Hold Ranbaxy Laboratories :Target Price: Rs 419 :: Tata Securities

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


Exceptionals wipe off operating gains
Ranbaxy’s 4QCY11 numbers were a mixed bag. The company capitalized on its
launch of generic Lipitor and AG version of Caduet to clock net sales slightly
ahead of our estimates at Rs37.3bn (up 79.2% YoY). While operating EBITDA
was up 273.6% YoY at Rs8.6bn, the pre-exceptional PAT of Rs5.0bn was more
than offset by extraordinary items – the DoJ settlement provision of Rs26.4bn
and loss on derivative positions of Rs8.3bn - resulting in a net reported loss of
Rs29.8bn.
We raise CY12 EPS estimates to Rs36.6 due to higher market share garnered in
generic Lipitor (currently at ~42%) and introduce our CY13 EPS estimate at
Rs29.9. This assumes Ranbaxy will be able to launch generic Provigil and Diovan
during CY12. We upgrade the stock from a Sell to a Hold with a target price of
Rs419, valuing the company at 14x CY13.
Key highlights
 Ranbaxy wrote off inventory amounting to Rs621mn during the quarter.
Other expenses increased significantly by ~123% YoY to Rs14.3bn, as a
result of payments made to Teva in connection with generic Lipitor sales
(details not disclosed). However, the impact on EBITDA was mitigated by
higher margin sales from FTF opportunities. The company recorded an
impairment charge on a fermentation facility of Rs820mn, which resulted in
depreciation spiking up by 63.2% YoY to Rs1.6bn.
 Sales in the domestic market were up 16% YoY to Rs3.9bn i.e. marginally
above market growth. The OTC business, which is 16% of total domestic
sales, grew at a brisk 20% YoY during CY11; however, Ranbaxy saw lower
than anticipated growth in its anti-infectives portfolio.
 The North America region sales grew at a staggering 201.5% YoY to
US$407, on the back of generic Lipitor and Caduet sales. Management
stated that price erosion in Lipitor was ~65% and the company had a
market share of ~42% at end-CY11.
 Pursuant to its consent decree with US FDA/ Department of Justice (DoJ),
Ranbaxy made a provision of Rs26.4bn and agreed to forfeit three FTF
opportunities. However, management claimed that the loss of these
opportunities would not impact sales growth significantly.
 Revenues in Europe were flat at US$75mn, with Romania contributing
~US$25mn. Management stated that during CY12, the company would focus
on the branded generics market in Eastern Europe and CIS. Sales to Africa
grew 16.7% YoY to US$49mn on the back of tender sales; Ranbaxy plans to
invest in a manufacturing facility in Nigeria to grow its business in the region.
API sales came in at US$43mn (up 7.5% YoY), mainly due to sales of
esomeprazole to AstraZeneca.
 During 4QCY11, Ranbaxy’s new oral dosage form manufacturing facility in
Mohali SEZ received USFDA approval; it also received approval from the
Central Drugs Standard Control Organization (CDSO) to manufacture and
market combination anti-malarial drugs (arterolane maleate and piperaquine
phosphate) for treatment of P. falciparum malaria. The company made 231
filings and received 180 approvals (for dosage forms) and submitted 160
DMFs, during the period.
 Management guided for topline of US$2.2bn for CY12 on its base business,
inclusive of atorvastatin sales post-exclusivity.
 Ranbaxy now had an outstanding exposure of US$654mn with regard to
currency derivatives, expiring at the rate of US$200mn per quarter.