Good growth from US business- Ranbaxy Labs :: Centrum

Good growth from US business
Ranbaxy Labs’ (RLL) results for Q3CY12 were lower than our expectations for
revenues but higher for EBIDTA and net profit. The company reported a growth of
28%YoY in revenues, 410bps in EBIDTA margin and net profit of Rs3.61bn before
EO items. The sales growth was driven by N. America (35% of revenues), which
grew by 62%YoY due to the launch of authorised generic of Actos in the US and
favourable currency movement. RLL’s overall forex gain was Rs4.62bn during the
quarter. We have Neutral rating for the scrip with a revised target price of Rs563
(based on 23x CY13E EPS of Rs24.3+ FTF of Rs5.3).
Strong growth in US revenues: RLL reported 62%YoY growth in N. American
revenues from $103mn to $167mn. The company’s India revenues grew by
11%YoY from Rs5.32bn to Rs5.88bn in line with the market growth rate of ~12%.
Margin improvement: RLL’s EBIDTA margin improved by 410bps YoY from 8.9%
to 13.0% due to the reduction in personnel cost and other expenses. The
company’s material cost increased by 10bps from 38.5% to 38.6% of revenues.
RLL’s personnel cost declined by 200bps from 19.4% to 17.4% due to higher sales
growth. Other expenses declined by 220bps from 33.2% to 31.0% of revenues. RLL
reported Rs3.93bn forex gain against forex loss of Rs3.63bn from the derivative
contracts.

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Authorised Generics to drive growth: RLL has launched Authorised Generics
(AG) of Actos of Takeda. This anti-diabetic drug had US sales of $2.7bn. We expect
RLL to generate revenues of $83mn (Rs4.57bn) in CY12 and $42mn (Rs2.31bn) in CY13.
Strong growth in US market: RLL had a major growth of 62%YoY from the US
market due to the launch of AG of Actos. The growth in other markets was as
follows: India (including Sri Lanka and consumer HC) 13%, Europe 30% and Africa -6%.
Valuations: We expect RLL margin to be under pressure in the coming quarters
due to the absence of FTF opportunity of generic Lipitor in the US. Moreover, the
resolution of import alert by US FDA for Dewas and Paonta Sahib facilities will be
gradual. We have revised our EPS estimates for CY12 and CY13 upwards by 26%
and 29% respectively due to forex gains. At the CMP of Rs543, the stock trades at
14.6x CY12E EPS of Rs37.3 and 18.4x CY13E EPS of Rs29.6. We have Neutral rating
for the scrip with a revised target price of Rs563 (based on 23x CY13E base EPS of
Rs24.3+ FTF of Rs5) with 3.7% upside over CMP.