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Risk-reward turns less favourable
Base margins appear to have improved: Ranbaxy reported 1QCY12 net
profits of `12.5bn (310% YoY). This included US Lipitor sales of $306mn
(JMFe). Adjusting for Lipitor net profits of `5.6bn and post-tax MTM forex
gains of `940mn (`750mn as part of the other income + `190mn as part of
the interest expense), adjusted net profit was `2.4bn (300% YoY; JMFe:
`1.0bn). Base sales at $430mn (9% YoY) were 9% below JMFe. Adjusted EBITDA
(excl Lipitor) at `3.4bn appear higher than JMFe (`2.4bn) primarily on account
of lower raw material costs. Base RM margins have improved almost by
180bps on a sequential basis. Management mentioned that this improvement
will sustain. The improvement was due to various factors such as product mix,
level of imports and currency. Staff costs were in-line with JMFe. The payment
to Teva as part of the Lipitor launch may have remained at levels similar to
4QCY11 (c.50%). Given the presence of significant FTF revenues (along with
the profit share with Teva) and currency volatility, it may be difficult to identify
the drivers for the improvement in base margins. R&D expense was $22mn for
the quarter.
Update on consent decree in 3QCY11: Domestic sales at $99mn grew by
13% in INR terms. The growth in consumer division ($15mn) was strong at
20%. Slower growth in domestic market is due to higher exposure to antiinfectives.
Base US sales at $95mn are likely to be driven by Caduet and
Nexium supply. In the Atorva market, Ranbaxy has a 47% share with 60-70%
price erosion. Sales of Atorva from Mohali are not reflected in 1Q12 numbers.
Ranbaxy will provide an assessment of additional costs to implement the
consent decree in 3QCY12. The company has finalized the consultants who
are expected to visit the facility in 2QCY12, post which the FDA inspection is
expected. Ranbaxy reiterated that large scale infrastructure additions may not
be required as part of the consent decree process given the investments done
by the company over the last couple of years. The company did not provide
any capex guidance but expects investments to be higher than CY11. It plans
to set up a facility in Nigeria during the current year.
Maintain BUY; increase Dec’12 TP to `540: We increase CY12/13E EPS by
32%/13% primarily due to higher margins. We increase our Dec’12 TP to `540
from `485. Our TP is based on 18x CY13 EPS (`26) and P-IV value of `70. The
US PDUFA date for Isotretinoin is scheduled for 29th May’12 which is a near
term trigger. Our estimates already factor sales from this product in CY13.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Risk-reward turns less favourable
Base margins appear to have improved: Ranbaxy reported 1QCY12 net
profits of `12.5bn (310% YoY). This included US Lipitor sales of $306mn
(JMFe). Adjusting for Lipitor net profits of `5.6bn and post-tax MTM forex
gains of `940mn (`750mn as part of the other income + `190mn as part of
the interest expense), adjusted net profit was `2.4bn (300% YoY; JMFe:
`1.0bn). Base sales at $430mn (9% YoY) were 9% below JMFe. Adjusted EBITDA
(excl Lipitor) at `3.4bn appear higher than JMFe (`2.4bn) primarily on account
of lower raw material costs. Base RM margins have improved almost by
180bps on a sequential basis. Management mentioned that this improvement
will sustain. The improvement was due to various factors such as product mix,
level of imports and currency. Staff costs were in-line with JMFe. The payment
to Teva as part of the Lipitor launch may have remained at levels similar to
4QCY11 (c.50%). Given the presence of significant FTF revenues (along with
the profit share with Teva) and currency volatility, it may be difficult to identify
the drivers for the improvement in base margins. R&D expense was $22mn for
the quarter.
Update on consent decree in 3QCY11: Domestic sales at $99mn grew by
13% in INR terms. The growth in consumer division ($15mn) was strong at
20%. Slower growth in domestic market is due to higher exposure to antiinfectives.
Base US sales at $95mn are likely to be driven by Caduet and
Nexium supply. In the Atorva market, Ranbaxy has a 47% share with 60-70%
price erosion. Sales of Atorva from Mohali are not reflected in 1Q12 numbers.
Ranbaxy will provide an assessment of additional costs to implement the
consent decree in 3QCY12. The company has finalized the consultants who
are expected to visit the facility in 2QCY12, post which the FDA inspection is
expected. Ranbaxy reiterated that large scale infrastructure additions may not
be required as part of the consent decree process given the investments done
by the company over the last couple of years. The company did not provide
any capex guidance but expects investments to be higher than CY11. It plans
to set up a facility in Nigeria during the current year.
Maintain BUY; increase Dec’12 TP to `540: We increase CY12/13E EPS by
32%/13% primarily due to higher margins. We increase our Dec’12 TP to `540
from `485. Our TP is based on 18x CY13 EPS (`26) and P-IV value of `70. The
US PDUFA date for Isotretinoin is scheduled for 29th May’12 which is a near
term trigger. Our estimates already factor sales from this product in CY13.
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