UBS Investment Research
Ranbaxy
Pressures are in the price, Upgrade to Buy
„ Valuations look compelling; Concerns seems overblown
We believe valuations have now turned attractive after a sharp 33% decline in
stock price over last 3 mths. We do not expect further disruption in the US business
due to potential ‘483’s for Mohali facility post inspection last year. We have also
gained more confidence that mgmt. is taking steps to address the low profitability
of the base business and expect margins to improve significantly over next 3 years.
We see US product approvals as the key trigger for the stock in the near term.
„ Absorica, higher utilization and cost control to help improve margins
We expect EBITDA margins to improve to 14.6% by CY15 from 7.8% in Q1CY13
driven by strong growth in US branded business (Absorica), step down in
remediation spending by end CY14, cost control and better utilization of mfrg.
facilities. Absorica continues to steadily gain market share in Isotretnoin market.
We expect US branded business to account for ~50% of CY15 EPS.
„ Expectations low – resumption of approvals will be the key trigger
We cut our CY13 EPS by 38% as we build in Rs 5bn of FX losses due to INR
depreciation. We expect approval for Diovan and Valcyte in CY13. Mgmt. expects
to maintain its exclusivity for Diovan despite the delay in approval. We note that
ex FTF’s Ranbaxy has not won any generic approvals from the USFDA since
2009. Resumption of approvals therefore will be a key upside trigger for the stock.
„ Valuation: Upgrade to Buy, Maintain Price target of Rs 400
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool with a WACC of 11%.
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Ranbaxy
Pressures are in the price, Upgrade to Buy
„ Valuations look compelling; Concerns seems overblown
We believe valuations have now turned attractive after a sharp 33% decline in
stock price over last 3 mths. We do not expect further disruption in the US business
due to potential ‘483’s for Mohali facility post inspection last year. We have also
gained more confidence that mgmt. is taking steps to address the low profitability
of the base business and expect margins to improve significantly over next 3 years.
We see US product approvals as the key trigger for the stock in the near term.
„ Absorica, higher utilization and cost control to help improve margins
We expect EBITDA margins to improve to 14.6% by CY15 from 7.8% in Q1CY13
driven by strong growth in US branded business (Absorica), step down in
remediation spending by end CY14, cost control and better utilization of mfrg.
facilities. Absorica continues to steadily gain market share in Isotretnoin market.
We expect US branded business to account for ~50% of CY15 EPS.
„ Expectations low – resumption of approvals will be the key trigger
We cut our CY13 EPS by 38% as we build in Rs 5bn of FX losses due to INR
depreciation. We expect approval for Diovan and Valcyte in CY13. Mgmt. expects
to maintain its exclusivity for Diovan despite the delay in approval. We note that
ex FTF’s Ranbaxy has not won any generic approvals from the USFDA since
2009. Resumption of approvals therefore will be a key upside trigger for the stock.
„ Valuation: Upgrade to Buy, Maintain Price target of Rs 400
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool with a WACC of 11%.
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