Ranbaxy- Leveraging Impending Opportunities: Karvy

Leveraging Impending Opportunities
Ranbaxy Laboratories, is positive on impending opportunities like CIPIsotretinoin,
Atorvastatin and others. Derivatives as an overhang will decline
15 % by Apr’13, Ranbaxy will be able to leverage rest of the revenues at
better realizations. We upgrade our rating on the stock to “BUY”..
CIP‐Isotretinoin: This branded prescription product is likely to be launched
in Q4CY12 and scale up will happen only in CY13. We believe the product
had revenues of US$60‐70 mn before the product was withdrawn. We
upgrade our revenues from the same to US$15 mn (vs. US$10 mn) in CY12E
and to US$75 mn (vs. US$60 mn) in CY13E.

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Atorovastatin: Despite 4 weeks of generic competition and price erosion of
96 % plus, Ranbaxy enjoys 44 % market share. Genericisation of
Atorovastatin has resulted in a 10% reduction in volume of Simvastatin,
which have benefited Atorovastatin. We factor US$82 mn revenues from
Atorvastatin for CY12.
Derivatives: Ranbaxy has outstanding calls to the tune of US$1.5 bn sold at
Rs 44, which will be exhumed to the tune of US$40‐50 mn per mth and will
be entirely extinguished by CY16E. Assuming US$100 mn net revenues
Ranbaxy will be able to garner US$60 mn at higher forex rates.
Outlook & Valuation
Ranbaxy is steadily increasing its US revenue traction based on the FTFs.
Opportunities such as CIP‐Isotretinoin in CY12‐end, positive news flow on
consent decree, and market traction in domestic formulations stand in good
stead. Better realization on the bigger pie, as the derivatives contracts get
exhumed, shift of Lipitor sales to Mohali facility by Apr’13 and approval for
the Indian facility would all be EBIDTA accretive for Ranbaxy.
We revise our USD rates to Rs. 52 for CY12 (Rs 49.5) and to Rs. 50 for CY13
(Rs 48.5). We upgrade our earnings for CY12E by 1.6% to Rs. 25.4 and for
CY13E by 14.2% to Rs 28.9 and our rating on the stock to “BUY” with a target
price of Rs 609 per share. We value the core business of Ranbaxy at Rs 578
based on 20xCY13E and add an Option value of Rs. 31 for Actos, Valcyte, and
Nexium.