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UBS Investment Research
Ranbaxy
Q 1’11: Higher Aricept helps margins
Q1’11 Sales: Rs 21.43bn (-14%YoY, +4% QoQ) inline
Q1 sales were inline as US revenues ramped up 32%QoQ driven by higher Aricept
shipments. However, growth was weaker than expected in India (+14%YoY), API
(-38%QoQ) and other geographies. Co. is looking at reducing sales of low margin
API products and is focusing of improving growth in emerging markets. Mgmt.
remains confident of meeting its FY12 guidance of Rs 84bn in sales (ex-Lipitor).
Higher Aricept helps EBITDA (Rs 4bn) and PAT (Rs 3bn)
EBITDA margins at 18.8% were ahead of our expectation of 14.9% primarily due
to higher than expected Aricept shipment. PAT was further helped by higher
interest income, lower depreciation and normalization of tax rate.
Mgmt. confident but no timeline for USFDA issue resolution
Co. refused to share any details on the comprehensive settlement they are pursuing
with the FDA and DoJ or the quantum of penalties they may have to pay. While
mgmt. refused to give any timelines, they remained confident of resolving the
issues in a timely fashion ahead of Lipitor launch. Mgmt. commentary seems to
suggest to us that the co. is in final stages of negotiation with the US authorities on
the matter.
Valuation: Trading close to bear case, Maintain Buy Rating, PT Rs 630
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool with a WACC of 11%. We
maintain our Buy rating on Ranbaxy as we believe the risk-reward is favourable.
The stock is trading close to our bear case of Rs 430 with no value for Lipitor and
Actos FTFs.
Ranbaxy
Ranbaxy, one of India's largest pharmaceutical companies, manufactures and
markets generics, branded generic pharmaceuticals, and active pharmaceutical
ingredients. Ranbaxy's products are sold in over 125 countries. It has
manufacturing operations in 11 countries and a presence in 49. It was
incorporated in 1961 and was listed in 1973. Daiichi Sankyo acquired a 64%
stake in Ranbaxy in 2008. Ranbaxy's key markets, in terms of revenue, are India,
Romania, Russia, the US, and Africa and the EU.
Statement of Risk
We believe risks include regulatory risks, FDA approval, timing of approvals,
litigation (including the appeal process), accounting/disclosure, and product
pricing risk from generics competition. Pricing pressure in the US market
because of increased competition may continue. Margin pressure on account of
appreciation of the rupee could also negatively impact earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Ranbaxy
Q 1’11: Higher Aricept helps margins
Q1’11 Sales: Rs 21.43bn (-14%YoY, +4% QoQ) inline
Q1 sales were inline as US revenues ramped up 32%QoQ driven by higher Aricept
shipments. However, growth was weaker than expected in India (+14%YoY), API
(-38%QoQ) and other geographies. Co. is looking at reducing sales of low margin
API products and is focusing of improving growth in emerging markets. Mgmt.
remains confident of meeting its FY12 guidance of Rs 84bn in sales (ex-Lipitor).
Higher Aricept helps EBITDA (Rs 4bn) and PAT (Rs 3bn)
EBITDA margins at 18.8% were ahead of our expectation of 14.9% primarily due
to higher than expected Aricept shipment. PAT was further helped by higher
interest income, lower depreciation and normalization of tax rate.
Mgmt. confident but no timeline for USFDA issue resolution
Co. refused to share any details on the comprehensive settlement they are pursuing
with the FDA and DoJ or the quantum of penalties they may have to pay. While
mgmt. refused to give any timelines, they remained confident of resolving the
issues in a timely fashion ahead of Lipitor launch. Mgmt. commentary seems to
suggest to us that the co. is in final stages of negotiation with the US authorities on
the matter.
Valuation: Trading close to bear case, Maintain Buy Rating, PT Rs 630
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool with a WACC of 11%. We
maintain our Buy rating on Ranbaxy as we believe the risk-reward is favourable.
The stock is trading close to our bear case of Rs 430 with no value for Lipitor and
Actos FTFs.
Ranbaxy
Ranbaxy, one of India's largest pharmaceutical companies, manufactures and
markets generics, branded generic pharmaceuticals, and active pharmaceutical
ingredients. Ranbaxy's products are sold in over 125 countries. It has
manufacturing operations in 11 countries and a presence in 49. It was
incorporated in 1961 and was listed in 1973. Daiichi Sankyo acquired a 64%
stake in Ranbaxy in 2008. Ranbaxy's key markets, in terms of revenue, are India,
Romania, Russia, the US, and Africa and the EU.
Statement of Risk
We believe risks include regulatory risks, FDA approval, timing of approvals,
litigation (including the appeal process), accounting/disclosure, and product
pricing risk from generics competition. Pricing pressure in the US market
because of increased competition may continue. Margin pressure on account of
appreciation of the rupee could also negatively impact earnings.
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