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Ranbaxy Laboratories (RBXY)
Pharmaceuticals
Low exclusivity revenues and exceptionals hit 4Q PAT. Ranbaxy reported a loss of
Rs973 mn in 4QCY10 due to (1) low Aricept sales, (2) poor margin of 11%,
(3) exceptional costs and (4) lower interest income. CY2011E sales growth guidance of
US$1.87 bn implies base business growth of 18% in dollar terms. We think this is
achievable. However, despite factoring in significant recovery in base business sales and
margin at current levels, the stock, excluding FTF pipeline value, is trading at 25X 2011E
base business EPS. Maintain SELL with a target price of Rs365 (was Rs340).
4Q revenues at Rs20 bn, 10% lower than our estimates, largely for lower Aricept sales in US
Sales were lower than our estimates on account of lower revenues of Aricept which saw steep
price erosion of 70%. Thanks to an authorized generic, Ranbaxy’s market share for Aricept is only
30%. Sales, excluding Aricept (we assume US$30 mn in 4QCY10), at Rs19 bn were largely in line
with our estimates. In CY2010, all geographies of CIS, Africa, LA and India performed well with
sales growth higher than 15%. However, Europe sales remained flat yoy in dollar terms while India
reported 17% sales growth, excluding a one-time tender in CY2009. In CY2010, the base
business excluding Valtrex/Aricept grew 5% in rupee terms, according to our estimate.
4Q EBITDA miss for lower Aricept sales; low interest income, high depreciation expense affect PBT
EBITDA of Rs2.3 bn was lower than our estimates due to lower sales of Aricept and poor margin
of 11% in 4QCY10; while PBT was lower because of (1) higher depreciation due to impairment for
one of the facilities and capex for new facilities, and (2) lower interest income which dipped
sharply qoq. Post extraordinary expenses, PAT showed a loss of Rs973 mn on account of (1)
impairment of goodwill in French subsidiary, (2) MTM gain on forex derivatives (outstanding
positions down to US$850 mn from US$1.8 bn a year ago), and (3) provision for diminution in
value of investment of Zenotech.
Sales guidance of US$1.87 bn in CY2011E implies 18% base business growth in dollar terms
Ranbaxy expects sales in CY2011E (including Aricept but excluding Lipitor) at US$1.87 bn. We
believe this implies 18% base business growth in dollar terms versus 11% dollar growth in
CY2010. We see this as achievable and factor in 20% base business growth in dollar terms due to
(1) sustaining India growth, (2) Nexium API supplies, and (3) US$65 mn/annum from ARV tender.
Maintain SELL with target price of Rs365 (from Rs340)
We increase our base business EPS by 10% to Rs16.4 in CY2011E, factoring in margin
improvement for (1) sales growth in India, (2) Nexium API supplies, and (3) savings in total annual
R&D spend post hive-off of NDDR division to Daichi. Stock excluding FTF pipeline value is trading
at 25X 2011E base business EPS and valuing non-recurring opportunities on a recurring basis.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ranbaxy Laboratories (RBXY)
Pharmaceuticals
Low exclusivity revenues and exceptionals hit 4Q PAT. Ranbaxy reported a loss of
Rs973 mn in 4QCY10 due to (1) low Aricept sales, (2) poor margin of 11%,
(3) exceptional costs and (4) lower interest income. CY2011E sales growth guidance of
US$1.87 bn implies base business growth of 18% in dollar terms. We think this is
achievable. However, despite factoring in significant recovery in base business sales and
margin at current levels, the stock, excluding FTF pipeline value, is trading at 25X 2011E
base business EPS. Maintain SELL with a target price of Rs365 (was Rs340).
4Q revenues at Rs20 bn, 10% lower than our estimates, largely for lower Aricept sales in US
Sales were lower than our estimates on account of lower revenues of Aricept which saw steep
price erosion of 70%. Thanks to an authorized generic, Ranbaxy’s market share for Aricept is only
30%. Sales, excluding Aricept (we assume US$30 mn in 4QCY10), at Rs19 bn were largely in line
with our estimates. In CY2010, all geographies of CIS, Africa, LA and India performed well with
sales growth higher than 15%. However, Europe sales remained flat yoy in dollar terms while India
reported 17% sales growth, excluding a one-time tender in CY2009. In CY2010, the base
business excluding Valtrex/Aricept grew 5% in rupee terms, according to our estimate.
4Q EBITDA miss for lower Aricept sales; low interest income, high depreciation expense affect PBT
EBITDA of Rs2.3 bn was lower than our estimates due to lower sales of Aricept and poor margin
of 11% in 4QCY10; while PBT was lower because of (1) higher depreciation due to impairment for
one of the facilities and capex for new facilities, and (2) lower interest income which dipped
sharply qoq. Post extraordinary expenses, PAT showed a loss of Rs973 mn on account of (1)
impairment of goodwill in French subsidiary, (2) MTM gain on forex derivatives (outstanding
positions down to US$850 mn from US$1.8 bn a year ago), and (3) provision for diminution in
value of investment of Zenotech.
Sales guidance of US$1.87 bn in CY2011E implies 18% base business growth in dollar terms
Ranbaxy expects sales in CY2011E (including Aricept but excluding Lipitor) at US$1.87 bn. We
believe this implies 18% base business growth in dollar terms versus 11% dollar growth in
CY2010. We see this as achievable and factor in 20% base business growth in dollar terms due to
(1) sustaining India growth, (2) Nexium API supplies, and (3) US$65 mn/annum from ARV tender.
Maintain SELL with target price of Rs365 (from Rs340)
We increase our base business EPS by 10% to Rs16.4 in CY2011E, factoring in margin
improvement for (1) sales growth in India, (2) Nexium API supplies, and (3) savings in total annual
R&D spend post hive-off of NDDR division to Daichi. Stock excluding FTF pipeline value is trading
at 25X 2011E base business EPS and valuing non-recurring opportunities on a recurring basis.
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