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Ranbaxy Laboratories Limited
In line Q4 despite Lipitor beat
�� Retain PO and Underperform rating
Ranbaxy's Q4 loss of Rs29.8bn was marred by one-time charges, including (1) a
Rs26.5bn provision for the DoJ settlement, and (2) a Rs10.8bn forex loss.
Adjusted for these items, results were largely in line. Sales grew 79%, to
Rs37.4bn (30% above est.), solely due to Lipitor exclusivity, driving EBITDA of
Rs9.2bn (est. Rs9.8bn). However, base margin improvement was slightly slower
than expected. We raise our CY12E sales, close to management guidance of
US$2.2bn, but largely retain our profit forecasts on lowered margin assumptions.
We maintain our U/P rating, due to the rich valuation.
Lipitor drives surprise, base business in line
The Q4 surprise was solely led by stronger-than-expected sales of generic Lipitor,
at Rs15bn (MS ~37%) vs. est. of Rs6.9bn. However, base business grew by 12%
yoy, to Rs22.4bn, despite favorable currency. Growth across key geographies
was muted on constant currency terms, with CIS (down 9%) and EU (flat YoY),
with the weakness covered by Africa (up 18%), led by tender sales. Significantly,
the domestic business grew by a mere 8% yoy, still lagging the industry due to
weakness in the anti-infective segment (~30% of portfolio). The US business grew
3.4x, to US$386mn, solely driven by FTF launches. We raise our sales forecasts
by ~3%/yr, on a weaker rupee and higher FTF exclusivity assumptions, retaining
base business growth estimate of 13%/yr.
Margin recovery slower than expected
Q4 EBITDA margin, at 24.3%, was well below est of 34%, and was dragged down
by provision for Teva’s profit share in Lipitor (est US$140mn). Also, base margins
(ex-Lipitor contribution) improved to 9.4% (up 110bps qoq), slightly below our
expectation of 10%. We, therefore, moderate our base margin assumptions by 40-
50bps over CY12-13E, which factors in the resolution of Poanta/Dewas facility.
Key conference call takeaways
(1) Filed 9-10 ANDAs for US mkt in CY11, constrained by capacity at key plants,
(2) Surrender of 3 exclusivities post consent decree not material to business (3)
CY12 Sales guidance of US$2.2bn does not assume any new exclusivity launch.
Price objective basis & risk
Ranbaxy Laboratories Limited (XIZZF)
Our PO of Rs450/sh is based on a SoTP, comprising Rs342/sh for the core
business and Rs108/sh for the first-to-file (FTF) launches expected till 2014. Our
Rs342/sh valuation of Ranbaxy's core business is based on 20x Dec-12E core
EPS, in line with stock's long-term historical valuations and large-cap peers like
Sun Pharma, DRL, Cipla, etc. We believe that high multiple is justified, given
improving base business profitability, as well as confidence on USFDA issue
resolution. Our Rs108/sh valuation for Ranbaxy's FTF products (Aricept, Lipitor,
Caduet, Actos, Nexium deal, etc.) is based on the NPV of the expected launches
in each of the years. Overall, we forecast a 21pc reported EPS CAGR (CY10-
12E).
Risks (1) USFDA and Department of Justice (DoJ) issues relating to
manufacturing plants, (2) poor base business profitability, (3) lower-than-expected
synergies from Daiichi Sankyo integration and (4) Impact of forex fluctuations.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ranbaxy Laboratories Limited
In line Q4 despite Lipitor beat
�� Retain PO and Underperform rating
Ranbaxy's Q4 loss of Rs29.8bn was marred by one-time charges, including (1) a
Rs26.5bn provision for the DoJ settlement, and (2) a Rs10.8bn forex loss.
Adjusted for these items, results were largely in line. Sales grew 79%, to
Rs37.4bn (30% above est.), solely due to Lipitor exclusivity, driving EBITDA of
Rs9.2bn (est. Rs9.8bn). However, base margin improvement was slightly slower
than expected. We raise our CY12E sales, close to management guidance of
US$2.2bn, but largely retain our profit forecasts on lowered margin assumptions.
We maintain our U/P rating, due to the rich valuation.
Lipitor drives surprise, base business in line
The Q4 surprise was solely led by stronger-than-expected sales of generic Lipitor,
at Rs15bn (MS ~37%) vs. est. of Rs6.9bn. However, base business grew by 12%
yoy, to Rs22.4bn, despite favorable currency. Growth across key geographies
was muted on constant currency terms, with CIS (down 9%) and EU (flat YoY),
with the weakness covered by Africa (up 18%), led by tender sales. Significantly,
the domestic business grew by a mere 8% yoy, still lagging the industry due to
weakness in the anti-infective segment (~30% of portfolio). The US business grew
3.4x, to US$386mn, solely driven by FTF launches. We raise our sales forecasts
by ~3%/yr, on a weaker rupee and higher FTF exclusivity assumptions, retaining
base business growth estimate of 13%/yr.
Margin recovery slower than expected
Q4 EBITDA margin, at 24.3%, was well below est of 34%, and was dragged down
by provision for Teva’s profit share in Lipitor (est US$140mn). Also, base margins
(ex-Lipitor contribution) improved to 9.4% (up 110bps qoq), slightly below our
expectation of 10%. We, therefore, moderate our base margin assumptions by 40-
50bps over CY12-13E, which factors in the resolution of Poanta/Dewas facility.
Key conference call takeaways
(1) Filed 9-10 ANDAs for US mkt in CY11, constrained by capacity at key plants,
(2) Surrender of 3 exclusivities post consent decree not material to business (3)
CY12 Sales guidance of US$2.2bn does not assume any new exclusivity launch.
Price objective basis & risk
Ranbaxy Laboratories Limited (XIZZF)
Our PO of Rs450/sh is based on a SoTP, comprising Rs342/sh for the core
business and Rs108/sh for the first-to-file (FTF) launches expected till 2014. Our
Rs342/sh valuation of Ranbaxy's core business is based on 20x Dec-12E core
EPS, in line with stock's long-term historical valuations and large-cap peers like
Sun Pharma, DRL, Cipla, etc. We believe that high multiple is justified, given
improving base business profitability, as well as confidence on USFDA issue
resolution. Our Rs108/sh valuation for Ranbaxy's FTF products (Aricept, Lipitor,
Caduet, Actos, Nexium deal, etc.) is based on the NPV of the expected launches
in each of the years. Overall, we forecast a 21pc reported EPS CAGR (CY10-
12E).
Risks (1) USFDA and Department of Justice (DoJ) issues relating to
manufacturing plants, (2) poor base business profitability, (3) lower-than-expected
synergies from Daiichi Sankyo integration and (4) Impact of forex fluctuations.
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