Ranbaxy Laboratories - Management upbeat, edgy base biz; visit note; Hold :: Edelweiss

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Ranbaxy Laboratories (RBXY IN, INR 418, Hold)

Post the Lipitor launch, Ranbaxy is upbeat and more confident about the future course. While it aims to monetize all FTFs and resolve looming FDA issue, core focus is on improving the base business performance. Slower growth in India is on a wider base where apart from Anti-infectives, CVS and CNS segments are also witnessing muted growth. We maintain HOLD and believe that improvement in base business will be key for valuations.

Lipitor launch - A crucial milestone

RBXY has taken 50% price erosion and is assertive to gain higher market share. The management is also confident of maintaining its market share post exclusivity. Further, scale-up in Ohm facility will enable supplies without impacting existing products.

Closer to resolution of manufacturing issues

Post the Lipitor launch, management is confident of monetizing all FTF opportunities though own launches. While it is nearing a resolution, concern over the timing and penalty will remain an overhang over the stock. We estimate a penalty of USD200mn.

Domestic growth remains a concern

Management views the slowdown in anti-infectives and higher inventory push as a primary cause for the slowdown though the closing stock at distributor level in CY11 is lower than CY10. Further, RBXY is struggling for growth in CVS and CNS segments.

Margins to improve to mid-teens over CY13E

Mgmt has guided for improvement in core margins to mid-teens by CY13E led by an improved mix and better asset utilization. Further, RBXY is expected to supply Nexium formulations by end of CY11 which will render high growth and margins to business.

Outlook and Valuation: Base business traction; Maintain ‘HOLD’

While Lipitor has played out for RBXY, future valuations will be driven by base business performance and resolution of FDA issue. We maintain ‘HOLD’.