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4Q10 results disappointed on weaker-than-expected generic Aricept sales, muted revenue
growth in key markets and persistent weak core operating margin. CY11 base business revenue
guidance is also uninspiring. Maintain Sell on weak core operating performance and lack of clarity
on US FDA resolution.
4Q interims – generic Aricept and base business disappoint
Ranbaxy reported 4QCY10 revenues of Rs20.7bn (down 9% yoy, 10% qoq), 12% lower than we
expected due to a mix of lower-than-expected generic Aricept (gAricept) sales (from greater
pricing erosion as the result of the presence of an authorised generic) and weakness in base
business. EBITDA of Rs1.9bn (down 41% yoy, 116% qoq) and EBITDA margin of 9.2% also
missed our estimates of Rs3.7bn and 15.8%, respectively. Excluding the impact of various oneoffs (forex, goodwill impairment etc), we estimate that Ranbaxy made a marginal loss of Rs67m
at PAT level (see Table 2). If we exclude the impact of one-off launches (gAricept, gValtrex), we
estimate core 4Q10 revenues were Rs19.3bn (7% yoy), EBITDA margin was 5.4% (up 317bp
yoy) and PAT was a negative Rs660m (see Table 3).
Sales performance has been a mixed bag; revenue guidance uninspiring
US revenues in 4Q10 declined 30% yoy, but we estimate core US revenues (ex gValtrex in 4Q09
and gAricept in 4Q10) reported good yoy growth of 36% (see Table 1). Europe continues to be
weak, with revenues declining 6% yoy, and saw a goodwill impairment of Rs1.8bn (in France).
The domestic formulation business was also muted at 4% yoy (INR), but excluding the impact of
a tender in 4Q09, revenue grew 17%. The company expects this to grow 15% in CY11 as Project
Viraat has now been fully implemented. Africa and LatAm markets were strong; CIS was weak.
Ranbaxy has guided to CY11 base revenues (includes gAricept, but excludes gLipitor) of Rs84bn
vs Rs85.5bn reported in CY10 and our CY11 estimate of Rs91.9bn, which excludes contribution
from both gAricept and gLipitor.
No comfort yet on US FDA resolution and core business remains weak; maintain Sell
Our TP of Rs460 is based on core business valuation of Rs403/sh on a 2011F EV/EBITDA of
16.5x (a 10% discount to the sector due to its lowest operating margin among peers and US FDA
woes) and the one-offs at Rs57/share based on DCF (post a 30% execution risk discount). We
maintain Sell on lack of clarity on US FDA resolution and weak core business
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
4Q10 results disappointed on weaker-than-expected generic Aricept sales, muted revenue
growth in key markets and persistent weak core operating margin. CY11 base business revenue
guidance is also uninspiring. Maintain Sell on weak core operating performance and lack of clarity
on US FDA resolution.
4Q interims – generic Aricept and base business disappoint
Ranbaxy reported 4QCY10 revenues of Rs20.7bn (down 9% yoy, 10% qoq), 12% lower than we
expected due to a mix of lower-than-expected generic Aricept (gAricept) sales (from greater
pricing erosion as the result of the presence of an authorised generic) and weakness in base
business. EBITDA of Rs1.9bn (down 41% yoy, 116% qoq) and EBITDA margin of 9.2% also
missed our estimates of Rs3.7bn and 15.8%, respectively. Excluding the impact of various oneoffs (forex, goodwill impairment etc), we estimate that Ranbaxy made a marginal loss of Rs67m
at PAT level (see Table 2). If we exclude the impact of one-off launches (gAricept, gValtrex), we
estimate core 4Q10 revenues were Rs19.3bn (7% yoy), EBITDA margin was 5.4% (up 317bp
yoy) and PAT was a negative Rs660m (see Table 3).
Sales performance has been a mixed bag; revenue guidance uninspiring
US revenues in 4Q10 declined 30% yoy, but we estimate core US revenues (ex gValtrex in 4Q09
and gAricept in 4Q10) reported good yoy growth of 36% (see Table 1). Europe continues to be
weak, with revenues declining 6% yoy, and saw a goodwill impairment of Rs1.8bn (in France).
The domestic formulation business was also muted at 4% yoy (INR), but excluding the impact of
a tender in 4Q09, revenue grew 17%. The company expects this to grow 15% in CY11 as Project
Viraat has now been fully implemented. Africa and LatAm markets were strong; CIS was weak.
Ranbaxy has guided to CY11 base revenues (includes gAricept, but excludes gLipitor) of Rs84bn
vs Rs85.5bn reported in CY10 and our CY11 estimate of Rs91.9bn, which excludes contribution
from both gAricept and gLipitor.
No comfort yet on US FDA resolution and core business remains weak; maintain Sell
Our TP of Rs460 is based on core business valuation of Rs403/sh on a 2011F EV/EBITDA of
16.5x (a 10% discount to the sector due to its lowest operating margin among peers and US FDA
woes) and the one-offs at Rs57/share based on DCF (post a 30% execution risk discount). We
maintain Sell on lack of clarity on US FDA resolution and weak core business
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