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Emerging markets to drive growth; positive traction from Project Virat
Ranbaxy Laboratories’ (RBXY) CY11 revenue guidance of USD 1.87 bn implies
base business growth of 14%, largely driven by emerging markets (EM) such as
Africa, Latam, India, CIS, and Romania. During CY10, organic growth in EM has
been robust at 12%. We believe growth from these regions will be key growth
driver over the medium term. This is further evident from Daiichi Sankyo’s midterm
business plan, where EMs (ex-Japan) are projected to post 23% CAGR,
largely driven by RBXY. India is the key component of this growth strategy and
is seeing positive traction over the past three months after launch of Project
Virat, a significant positive. We expect EM to post 15% CAGR over CY10-12E.
Lipitor launch: Key trigger for stock
Lipitor (USD 5.3 bn opportunity in US) is an exciting PIV opportunity for RBXY.
The company’s success in monetising other Para IVs cannot be extrapolated for
Lipitor; however, successful launch could have a large bearing on valuations. We
believe there is uncertainty around Lipitor launch during the exclusivity period,
given the current import ban and AIP at Ponta Sahib (Lipitor ANDA is filed from
the facility). However, we have build base case scenario for Lipitor
(relinquishes Lipitor exclusivity) with an NPV of INR21 per share. Successful
launch of Lipitor in Nov’2011 can has incremental option value of INR48/ share.
We estimate INR 74 per share upside from positive FDA-DOJ resolution
Positive resolution of the FDA-DOJ issue could be another positive trigger and
enable RBXY to cover lost ground in the US. We believe recovery in the US base
business sales, post resolution, is likely to be gradual and more accretive to
earnings than sales, as assets have been underutilized and fixed costs have
soared due to higher legal and consultation costs. We estimate incremental EPS
of INR4.6 per share (option value of INR 74) on back of positive resolution.
Outlook and valuations: Fairly valued; initiating coverage with ‘HOLD’
Current valuations, in our view, already factor in potential upsides in the base
business. However, positive resolution of the FDA-DOJ issue and/or clarity on
Lipitor launch could be potential triggers for the stock. We initiate coverage with
‘HOLD/Sector Performer’ recommendation/rating with SOTP-based value of
INR 432 per share, valuing the base business at INR 338 per share (20X one
year forward PE). NPV of Para IV is INR 94 per share. Our estimates on core
earnings fully reflect the benefits of revival in its base business operations.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Emerging markets to drive growth; positive traction from Project Virat
Ranbaxy Laboratories’ (RBXY) CY11 revenue guidance of USD 1.87 bn implies
base business growth of 14%, largely driven by emerging markets (EM) such as
Africa, Latam, India, CIS, and Romania. During CY10, organic growth in EM has
been robust at 12%. We believe growth from these regions will be key growth
driver over the medium term. This is further evident from Daiichi Sankyo’s midterm
business plan, where EMs (ex-Japan) are projected to post 23% CAGR,
largely driven by RBXY. India is the key component of this growth strategy and
is seeing positive traction over the past three months after launch of Project
Virat, a significant positive. We expect EM to post 15% CAGR over CY10-12E.
Lipitor launch: Key trigger for stock
Lipitor (USD 5.3 bn opportunity in US) is an exciting PIV opportunity for RBXY.
The company’s success in monetising other Para IVs cannot be extrapolated for
Lipitor; however, successful launch could have a large bearing on valuations. We
believe there is uncertainty around Lipitor launch during the exclusivity period,
given the current import ban and AIP at Ponta Sahib (Lipitor ANDA is filed from
the facility). However, we have build base case scenario for Lipitor
(relinquishes Lipitor exclusivity) with an NPV of INR21 per share. Successful
launch of Lipitor in Nov’2011 can has incremental option value of INR48/ share.
We estimate INR 74 per share upside from positive FDA-DOJ resolution
Positive resolution of the FDA-DOJ issue could be another positive trigger and
enable RBXY to cover lost ground in the US. We believe recovery in the US base
business sales, post resolution, is likely to be gradual and more accretive to
earnings than sales, as assets have been underutilized and fixed costs have
soared due to higher legal and consultation costs. We estimate incremental EPS
of INR4.6 per share (option value of INR 74) on back of positive resolution.
Outlook and valuations: Fairly valued; initiating coverage with ‘HOLD’
Current valuations, in our view, already factor in potential upsides in the base
business. However, positive resolution of the FDA-DOJ issue and/or clarity on
Lipitor launch could be potential triggers for the stock. We initiate coverage with
‘HOLD/Sector Performer’ recommendation/rating with SOTP-based value of
INR 432 per share, valuing the base business at INR 338 per share (20X one
year forward PE). NPV of Para IV is INR 94 per share. Our estimates on core
earnings fully reflect the benefits of revival in its base business operations.
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