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Ranbaxy Laboratories (RBXY)
Pharmaceuticals
Base business margin still sub 10%. Operational performance was below
expectations with reported EBITDA 17% lower due to (1) poor sales growth at 10% yoy
and (2) EBITDA margin excluding forex at 8.3%, 80 bps below estimate. We reduce
operational estimates by 11% in 2011E and leave 2012E unchanged. We factor in
significant recovery in base business in 2012E—sales growth at 20% versus 13% YTD
and margin at 12% versus 8% YTD. Despite this, the stock excluding FTF pipeline value
of Rs84/share is trading at 19X 2012E base business EPS. Maintain SELL, PT at Rs435
(unchanged)—(17X 2012E core EPS + FTF pipeline value).
3Q2011 revenues were Rs20 bn, 10% below our estimates
Sales were up 8% yoy on a reported basis, however, excluding FTF sales of last year, sales growth
dropped to 10% in 3Q2011 from 18% in 2Q2011. Sales were 10% below our estimates due to—
(1) poor growth in India, up 6% yoy affected by lower industry growth in anti-infectives which
constitutes 30% of India sales, (2) Africa at US$44 mn with tender sales (annual contract of US$65
mn) impacted due to donation stocks from UN and (3) Latin America down 33% yoy. CIS and US
posted sales in line with our estimates.
PAT was a loss due to MTM forex; 3Q2011 EBITDA margin excluding forex at 8.3%
While management-reported EBITDA margin was at 11% in 3Q2011, we highlight that this
includes forex income of Rs591 mn. Excluding forex, EBITDA margin (including other operating
income) was at 8.3%, versus 7.2% in 3Q2010, up from 7% in 1H2011; however, 80 bps below
our estimates. The main source of this expansion is (1) R&D expenses which declined 200 bps yoy
and (2) higher operating income, up 40% yoy. We factor in 8% base business EBITDA margin in
2011E, increasing to 12% in 2012E (see Exhibit 3) in line with the management’s expectations of
margin reaching double digits. Ranbaxy reported a loss at PAT level due to (1) MTM translational
loss of Rs2.5 bn on forex debt of US$630 mn, (2) Rs4 bn of MTM loss on outstanding derivatives
(US$700 mn outstanding as of 3Q2011, down from US$850 mn as of 2Q2011) and (3) forex gain
of Rs591 mn in other income due to translational impact on receivables.
Maintain SELL with PT at Rs435 (unchanged)—17X 2012E core EPS + FTF pipeline value
We factor in 13% base business growth in 2011E, same as reported YTD and expect sales in
2011E at US$1.84 bn, slightly lower than guidance of US$1.87 bn (excluding Lipitor). We,
however, factor 20% base business growth in 2012E due to pick-up in India and Africa sales (see
Exhibit 5). We believe the focus post Lipitor launch 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 margin still sub 10%. Operational performance was below
expectations with reported EBITDA 17% lower due to (1) poor sales growth at 10% yoy
and (2) EBITDA margin excluding forex at 8.3%, 80 bps below estimate. We reduce
operational estimates by 11% in 2011E and leave 2012E unchanged. We factor in
significant recovery in base business in 2012E—sales growth at 20% versus 13% YTD
and margin at 12% versus 8% YTD. Despite this, the stock excluding FTF pipeline value
of Rs84/share is trading at 19X 2012E base business EPS. Maintain SELL, PT at Rs435
(unchanged)—(17X 2012E core EPS + FTF pipeline value).
3Q2011 revenues were Rs20 bn, 10% below our estimates
Sales were up 8% yoy on a reported basis, however, excluding FTF sales of last year, sales growth
dropped to 10% in 3Q2011 from 18% in 2Q2011. Sales were 10% below our estimates due to—
(1) poor growth in India, up 6% yoy affected by lower industry growth in anti-infectives which
constitutes 30% of India sales, (2) Africa at US$44 mn with tender sales (annual contract of US$65
mn) impacted due to donation stocks from UN and (3) Latin America down 33% yoy. CIS and US
posted sales in line with our estimates.
PAT was a loss due to MTM forex; 3Q2011 EBITDA margin excluding forex at 8.3%
While management-reported EBITDA margin was at 11% in 3Q2011, we highlight that this
includes forex income of Rs591 mn. Excluding forex, EBITDA margin (including other operating
income) was at 8.3%, versus 7.2% in 3Q2010, up from 7% in 1H2011; however, 80 bps below
our estimates. The main source of this expansion is (1) R&D expenses which declined 200 bps yoy
and (2) higher operating income, up 40% yoy. We factor in 8% base business EBITDA margin in
2011E, increasing to 12% in 2012E (see Exhibit 3) in line with the management’s expectations of
margin reaching double digits. Ranbaxy reported a loss at PAT level due to (1) MTM translational
loss of Rs2.5 bn on forex debt of US$630 mn, (2) Rs4 bn of MTM loss on outstanding derivatives
(US$700 mn outstanding as of 3Q2011, down from US$850 mn as of 2Q2011) and (3) forex gain
of Rs591 mn in other income due to translational impact on receivables.
Maintain SELL with PT at Rs435 (unchanged)—17X 2012E core EPS + FTF pipeline value
We factor in 13% base business growth in 2011E, same as reported YTD and expect sales in
2011E at US$1.84 bn, slightly lower than guidance of US$1.87 bn (excluding Lipitor). We,
however, factor 20% base business growth in 2012E due to pick-up in India and Africa sales (see
Exhibit 5). We believe the focus post Lipitor launch will shift towards base business performance
which still remains below industry peers.
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