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Ranbaxy--------------------------------------------------------------------- Maintain UNDERPERFORM
Base business continues to be weak; No update provided on Paonta and Dewas
● Ranbaxy results were below expectations. No clarity was provided
about the resolution at Paonta and Dewas and the base business
margin sequentially declined from 7-8% in Sep 2010 to 6%.
Overall, Ranbaxy reported loss due to several one-off expenses.
● Base margins were impacted by the full roll out of project Viraat
though sales in India declined 14% QoQ. Sequential improvement
in margins is critical for the stock as Ranbaxy gets valued at
normalised margins of 13% plus.
● Margins on Aricept were weak as price erosion is already at 70%!
Such steep cuts are not the norm during the exclusivity period
even within authorised generics. Valtrex continues to offer
meaningful opportunity where Ranbaxy still retaining 30% market
share. The US business was healthy at US$75 mn in 4QC10.
● Ranbaxy’s CY11 sales guidance of US$1.87 bn includes upside
from Aricept. Excluding Aricept and Valtrex, the base business
growth is at 21% with most growth coming from Nexium APIs. Our
estimates for CY10-12 are reduced by double digits due to the
loss reported in 4Q10 and weak sales guidance.
Base business margin weaker than expected
Excluding Aricept, the base business margin was weak at 6% versus
7-8% in the Sep 2010 quarter. Management clarified that the quarter
did not include any one-off expenses. We believe product mix has
resulted in sequential drop in EBITDA margin as India sales declined
14% QoQ while project Viraat costs are fully factored in and lower
margin African sales increased 19% sequentially.
Overall, Ranbaxy reported a loss in the quarter due to several one-off
expenses. A provision of Rs2,216 mn was created for diminution in
investment in Zenotech and Shimal research Labs and there was
goodwill impairment of Rs1,815 mn in the French subsidiary. However,
these expenses were partly offset by forex gain of Rs1,496 mn on
currency options, exposure on which is now down to US$847 mn.
70% price erosion on Aricept; Valtrex still a decent product
Price erosion on Aricept has been significant and is high at 70%. Such
a steep pricing cut was not the norm until now during the 180 days
exclusivity even with the presence of an authorised generic. Ranbaxy
has 30-35% market share on Aricept and therefore we estimate
Aricept sales of US$42 mn in 4Q10. Valtrex remains a meaningful
opportunity for Ranbaxy where the company still has 30% market
share. Thus, the US base business was around US$75 mn in 4QC10.
CY11 sales guidance weaker then expected
Ranbaxy’s CY11 sales guidance of US$1.87 bn (base business)
includes an upside from Aricept. However, given significant price
erosion, we build in total Aricept sales of US$65 mn in CY11. Excluding
Aricept and Valtrex upside from CY10 and CY11, base business growth
is at 21% with most growth coming from Nexium APIs.
Takeaways from the conference call
● Ranbaxy is confident of refinancing March 2011 FCCB (US$550
mn payment) as current net cash is US$290 mn excluding FCCB,
and it should be able to refinance the FCCB given low leverage.
● Ranbaxy issued dividend after a two year gap. However, FCCB
repayment concerns limited dividend pay out to only US$19 mn.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ranbaxy--------------------------------------------------------------------- Maintain UNDERPERFORM
Base business continues to be weak; No update provided on Paonta and Dewas
● Ranbaxy results were below expectations. No clarity was provided
about the resolution at Paonta and Dewas and the base business
margin sequentially declined from 7-8% in Sep 2010 to 6%.
Overall, Ranbaxy reported loss due to several one-off expenses.
● Base margins were impacted by the full roll out of project Viraat
though sales in India declined 14% QoQ. Sequential improvement
in margins is critical for the stock as Ranbaxy gets valued at
normalised margins of 13% plus.
● Margins on Aricept were weak as price erosion is already at 70%!
Such steep cuts are not the norm during the exclusivity period
even within authorised generics. Valtrex continues to offer
meaningful opportunity where Ranbaxy still retaining 30% market
share. The US business was healthy at US$75 mn in 4QC10.
● Ranbaxy’s CY11 sales guidance of US$1.87 bn includes upside
from Aricept. Excluding Aricept and Valtrex, the base business
growth is at 21% with most growth coming from Nexium APIs. Our
estimates for CY10-12 are reduced by double digits due to the
loss reported in 4Q10 and weak sales guidance.
Base business margin weaker than expected
Excluding Aricept, the base business margin was weak at 6% versus
7-8% in the Sep 2010 quarter. Management clarified that the quarter
did not include any one-off expenses. We believe product mix has
resulted in sequential drop in EBITDA margin as India sales declined
14% QoQ while project Viraat costs are fully factored in and lower
margin African sales increased 19% sequentially.
Overall, Ranbaxy reported a loss in the quarter due to several one-off
expenses. A provision of Rs2,216 mn was created for diminution in
investment in Zenotech and Shimal research Labs and there was
goodwill impairment of Rs1,815 mn in the French subsidiary. However,
these expenses were partly offset by forex gain of Rs1,496 mn on
currency options, exposure on which is now down to US$847 mn.
70% price erosion on Aricept; Valtrex still a decent product
Price erosion on Aricept has been significant and is high at 70%. Such
a steep pricing cut was not the norm until now during the 180 days
exclusivity even with the presence of an authorised generic. Ranbaxy
has 30-35% market share on Aricept and therefore we estimate
Aricept sales of US$42 mn in 4Q10. Valtrex remains a meaningful
opportunity for Ranbaxy where the company still has 30% market
share. Thus, the US base business was around US$75 mn in 4QC10.
CY11 sales guidance weaker then expected
Ranbaxy’s CY11 sales guidance of US$1.87 bn (base business)
includes an upside from Aricept. However, given significant price
erosion, we build in total Aricept sales of US$65 mn in CY11. Excluding
Aricept and Valtrex upside from CY10 and CY11, base business growth
is at 21% with most growth coming from Nexium APIs.
Takeaways from the conference call
● Ranbaxy is confident of refinancing March 2011 FCCB (US$550
mn payment) as current net cash is US$290 mn excluding FCCB,
and it should be able to refinance the FCCB given low leverage.
● Ranbaxy issued dividend after a two year gap. However, FCCB
repayment concerns limited dividend pay out to only US$19 mn.
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