Ranbaxy Laboratories - After Lipitor high, back to basics; ;Edelweiss

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

Ranbaxy Laboratories  (RBXY IN, INR 443, Hold)

Ranbaxy (RBXY) approval for generic Lipitor is an important milestone. While the generic will be manufactured from Ohm’s facility, Teva will share a portion of profit during 180-days exclusivity. Assuming 50% price erosion and ~30% market share we estimate USD400mn sales during exclusivity. However, given profit sharing with Teva, we estimate NPV value at INR22 per share, lower than the earlier estimated INR32. We cut our target price to INR500 per share and believe that incremental value will be based on base business performance. Maintain ‘HOLD’.

Lipitor launch a key milestone

Lipitor has annual sales of USD5.4bn and Watson (AG) has launched along with RBXY. We estimate USD400mn sales during exclusivity and earnings of INR1.6 per share post exclusivity. Overall, Lipitor’s NPV value is INR54 per share (including recurring earnings). RBXY had also settled for launch of Caduet in US, effective November 30, 2011. However, it has not bagged approval as yet. Caduet has sales of ~USD300mn in US and Mylan is the AG. We estimate NPV of INR3.1 per share during exclusivity.

FDA resolution awaited

As per media reports, RBXY has received USFDA approval for Mohali plant, which could be a precursor to FDA-DOJ resolution. FDA resolution is subject to settlement with potential penalty of ~USD200-400mn. We have built in USD200mn penalty and believe that resolution will add INR4.7 per share to earnings (option value of INR74per share). However, penalty higher than USD200mn will reduce the option value to that extent.

Outlook and valuations: Risk-reward unfavorable; maintain ‘HOLD’

While the most important trigger has played out for RBXY, the road ahead will be determined by base business performance and resolution of FDA issue. As in Q3CY11, base business improvement is slower-than-anticipated and will remain an overhang on valuations. We maintain ‘HOLD’ and expect the stock to underperform.