 (`658 earlier) to factor in the lower NPV for Aricept and
lower other income in CY12e. Risk: Failure to monetise para IV
opportunities.