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Ranbaxy’s (RBXY) Q4CY11 revenue at INR37.9bn was 21% above estimate
led by FTF sales from Lipitor and Caduet (USD300mn versus USD160mn
estimated). Base business growth was flat (versus 15% growth estimated)
and base PAT was below our estimate. We highlight that RBXY has shared
~45-50% of profit from Lipitor with Teva, which limits upside potential for
RBXY and could be a key negative. Maintain ‘REDUCE’.
Lipitor opportunity: Sweet or sour?
Lipitor sales at ~USD280mn were higher than the estimated USD150mn. However,
RBXY shared ~45-50% of profit with Teva (~USD135-140mn), which is above our
expectation of 30% and reduces the overall upside. This is further established by Teva
guidance of USD88mn PAT (~USD136mn PBT) from an undisclosed opportunity (Lipitor)
during Sept 2011 concall. Assuming ~65% price erosion and 40% MS during exclusivity,
we estimate USD160mn PAT from Lipitor versus the earlier estimated USD185mn.
Base business: Muted performance
Base business growth was flat, versus estimated 14.5%, due to underperformance
across multiple geographies (India 8%, EU -21%, CIS -10% and LATAM -32%). Base
operating margins at 10.5% were lower than the estimated 10.9% (11% in Q4CY10), but
rose from 8.3% in Q3CY11. Base PAT at ~INR1.47bn was below our estimate.
Daiichi: Strategic shift in approach
Daiichi has decided to take ownership of the front-end in Mexico and is also likely to
establish front end for other LATAM markets such as Brazil. This is a distinct shift from
its earlier strategy to use RBXY platform to introduce its portfolio products in emerging
markets. We highlight that LATAM will be the second market after Japan undergoing
the shift and could likely end RBXY as a contract supplier to the parent.
Outlook and Valuations: Upside capped; Maintain ‘REDUCE’
Management has guided USD2.2bn sales for CY12, which assumes ~16-17% growth in
base business (10-12% ex-Lipitor recurring sales). Margins (ex-FTF) are expected to
improve YoY, however, given concern in base growth and incremental costs from
consent decree, we expect back ended margin improvement over C13. While upsides
are capped, lingering uncertainty over consent decree could remain an overhang
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ranbaxy’s (RBXY) Q4CY11 revenue at INR37.9bn was 21% above estimate
led by FTF sales from Lipitor and Caduet (USD300mn versus USD160mn
estimated). Base business growth was flat (versus 15% growth estimated)
and base PAT was below our estimate. We highlight that RBXY has shared
~45-50% of profit from Lipitor with Teva, which limits upside potential for
RBXY and could be a key negative. Maintain ‘REDUCE’.
Lipitor opportunity: Sweet or sour?
Lipitor sales at ~USD280mn were higher than the estimated USD150mn. However,
RBXY shared ~45-50% of profit with Teva (~USD135-140mn), which is above our
expectation of 30% and reduces the overall upside. This is further established by Teva
guidance of USD88mn PAT (~USD136mn PBT) from an undisclosed opportunity (Lipitor)
during Sept 2011 concall. Assuming ~65% price erosion and 40% MS during exclusivity,
we estimate USD160mn PAT from Lipitor versus the earlier estimated USD185mn.
Base business: Muted performance
Base business growth was flat, versus estimated 14.5%, due to underperformance
across multiple geographies (India 8%, EU -21%, CIS -10% and LATAM -32%). Base
operating margins at 10.5% were lower than the estimated 10.9% (11% in Q4CY10), but
rose from 8.3% in Q3CY11. Base PAT at ~INR1.47bn was below our estimate.
Daiichi: Strategic shift in approach
Daiichi has decided to take ownership of the front-end in Mexico and is also likely to
establish front end for other LATAM markets such as Brazil. This is a distinct shift from
its earlier strategy to use RBXY platform to introduce its portfolio products in emerging
markets. We highlight that LATAM will be the second market after Japan undergoing
the shift and could likely end RBXY as a contract supplier to the parent.
Outlook and Valuations: Upside capped; Maintain ‘REDUCE’
Management has guided USD2.2bn sales for CY12, which assumes ~16-17% growth in
base business (10-12% ex-Lipitor recurring sales). Margins (ex-FTF) are expected to
improve YoY, however, given concern in base growth and incremental costs from
consent decree, we expect back ended margin improvement over C13. While upsides
are capped, lingering uncertainty over consent decree could remain an overhang
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