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UBS Investment Research
Ranbaxy
Q 2’11: Sales beat but margins remain weak
Event: Q2’11 Sales beat, but strong PAT driven by non-op factors
Q2 Sales at Rs 20.5bn were ahead of UBS-e of Rs 18.2bn driven by higher sales in
US and higher API shipments with ramp up of Nexium API supplies to AZN.
However, EBITDA margin was inline at 8.8% as SG&A expenses increased more
than expected to offset positive impact of higher sales. PAT growth was driven by
higher other income, FX gains and low tax rate (7%).
Impact: Maintain estimates, SG&A expected to normalize from Q1’12
Mgmt. expects one-off expenses in SG&A to continue. Mgmt. expects SG&A to
stabilize by Q1, which we believe will correspond with potential resolution of
USFDA issues. Mgmt. expects Nexium formulation supplies to AstraZeneca
(AZN) to commence within CY11. However, commencement of formulation
supplies will not impact Nexium API sales to AZN. Tax rate for rest of the year is
expected to be close to 20%.
Mgmt. confident but no timeline for USFDA issue resolution
While mgmt. refused to give any timelines, they remained confident of resolving
the issues in a timely fashion ahead of Lipitor launch. Daiichi on its concall last
week stated that DS and Rbxy are in final and detailed negotiation with FDA/DOJ.
We remain confident of a timely Lipitor launch by the co.
Valuation: Maintain Buy, PT Rs 630
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%.
Ranbaxy
Ranbaxy, one of India's largest pharmaceutical companies, manufactures and
markets generics, branded generic pharmaceuticals, and active pharmaceutical
ingredients. Ranbaxy's products are sold in over 125 countries. It has
manufacturing operations in 11 countries and a presence in 49. It was
incorporated in 1961 and was listed in 1973. Daiichi Sankyo acquired a 64%
stake in Ranbaxy in 2008. Ranbaxy's key markets, in terms of revenue, are India,
Romania, Russia, the US, and Africa and the EU.
Statement of Risk
We believe risks include regulatory risks, FDA approval, timing of approvals,
litigation (including the appeal process), accounting/disclosure, and product
pricing risk from generics competition. Pricing pressure in the US market
because of increased competition may continue. Margin pressure on account of
appreciation of the rupee could also negatively impact earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Ranbaxy
Q 2’11: Sales beat but margins remain weak
Event: Q2’11 Sales beat, but strong PAT driven by non-op factors
Q2 Sales at Rs 20.5bn were ahead of UBS-e of Rs 18.2bn driven by higher sales in
US and higher API shipments with ramp up of Nexium API supplies to AZN.
However, EBITDA margin was inline at 8.8% as SG&A expenses increased more
than expected to offset positive impact of higher sales. PAT growth was driven by
higher other income, FX gains and low tax rate (7%).
Impact: Maintain estimates, SG&A expected to normalize from Q1’12
Mgmt. expects one-off expenses in SG&A to continue. Mgmt. expects SG&A to
stabilize by Q1, which we believe will correspond with potential resolution of
USFDA issues. Mgmt. expects Nexium formulation supplies to AstraZeneca
(AZN) to commence within CY11. However, commencement of formulation
supplies will not impact Nexium API sales to AZN. Tax rate for rest of the year is
expected to be close to 20%.
Mgmt. confident but no timeline for USFDA issue resolution
While mgmt. refused to give any timelines, they remained confident of resolving
the issues in a timely fashion ahead of Lipitor launch. Daiichi on its concall last
week stated that DS and Rbxy are in final and detailed negotiation with FDA/DOJ.
We remain confident of a timely Lipitor launch by the co.
Valuation: Maintain Buy, PT Rs 630
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%.
Ranbaxy
Ranbaxy, one of India's largest pharmaceutical companies, manufactures and
markets generics, branded generic pharmaceuticals, and active pharmaceutical
ingredients. Ranbaxy's products are sold in over 125 countries. It has
manufacturing operations in 11 countries and a presence in 49. It was
incorporated in 1961 and was listed in 1973. Daiichi Sankyo acquired a 64%
stake in Ranbaxy in 2008. Ranbaxy's key markets, in terms of revenue, are India,
Romania, Russia, the US, and Africa and the EU.
Statement of Risk
We believe risks include regulatory risks, FDA approval, timing of approvals,
litigation (including the appeal process), accounting/disclosure, and product
pricing risk from generics competition. Pricing pressure in the US market
because of increased competition may continue. Margin pressure on account of
appreciation of the rupee could also negatively impact earnings.
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