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Dependent on one-offs
Lower contribution from the US and EU resulted in Ranbaxy missing our sales
estimates. Forex gain of Rs934m and a lower tax incidence helped reported PAT.
Ranbaxy’s growth in India market was also lower if we exclude consumer
business. Growth in emerging markets was patchy with Africa doing well aided by
tender sales while Asia and LatAm declined. We continue to see binary outcome for
the stock based on approval/monetization of Lipitor opportunity in November
2011. We expect YoY decline in reported profits for one more quarters as a result
of lower contribution from their US business and forex gains in the base.
Emerging markets growth patchy, US lower due to charge backs
Net sales for the quarter were down 2% YoY due to a high base in the US (Valtrex
opportunity in the same quarter last year) despite c. US$25m in sales from
Aricept. Aricept saw sharp price decline in due to competition from a number of
generic players that received approval post-Ranbaxy’s exclusive six-months.
Domestic formulations excluding consumer business grew c. 4% YoY in 2Q lower
than industry growth though IMS suggest much higher growth for Ranbaxy.
Growth in branded markets like Africa and Romania was good while Asia and
LatAm disappointed. API sales were higher at US$40m aided by Nexium API
supply to AstraZeneca. Formulation supply is expected to start in 2HCY11.
Core margins fail to improve
Apart from rise in staff costs on YoY basis, Ranbaxy’s overheads were materially
higher and resulted in margin pressure.
R&D costs was at Rs1.13bn lower than previous year because of divestment of
Forex gains (Rs934m) and a lower tax incidence this quarter helped reported
profits. The company guided for 18-20% tax rate for full year.
Debtors have come down in this quarter as Aricept payments would have come
through. Inventories have increased though - very likely preparation for Lipitor
launch that started earlier in 2Q.
Binary outcome - high dependence on Lipitor
We expect resolution of the US FDA issues to be a gradual process and do not
expect resolution of AIP at Paonta Sahib over the coming year.
Monetisation of Lipitor remains the key for the stock to perform. We expect Lipitor
to be an extended limited competition prospect in the US.
Substantial earnings from the US opportunities and forex gains in CY10 set a high
base for reported earnings growth in CY11 and we expect YoY profit decline for
the one more quarter.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Dependent on one-offs
Lower contribution from the US and EU resulted in Ranbaxy missing our sales
estimates. Forex gain of Rs934m and a lower tax incidence helped reported PAT.
Ranbaxy’s growth in India market was also lower if we exclude consumer
business. Growth in emerging markets was patchy with Africa doing well aided by
tender sales while Asia and LatAm declined. We continue to see binary outcome for
the stock based on approval/monetization of Lipitor opportunity in November
2011. We expect YoY decline in reported profits for one more quarters as a result
of lower contribution from their US business and forex gains in the base.
Emerging markets growth patchy, US lower due to charge backs
Net sales for the quarter were down 2% YoY due to a high base in the US (Valtrex
opportunity in the same quarter last year) despite c. US$25m in sales from
Aricept. Aricept saw sharp price decline in due to competition from a number of
generic players that received approval post-Ranbaxy’s exclusive six-months.
Domestic formulations excluding consumer business grew c. 4% YoY in 2Q lower
than industry growth though IMS suggest much higher growth for Ranbaxy.
Growth in branded markets like Africa and Romania was good while Asia and
LatAm disappointed. API sales were higher at US$40m aided by Nexium API
supply to AstraZeneca. Formulation supply is expected to start in 2HCY11.
Core margins fail to improve
Apart from rise in staff costs on YoY basis, Ranbaxy’s overheads were materially
higher and resulted in margin pressure.
R&D costs was at Rs1.13bn lower than previous year because of divestment of
Forex gains (Rs934m) and a lower tax incidence this quarter helped reported
profits. The company guided for 18-20% tax rate for full year.
Debtors have come down in this quarter as Aricept payments would have come
through. Inventories have increased though - very likely preparation for Lipitor
launch that started earlier in 2Q.
Binary outcome - high dependence on Lipitor
We expect resolution of the US FDA issues to be a gradual process and do not
expect resolution of AIP at Paonta Sahib over the coming year.
Monetisation of Lipitor remains the key for the stock to perform. We expect Lipitor
to be an extended limited competition prospect in the US.
Substantial earnings from the US opportunities and forex gains in CY10 set a high
base for reported earnings growth in CY11 and we expect YoY profit decline for
the one more quarter.
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