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Ranbaxy:: Weak quarter
Higher than expected price decline in Aricept generic resulted in lower than
expected operating profits and non-recurring items namely goodwill impairment
(Rs1.8bn) and provision for diminution in value of investments (Rs2.2bn) led to a
net loss in 4QCY10. Continued increase in staff costs led to weak core margins. We
continue to see binary outcome for the stock based on approval/monetization of
Lipitor opportunity in November 2011. The US business and forex gains set a high
base and we expect YoY decline in reported profits for the coming three quarters.
US business disappoints due to sharp price decline in Aricept generic
• Net sales for the quarter were down 8.8% YoY due to a high base in the US
(Valtrex opportunity in the same quarter last year).
• Sharp price decline and lower market share (c. 30% for Ranbaxy) in Aricept
generic due to competition from Greenstone (authorised generic) resulted in
operating profits much lower than our estimates.
• Domestic formulations grew c. 4% YoY in 4Q due to high tender sales in last year.
The management guides for high double digit growth in domestic business ahead.
• API sales were higher at US$40m due to pick in Nexium API supply to
AstraZeneca with formulation supply expected to start in a quarter or two.
• Growth in branded markets like Africa, LatAm and Russia was weak in 4Q.
Core margins remain weak
• Continued rise in staff costs on YoY basis is keeping core Ebitda margins under
pressure.
• One time elements like goodwill impairment and provision for diminution of value
of investment in Zenotech led to a net loss during the quarter.
Binary outcome - high dependence on Lipitor
• We expect resolution of the US FDA issues to be a gradual process and do not
expect resolution of AIP at Paonta Sahib over the coming year.
• Monetisation of Lipitor remains the key for the stock to perform. We expect Lipitor
to be an extended limited competition prospect in the US with Pfizer trying to
delay further generic entry beyond Teva (May 2012).
• Substantial earnings from the US opportunities and forex gains in CY10 set a high
base for reported earnings growth in CY11 and we expect YoY profit decline for
the next three quarters.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ranbaxy:: Weak quarter
Higher than expected price decline in Aricept generic resulted in lower than
expected operating profits and non-recurring items namely goodwill impairment
(Rs1.8bn) and provision for diminution in value of investments (Rs2.2bn) led to a
net loss in 4QCY10. Continued increase in staff costs led to weak core margins. We
continue to see binary outcome for the stock based on approval/monetization of
Lipitor opportunity in November 2011. The US business and forex gains set a high
base and we expect YoY decline in reported profits for the coming three quarters.
US business disappoints due to sharp price decline in Aricept generic
• Net sales for the quarter were down 8.8% YoY due to a high base in the US
(Valtrex opportunity in the same quarter last year).
• Sharp price decline and lower market share (c. 30% for Ranbaxy) in Aricept
generic due to competition from Greenstone (authorised generic) resulted in
operating profits much lower than our estimates.
• Domestic formulations grew c. 4% YoY in 4Q due to high tender sales in last year.
The management guides for high double digit growth in domestic business ahead.
• API sales were higher at US$40m due to pick in Nexium API supply to
AstraZeneca with formulation supply expected to start in a quarter or two.
• Growth in branded markets like Africa, LatAm and Russia was weak in 4Q.
Core margins remain weak
• Continued rise in staff costs on YoY basis is keeping core Ebitda margins under
pressure.
• One time elements like goodwill impairment and provision for diminution of value
of investment in Zenotech led to a net loss during the quarter.
Binary outcome - high dependence on Lipitor
• We expect resolution of the US FDA issues to be a gradual process and do not
expect resolution of AIP at Paonta Sahib over the coming year.
• Monetisation of Lipitor remains the key for the stock to perform. We expect Lipitor
to be an extended limited competition prospect in the US with Pfizer trying to
delay further generic entry beyond Teva (May 2012).
• Substantial earnings from the US opportunities and forex gains in CY10 set a high
base for reported earnings growth in CY11 and we expect YoY profit decline for
the next three quarters.
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