We recently interacted with the Head - Investor Relations to get the
latest update on the company. The key highlights were:
Good growth in N. America and CIS: For Q3CY12, Ranbaxy Labs (RLL) has achieved growth in
revenues of 62%YoY for N. America, 81%YoY for CIS, 30% for W. Europe and 13% for India. However,
the growth in other geographies was subdued with Asia Pacific at -44% and Africa -6%YoY.
Good growth in the US: RLL performed well in Q3CY12 in the US market despite the difficult
situation. Generic atorvastatin achieved a market share of ~44%. However, the market
witnessed price erosion of 98.0-98.5% due to competition from Apotex, Mylan and Dr. Reddy’s
Labs. RLL had to recall 41 lots of generic atorvastatin during the quarter, due to the presence
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Other opportunities in the US: RLL launched AG of Actos of Takeda in Q3CY12 and achieved
~30%MS. It also launched generic Caduet in May’12. The company is looking forward to FTF
opportunity of generic Nexium (patent holder: Astra Zeneca). RLL has achieved over 30%MS
for generic atorvastatin, donepezil and valacyclovir. The company has launched Absorica
Capsules for the treatment of acne in the US based on its NDA.
Emerging markets a good opportunity: RLL derives ~60% of its revenues from emerging
markets and has a strong presence in India, CIS, Africa and Asia Pacific. The company markets
branded generic products in these markets and expects double digit growth here. RLL has a
field force of ~5,200 MRs and is ranked 4th in the domestic market. The company focuses on 60
products in the domestic market. Its major OTC products Volini and Revital are doing well. The
company has launched Volini Duo for pain relief and swelling. It has launched Revital Women
and Revital Elder as line extensions.
S. African sales decline: RLL’s S. African business witnessed 6%YoY decline in revenues in
Q3CY12 as the company is moving away from ARV tender business. The company has
segregated East Europe and CIS as emerging markets with focus on profitability. RLL has
achieved double digit growth in Romania but is facing pressure due to the service tax.
Manufacturing facilities under US FDA scanner: RLL’s manufacturing facility at Dewas and
Paonta Sahib continues to face decrees from the Department of Justice (DoJ), US. The
company has appointed external auditors for baseline audit to take remedial measures. The
company has filed 8-10 ANDAs from Mohali SEZ and Ohm Labs, US and is awaiting the relaunch
of generic atorvastatin.
Impact of NPPP: Being among the leaders in the domestic market, the company is likely to
get impacted by NPPP. However, the company expects clarity for 5-year period. RLL expects to
increase prices for drugs outside NLEM in the coming years. The company expects growth to
come from increase in volume and new product launches.
Product basket of Daiichi Sankyo: The company has launched 6-7 innovative products of
Daiichi Sankyo (DIS) in various markets and is working on a hybrid model in various markets.
No major capex: RLL had no major capex in CY12 except maintenance capex of ~$110mn
(Rs6.05bn). The company has made a provision of $500mn (Rs27.5bn) for the liabilities arising
from DoJ for its Dewas and Paonta Sahib manufacturing facilities.
Derivative contracts: RLL has brought down the derivative contracts from $4.5bn (Rs248bn) to the
current level of $1.2bn (Rs66.0bn). These remaining contracts will expire by 2015. The contract
maturity is $40mn (Rs2.2bn) per month. RLL expects minimisation of volatility in the performance.
However, these contracts impact MTM loss/gains quarterly but have no effect on cash flows.
Our Estimates:
At the CMP of Rs496, the stock trades at 13.3x CY12E EPS of Rs37.3 (base business Rs25.3 and
FTF Rs12.0) and 16.8x CY13E EPS of Rs29.6 (base business Rs24.3 and FTF Rs5.3).
We have a Neutral rating for the scrip with a target price of Rs563 (23x CY13 base EPS of
Rs24.3+ FTF EPS of Rs5.3) with an upside of 14% over CMP.
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