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gLipitor monetisation is likely (either via a US FDA resolution or with a partner) but the actual
upside could disappoint. We roll forward our valuation to CY12 and raise our TP to Rs430. Even
incorporating the potential upside from gLipitor and margin expansion, Ranbaxy's valuations still
look expensive to us. Sell.
gLipitor monetisation appears likely, although actual upside could disappoint
On its recent 2Q analyst call, Ranbaxy sounded optimistic on its prospects for monetising generic
(g) Lipitor. Given its earlier success in monetising gFlomax and recent monetisation agreements
(eg, that between Teva and APP on gGemzar), we think Ranbaxy is highly likely to monetise its
gLipitor opportunity by launching on its own (after a successful US FDA resolution) or with a
partner (which could be Teva, according to our European pharma team). Thus, we build a gLipitor
launch into our forecasts (one-off earnings of US$280m during exclusivity and recurring annual
earnings of US$28m subsequently). However, if Ranbaxy were subject to an FDA penalty (widely
discussed in the press) or if it shares exclusivity with another generics company, the actual
upside could be lower than our current expectations.
Core operating margins remains lowest among peers; recovery to be gradual
Ranbaxy’s core EBITDA margin has been either negative or in the single digits in nine of the last
ten quarters, on our calculations. This has been due to its high operating leverage given its
aggressive business model, which has been impacted due to US FDA issues in two
manufacturing units. Management expects the core margin to improve from 1Q12. However,
even after factoring in a 300bp yoy core margin expansion in CY12F and another 100bp in
CY13F, we see its margins remaining the lowest among peers.
Even factoring in gLipitor and margin expansion, the stock still looks expensive; Sell
Given the disappointing 1H performance (core EBITDA margins of 6%), we delay our recovery
assumption from CY11 to CY12 and temper our numbers, resulting in 8% cuts to our core CY11
and CY12 earnings forecasts. We roll forward our valuation to CY12F and switch to a PE-based
approach (due to the expiry of Ranbaxy’s foreign currency convertible bond and in line with our
approach for other generics companies in our coverage), which raises our TP to Rs430 based on
Rs388 for core business (at 17.5x CY12F PE, a 10% discount to peers) and Rs42 for one-offs.
Sell.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
gLipitor monetisation is likely (either via a US FDA resolution or with a partner) but the actual
upside could disappoint. We roll forward our valuation to CY12 and raise our TP to Rs430. Even
incorporating the potential upside from gLipitor and margin expansion, Ranbaxy's valuations still
look expensive to us. Sell.
gLipitor monetisation appears likely, although actual upside could disappoint
On its recent 2Q analyst call, Ranbaxy sounded optimistic on its prospects for monetising generic
(g) Lipitor. Given its earlier success in monetising gFlomax and recent monetisation agreements
(eg, that between Teva and APP on gGemzar), we think Ranbaxy is highly likely to monetise its
gLipitor opportunity by launching on its own (after a successful US FDA resolution) or with a
partner (which could be Teva, according to our European pharma team). Thus, we build a gLipitor
launch into our forecasts (one-off earnings of US$280m during exclusivity and recurring annual
earnings of US$28m subsequently). However, if Ranbaxy were subject to an FDA penalty (widely
discussed in the press) or if it shares exclusivity with another generics company, the actual
upside could be lower than our current expectations.
Core operating margins remains lowest among peers; recovery to be gradual
Ranbaxy’s core EBITDA margin has been either negative or in the single digits in nine of the last
ten quarters, on our calculations. This has been due to its high operating leverage given its
aggressive business model, which has been impacted due to US FDA issues in two
manufacturing units. Management expects the core margin to improve from 1Q12. However,
even after factoring in a 300bp yoy core margin expansion in CY12F and another 100bp in
CY13F, we see its margins remaining the lowest among peers.
Even factoring in gLipitor and margin expansion, the stock still looks expensive; Sell
Given the disappointing 1H performance (core EBITDA margins of 6%), we delay our recovery
assumption from CY11 to CY12 and temper our numbers, resulting in 8% cuts to our core CY11
and CY12 earnings forecasts. We roll forward our valuation to CY12F and switch to a PE-based
approach (due to the expiry of Ranbaxy’s foreign currency convertible bond and in line with our
approach for other generics companies in our coverage), which raises our TP to Rs430 based on
Rs388 for core business (at 17.5x CY12F PE, a 10% discount to peers) and Rs42 for one-offs.
Sell.
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