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Ranbaxy Laboratories (RBXY)
Pharmaceuticals
Base business still in doldrums. PAT excluding forex gain of Rs1.4 bn was 7% below
estimate despite Aricept revenues reported in the quarter. While base business sales
growth picked up to 18%, profitability remained depressed on account of (1) sales
growth coming largely from low-margin API and Africa sales while India/CIS continue to
perform poorly and (2) high SG&A costs. Despite factoring in significant recovery in
base business sales and margin, at current levels, stock excluding FTF pipeline value is
trading at 21X 2012E base business EPS. Maintain SELL with PT of Rs435 (17X 2012E
core EPS + FTF pipeline value; Rs450 previously).
2Q2011 revenues were Rs20.5 bn, in line on reported basis; ex Aricept lower than estimate
Sales on a reported basis were in line with our estimates; however, excluding Aricept revenues of
around US$18 mn in the quarter were 5% lower than our estimate and grew 18% yoy marked by
(1) poor performance in India, CIS, LatAm with India finished dosage sales excluding consumer
business flat yoy, according to our estimates, (2) Africa and API sales reported high growth of over
30% yoy boosted by supplies of ARV exports and Nexium API and (3) Asia Pacific and Europe
reported healthy yoy growth of 15-24%.
2Q2011 EBITDA miss despite presence of exclusivity sales
Despite presence of exclusivity sales of Aricept, EBITDA (including other operating income) at Rs1.8
bn remains extremely poor with reported margin at 9%. Excluding margin on exclusivity sales, we
believe EBITDA margin was 7% in 2Q2011, flat qoq and down yoy due to increase in SG&A costs,
up 26% yoy and employee costs up 12% yoy. We believe the base business margin has not shown
any improvement in the past four quarters and, in fact, has declined yoy. However, Ranbaxy
expects margin to improve to double digit in 2012E, even if there is no resolution of US problems
largely on account of recovery in India and continuing growth in emerging markets. We factor in
9% base business EBITDA margin in 2H2011E versus 7% reported in 1H2011, increasing to
12.4% in 2012E (see Exhibit 3).
Maintain SELL with PT of Rs435 (from Rs450)
Ranbaxy expects sales in 2011E (including Aricept but excluding Lipitor) at US$1.87 bn. We believe
this implies 16% base business growth versus 18% growth reported in 2Q2011. We factor in
20% base business growth in 2011-12E (see Exhibit 5) and reduce our 2011-12E PAT estimates
before exceptional by 9-5% on account of lower margin (see Exhibit 4). In the near term, the stock
performance is likely to be driven by the resolution of (1) FDA/DOJ issue and (2) Lipitor launch; we
believe the focus post these will shift towards base business performance which still remains below
industry peers.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ranbaxy Laboratories (RBXY)
Pharmaceuticals
Base business still in doldrums. PAT excluding forex gain of Rs1.4 bn was 7% below
estimate despite Aricept revenues reported in the quarter. While base business sales
growth picked up to 18%, profitability remained depressed on account of (1) sales
growth coming largely from low-margin API and Africa sales while India/CIS continue to
perform poorly and (2) high SG&A costs. Despite factoring in significant recovery in
base business sales and margin, at current levels, stock excluding FTF pipeline value is
trading at 21X 2012E base business EPS. Maintain SELL with PT of Rs435 (17X 2012E
core EPS + FTF pipeline value; Rs450 previously).
2Q2011 revenues were Rs20.5 bn, in line on reported basis; ex Aricept lower than estimate
Sales on a reported basis were in line with our estimates; however, excluding Aricept revenues of
around US$18 mn in the quarter were 5% lower than our estimate and grew 18% yoy marked by
(1) poor performance in India, CIS, LatAm with India finished dosage sales excluding consumer
business flat yoy, according to our estimates, (2) Africa and API sales reported high growth of over
30% yoy boosted by supplies of ARV exports and Nexium API and (3) Asia Pacific and Europe
reported healthy yoy growth of 15-24%.
2Q2011 EBITDA miss despite presence of exclusivity sales
Despite presence of exclusivity sales of Aricept, EBITDA (including other operating income) at Rs1.8
bn remains extremely poor with reported margin at 9%. Excluding margin on exclusivity sales, we
believe EBITDA margin was 7% in 2Q2011, flat qoq and down yoy due to increase in SG&A costs,
up 26% yoy and employee costs up 12% yoy. We believe the base business margin has not shown
any improvement in the past four quarters and, in fact, has declined yoy. However, Ranbaxy
expects margin to improve to double digit in 2012E, even if there is no resolution of US problems
largely on account of recovery in India and continuing growth in emerging markets. We factor in
9% base business EBITDA margin in 2H2011E versus 7% reported in 1H2011, increasing to
12.4% in 2012E (see Exhibit 3).
Maintain SELL with PT of Rs435 (from Rs450)
Ranbaxy expects sales in 2011E (including Aricept but excluding Lipitor) at US$1.87 bn. We believe
this implies 16% base business growth versus 18% growth reported in 2Q2011. We factor in
20% base business growth in 2011-12E (see Exhibit 5) and reduce our 2011-12E PAT estimates
before exceptional by 9-5% on account of lower margin (see Exhibit 4). In the near term, the stock
performance is likely to be driven by the resolution of (1) FDA/DOJ issue and (2) Lipitor launch; we
believe the focus post these will shift towards base business performance which still remains below
industry peers.
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