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Ranbaxy (RANB.BO): Best pipeline, Year of Lipitor; UG to Neutral
What happened
We upgrade Ranbaxy to Neutral from Sell with a revised 12-month target
price of Rs556 as we believe that Ranbaxy is well positioned to exploit the
upcoming wave of patent expiry in the US given its best-in-class generic
pipeline and potential resolution of the FDA/DoJ manufacturing issue that
has been a headwind since 2008. Our confidence in Ranbaxy’s ability to
monetize its multiple FTF opportunities has been boosted by the recent
launch of Aricept. Since we downgraded it to Sell on July 18, 2008,
Ranbaxy is up 17.7% vs. the Sensex up at 33.5% and has
underperformed its Indian pharma peers under our coverage by 83%.
Current view
Pipeline revenue potential of about US$1.5bn over next 2 years:
Ranbaxy has multiple exclusive launches coming up with sales
potential of ~US$1.5bn over the next 2 years, starting with Lipitor in
Nov 2011. Ranbaxy was an aggressive early ANDA filer, which is
yielding results as evidenced by the series of exclusive FTF launches
since 2009. Key launches: Lipitor, Diovan and Actos.
Higher probability of launching generic Lipitor in Nov 11: We
believe that Ranbaxy’s stock is likely to be range bound until there is
clarity over the Lipitor launch and resolution of the FDA/DoJ issues.
In the unlikely case the AIP is not resolved, we expect Ranbaxy
could still monetize the Lipitor opportunity, as in the case of Flomax,
but it will be a negative for Ranbaxy as it is unlikely to realize its full
sales potential. Our base case assumes timely launch of Lipitor. We
assume an NPV value of Rs.33 from Lipitor sales.
Raise estimates on improved US business outlook: We raise our
revenue/net income estimates by 0%-10% each over 2011E-2013E to
incorporate upcoming one-off opportunities in US.
New TP of Rs556 implies 11% upside: We raise our 12-m
Director’s Cut-based TP to Rs556 (from Rs398), based on our
valuation of the base business (Rs486 vs. Rs328 earlier) and NPV of
Aricept exclusivity, Lipitor and Nexium settlements (Rs70).
Premium valuation to peers: The stock is currently trading at 26X
for base business on CY2012 P/E. Our Director’s Cut based target
price implies a base business CY12E P/E multiple of 29X, vs. the
domestic sector at 15.7X.
Neutral on risk reward: We are Neutral rated on the stock as we
believe that current valuation is a fair reflection of the risk reward. We
will look for more clarity on the manufacturing issue and the
landscape of upcoming launches before turning positive on the stock.
Risks: Upside: Early FDA/DoJ resolution; Downside: Lipitor delay
INVESTMENT LIST MEMBERSHIP
Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ranbaxy (RANB.BO): Best pipeline, Year of Lipitor; UG to Neutral
What happened
We upgrade Ranbaxy to Neutral from Sell with a revised 12-month target
price of Rs556 as we believe that Ranbaxy is well positioned to exploit the
upcoming wave of patent expiry in the US given its best-in-class generic
pipeline and potential resolution of the FDA/DoJ manufacturing issue that
has been a headwind since 2008. Our confidence in Ranbaxy’s ability to
monetize its multiple FTF opportunities has been boosted by the recent
launch of Aricept. Since we downgraded it to Sell on July 18, 2008,
Ranbaxy is up 17.7% vs. the Sensex up at 33.5% and has
underperformed its Indian pharma peers under our coverage by 83%.
Current view
Pipeline revenue potential of about US$1.5bn over next 2 years:
Ranbaxy has multiple exclusive launches coming up with sales
potential of ~US$1.5bn over the next 2 years, starting with Lipitor in
Nov 2011. Ranbaxy was an aggressive early ANDA filer, which is
yielding results as evidenced by the series of exclusive FTF launches
since 2009. Key launches: Lipitor, Diovan and Actos.
Higher probability of launching generic Lipitor in Nov 11: We
believe that Ranbaxy’s stock is likely to be range bound until there is
clarity over the Lipitor launch and resolution of the FDA/DoJ issues.
In the unlikely case the AIP is not resolved, we expect Ranbaxy
could still monetize the Lipitor opportunity, as in the case of Flomax,
but it will be a negative for Ranbaxy as it is unlikely to realize its full
sales potential. Our base case assumes timely launch of Lipitor. We
assume an NPV value of Rs.33 from Lipitor sales.
Raise estimates on improved US business outlook: We raise our
revenue/net income estimates by 0%-10% each over 2011E-2013E to
incorporate upcoming one-off opportunities in US.
New TP of Rs556 implies 11% upside: We raise our 12-m
Director’s Cut-based TP to Rs556 (from Rs398), based on our
valuation of the base business (Rs486 vs. Rs328 earlier) and NPV of
Aricept exclusivity, Lipitor and Nexium settlements (Rs70).
Premium valuation to peers: The stock is currently trading at 26X
for base business on CY2012 P/E. Our Director’s Cut based target
price implies a base business CY12E P/E multiple of 29X, vs. the
domestic sector at 15.7X.
Neutral on risk reward: We are Neutral rated on the stock as we
believe that current valuation is a fair reflection of the risk reward. We
will look for more clarity on the manufacturing issue and the
landscape of upcoming launches before turning positive on the stock.
Risks: Upside: Early FDA/DoJ resolution; Downside: Lipitor delay
INVESTMENT LIST MEMBERSHIP
Neutral
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