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Ranbaxy Laboratories Limited
(RANB.BO / RBXY IN)
Recovering, but slower than market believes
Frequent management changes and post takeover, Ranbaxy is in
restructuring mode, and execution weaknesses that developed over the
past several years still seem to persist. FDA issues are likely taking up
considerable management bandwidth. We believe a recovery in pharma
companies of the size of Ranbaxy, are slower than the market thinks.
■
Most diversified presence in emerging markets: Ranbaxy has been the
pioneer among Indian companies in most emerging markets, various
emerging markets contribute ~32% of sales.
■
Spread too thin: Unfortunately, it seems the continuous transition in senior
management has led to the company losing its way in most of these
markets, with the exception of South Africa. In Brazil and in Russia, growth
over the past three to four years has lagged market growth. We believe that
Ranbaxy’s presence in so many markets distracts senior management
attention: this is despite it being the first company to build professional
management, oriented towards multi-pronged growth. It hampers focus and
delays correction of mistakes: things like choosing product portfolio, hiring
right people, empowering local management, choosing the right pricing
strategy. We are apprehensive about the value accruing to it in Japan, as it
will primarily be a contract manufacturer to its parent.
■
Significant expansion planned in India: Ranbaxy aims to gain its
leadership back in India, where it has added 1,500 people to its sales force .
This may hurt margins near-term, but the focus is on creating longer-term
value and grow in the less penetrated markets in India.
■
Long way to go for recovery in the US: FDA issues at Paonta and Dewas
impacted 50% of Ranbaxy’s base sales, and resolution has been much
slower than expected.
■
Expensive: With its low profits across several geographies and US base
business likely to continue generating losses for some time, we rate the
stock an UNDERPERFORM with a target price of Rs275.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� �
Ranbaxy Laboratories Limited
(RANB.BO / RBXY IN)
Recovering, but slower than market believes
Frequent management changes and post takeover, Ranbaxy is in
restructuring mode, and execution weaknesses that developed over the
past several years still seem to persist. FDA issues are likely taking up
considerable management bandwidth. We believe a recovery in pharma
companies of the size of Ranbaxy, are slower than the market thinks.
■
Most diversified presence in emerging markets: Ranbaxy has been the
pioneer among Indian companies in most emerging markets, various
emerging markets contribute ~32% of sales.
■
Spread too thin: Unfortunately, it seems the continuous transition in senior
management has led to the company losing its way in most of these
markets, with the exception of South Africa. In Brazil and in Russia, growth
over the past three to four years has lagged market growth. We believe that
Ranbaxy’s presence in so many markets distracts senior management
attention: this is despite it being the first company to build professional
management, oriented towards multi-pronged growth. It hampers focus and
delays correction of mistakes: things like choosing product portfolio, hiring
right people, empowering local management, choosing the right pricing
strategy. We are apprehensive about the value accruing to it in Japan, as it
will primarily be a contract manufacturer to its parent.
■
Significant expansion planned in India: Ranbaxy aims to gain its
leadership back in India, where it has added 1,500 people to its sales force .
This may hurt margins near-term, but the focus is on creating longer-term
value and grow in the less penetrated markets in India.
■
Long way to go for recovery in the US: FDA issues at Paonta and Dewas
impacted 50% of Ranbaxy’s base sales, and resolution has been much
slower than expected.
■
Expensive: With its low profits across several geographies and US base
business likely to continue generating losses for some time, we rate the
stock an UNDERPERFORM with a target price of Rs275.
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