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Ranbaxy Laboratories (RANB.BO)
Neutral Equity Research
Below expectations: Donepezil discount steeper; margins improve
What surprised us
Ranbaxy Laboratories reported 1QCY11 revenues of Rs21.43bn and EBIT of
Rs3.3bn that were 17%/12% below GSe on lower-than-expected revenues from
generic Aricept (Donepezil). While revenues were in line with Bloomberg
consensus, EBIT was 15% above on better margins. Net income of Rs3.04bn
came 19%/72% above GSe/Bloomberg consensus on forex gains and lower
taxes. Ranbaxy witnessed broad-based growth in all geographies, in line with
our expectations (except LatAm). EBIT margins were 90 bp above our
expectations (+1,120 bp qoq). Management suggested core business margins
could be sustained at these levels going forward. Price erosion in Donepezil
were much steeper than our expectations and did not recover from the 70%
discount seen in 4QCY10. On the resolution of FDA-related manufacturing
issues, company reiterated no additional visibility. However, it was
incrementally positive on the launch of Lipitor compared to previous quarters.
What to do with the stock
We maintain our Neutral rating on Ranbaxy, as we believe that current
valuation is a fair reflection of the risk reward. We look for more clarity on the
landscape of upcoming launches before turning positive on the stock. We
reduce our CY11E-CY12E EPS by 3% on lower pricing for FTF launches. Hence,
we revise our 12-m Director’s cut-based TP to Rs481 (from Rs495). Our TP
implies a P/E of 12.7X on CY11E EPS vs. the sector average of 15.3X. Risks:
Early FDA resolution (upside), delay in generic Lipitor launch (downside).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ranbaxy Laboratories (RANB.BO)
Neutral Equity Research
Below expectations: Donepezil discount steeper; margins improve
What surprised us
Ranbaxy Laboratories reported 1QCY11 revenues of Rs21.43bn and EBIT of
Rs3.3bn that were 17%/12% below GSe on lower-than-expected revenues from
generic Aricept (Donepezil). While revenues were in line with Bloomberg
consensus, EBIT was 15% above on better margins. Net income of Rs3.04bn
came 19%/72% above GSe/Bloomberg consensus on forex gains and lower
taxes. Ranbaxy witnessed broad-based growth in all geographies, in line with
our expectations (except LatAm). EBIT margins were 90 bp above our
expectations (+1,120 bp qoq). Management suggested core business margins
could be sustained at these levels going forward. Price erosion in Donepezil
were much steeper than our expectations and did not recover from the 70%
discount seen in 4QCY10. On the resolution of FDA-related manufacturing
issues, company reiterated no additional visibility. However, it was
incrementally positive on the launch of Lipitor compared to previous quarters.
What to do with the stock
We maintain our Neutral rating on Ranbaxy, as we believe that current
valuation is a fair reflection of the risk reward. We look for more clarity on the
landscape of upcoming launches before turning positive on the stock. We
reduce our CY11E-CY12E EPS by 3% on lower pricing for FTF launches. Hence,
we revise our 12-m Director’s cut-based TP to Rs481 (from Rs495). Our TP
implies a P/E of 12.7X on CY11E EPS vs. the sector average of 15.3X. Risks:
Early FDA resolution (upside), delay in generic Lipitor launch (downside).
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