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UBS Investment Research
First Read: Ranbaxy
M eeting with the CEO
Mgmt. remains confident on Lipitor; unwilling to speculate on the fine
Inline with their previous stand mgmt. refused to give any timelines for resolution
of USFDA/DoJ issues. However, mgmt. remains fairly confident on the Lipitor
launch. The co. believes Lipitor exclusivity may not be linked to USFDA/DoJ
resolution (similar to other Valtrex and Aricept FTFs). Validity assessment, plant
reinspection etc. are only likely to happen post reaching a settlement. However,
mgmt. believes Rbxy case has no precedence and therefore not willing to draw a
parallel with fines paid by other generic and innovator companies.
Base business margins to improve over next 12-18 months
Mgmt. expects base business EBITDA margins to move into the ‘healthy’ teens
within the next 12-18mths. Expects US base business to be in the vicinity of
US$400 – US$450mn by then. Margins remain under pressure as the company has
not scaled down costs post US issues. However, mgmt. continues to focus on
profitability and is carrying out annual reviews to rationalize presence in
unprofitable markets.
Focus on maximising benefits from hybrid business model
Mgmt. indicated that they are focused on maximising benefits from the hybrid
business model evolved with DS. Whichever company has the stronger presence
will sell products for both companies in that market. The company is unwilling to
acquire just for growth, and will focus on market access, technology, and
complementary product portfolios.
Valuation: Maintain Buy, 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%.
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
First Read: Ranbaxy
M eeting with the CEO
Mgmt. remains confident on Lipitor; unwilling to speculate on the fine
Inline with their previous stand mgmt. refused to give any timelines for resolution
of USFDA/DoJ issues. However, mgmt. remains fairly confident on the Lipitor
launch. The co. believes Lipitor exclusivity may not be linked to USFDA/DoJ
resolution (similar to other Valtrex and Aricept FTFs). Validity assessment, plant
reinspection etc. are only likely to happen post reaching a settlement. However,
mgmt. believes Rbxy case has no precedence and therefore not willing to draw a
parallel with fines paid by other generic and innovator companies.
Base business margins to improve over next 12-18 months
Mgmt. expects base business EBITDA margins to move into the ‘healthy’ teens
within the next 12-18mths. Expects US base business to be in the vicinity of
US$400 – US$450mn by then. Margins remain under pressure as the company has
not scaled down costs post US issues. However, mgmt. continues to focus on
profitability and is carrying out annual reviews to rationalize presence in
unprofitable markets.
Focus on maximising benefits from hybrid business model
Mgmt. indicated that they are focused on maximising benefits from the hybrid
business model evolved with DS. Whichever company has the stronger presence
will sell products for both companies in that market. The company is unwilling to
acquire just for growth, and will focus on market access, technology, and
complementary product portfolios.
Valuation: Maintain Buy, 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%.
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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