Ranbaxy Laboratories - Diovan FTF Sales Disappoint; Result Update Q3FY15 :: Edelweiss, report

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Ranbaxy Laboratories (RBXY) witnessed disappointments in Q3FY15 with respect to its FTF opportunities. US revenue was down USD92mn QoQ as FTF sales from generic Diovan were below expectation and resulted in big miss in EBITDA. India business remained healthy with 12% growth and Absorica market share in US remained stable. As expected, currency related headwinds in various geographies hurt growth and EBITDA margin too. Bottom-line was impacted as RBXY provided for INR8.3bn of MAT credit tax benefits that were created to avert tax liabilities during Nexium and Valcyte FTF monetisation. While the quarter was disappointing, we expect significant synergies to play out for Sun Pharma (SUNP)-RBXY post merger. We believe RBXY’s turnaround will be faster than Street’s anticipation and create long term value for SUNP.

Mixed trend across markets; costs remain in check

a) Second half of FTF exclusivity for Diovan was below expectation (~USD35mn versus ~USD125mn last quarter), primarily due to channel destocking; b) India branded grew 12% YoY; c) Absorica’s share remained stable at ~19%; d) volumes in Russia and LatAm were good, but sales fell due to adverse currency; e) strong performance was seen in UK, Germany, Spain and North Europe; f) APAC (up 25%) -  Australia, Malaysia and Thailand did well; and g) staff costs/other expenses fell 5%/5% and 22%/2% YoY/QoQ.

Overhang on FTFs buried

Both Valcyte/Nexium FTF exclusivities for RBXY were forfeited. Though RBXY is pursuing legal options with respect to losing FTF status, it has undertaken impairment of INR8.3bn on MAT (minimum alternate tax) credit asset created bearing in mind these FTFs, which contributed to a big miss at PAT level.

Deal closure in sight

SUNP-RBXY merger awaits only two approvals from: (i) US Federal Trade Commission (FTC); and (ii) High Court of Punjab and Haryana (hearing scheduled for Feb 2, 2015).

LINK
https://www.edelweiss.in/research/Ranbaxy-Laboratories--Diovan-FTF-Sales-Disappoint;-Result-Update-Q3FY15/28151.html