Ranbaxy Laboratories (Q1 CY13)

India Infoline News Service | Mumbai |

Overall, sales grew in most emerging markets including India (+11%), EU, CIS (+23.3%), Africa and Middle East (+22.4%)

CMP Rs438, Target price Rs500, Upside 14.2%

  • Largely in line with our estimates Ranbaxy reported consolidated revenues of Rs25bn, registering decline 34% yoy; Sales excluding FTFs and AGs grew by over 10%. The consolidated revenues are not comparable on account of large contribution to sales from exclusivity opportunities in Q1 CY12
  • Overall, sales grew in most emerging markets including India (+11%), EU, CIS (+23.3%), Africa and Middle East (+22.4%)
  • The encouraging factor was domestic sales growth in represented segment outpaced the IPM growth of 8% during the quarter
  • US Formulation business declined 67% yoy to Rs6.8bn; revenues are not comparable on account of large contribution to sales from exclusivity opportunities (Atorvastatin) in same period last year
  • EBITDA margins on a sequential basis improved 463 bps to 7.6% largely led by higher gross margin reported in this quarter; Adjusted base margin at 9.5%
  • PAT was below our estimate by Rs400mn to Rs1.3bn; higher taxes at 29% impacted PAT growth
  • While FDA issues resolution holds the key for re-rating, we believe improving domestic business along with niche/exclusivity launches will keep the business buoyant. We maintain our BUY recommendation with a target price of Rs500
Result table
(Rs mn) Q1 CY13 Q1 CY12 % yoy Q4 CY12 % qoq
Net sales 25,006 37,813 (33.9) 27,112 (7.8)
(Inc)/dec in stock (964) (418) 130.5 1,796 (153.7)
Consumption of Materials (5,745) (4,329) 32.7 (5,519) 4.1
Pur of Traded Goods (4,197) (4,534) (7.4) (4,230) (0.8)
Employees' Cost (4,862) (4,739) 2.6 (4,813) 1.0
Other Expenditure (9,259) (14,668) (36.9) (9,945) (6.9)
Operating profit 1,906 9,961 (80.9) 810 135.4
OPM (%) 7.6 26.3 (1872) bps 3.0 463 bps
Depreciation (797) (799) (0.3) (805) (1.0)
Net Interest income (525) (187) 181.4 (1,357) (61.3)
Other income 624 607 2.8 767 (18.6)
PBT 1,208 9,583 (87.4) (585) (306.6)
Forex (loss)/gain on loans 462 4,397 (89.5) (3,940) (111.7)
Tax (353) (1,374) (74.3) (340) 3.8
Effective tax rate (%) 29.2 14.3 1491 bps (58) 8745 bps
PAT 1,317 12,606 (89.6) (4,865) (127.1)
Minority and share of Ass 59 139 (57.5) 59 0.0
Reported PAT 1,258 12,468 (89.9) (4,924) (125.5)
Adj PAT 942 7,475 (87.4) (456) (306.6)
PAT margin (%) 3.77 19.77 (1600) bps (1.7) 545 bps
Ann. EPS (Rs) 3.56 28.34 (87.4) (1.7) (306.5)
Source: Company, India Infoline Research

Ranbaxy reported consolidated revenues of Rs25bn, registering decline 34% yoy

Largely in line with our estimates Ranbaxy reported consolidated revenues of Rs25bn, registering decline 34% yoy. Sales excluding FTFs and AGs grew by over 10%. The consolidated revenues are not comparable on account of large contribution to sales in Q1 CY12 from exclusivity opportunities. Overall, sales grew in most emerging markets including India (+11%), EU, CIS (+23.3%), Africa and Middle East (+22.4%). Branded and OTC category sales accounted for 50% in the revenue in this quarter at Rs12.2bn. Rest 50% was contributed by Generic and API (Rs12.2bn).Indian formulations grew by 11% yoy outpacing IPM by 300bps in the represented market.


US Formulation business declined 67% yoy to Rs6.8bn; revenues are not comparable on account of large contribution to sales from exclusivity opportunities (Atorvastatin) in same period last year.

US formulations base business revenue growth was encouraging in Q1 CY13. We believe the trend to continue with prescription growth in Absorica (launched in April with a brand size of ~US$590mn, current market share at 9%). We expect further strengthening in US business with the new exclusivity/niche launches. The company has also resumed supplies of Atorvastatin in the US market and working hard to regain lost market share (currently at 2%) in 6-7 player market.


Revenue Break-up
Rsmn. Q1 CY13 Q1 CY12 % yoy Q4 CY12 % qoq
India 5,427 4,887 11.0 5,418 0.2
North America 6,892 20,929 (67.1) 8,510 (19.0)
Western Europe 2,018 2,284 (11.6) 2,209 (8.6)
East Europe and CIS 3,604 2,922 23.3 3,830 (5.9)
Asia Pacific & Latin America 1,659 1,951 (15.0) 1,354 22.5
Africa and Middle East 2,983 2,438 22.4 3,247 (8.1)
API and Others 1,815 1,678 8.2 2,142 (15.3)
Total 24,398 37,089 (34.2) 26,710 (8.7)


EBITDA margins on a sequential basis improved 463 bps to 7.6%

EBITDA margins on a sequential basis improved 463 bps to 7.6%, largely led by higher gross margin reported in this quarter. The margins again on yoy wise are not comparable due to high margin exclusivity product contribution in the same quarter last year. The current quarter’s margins were again impacted by the sales and promotion expenses related to some OTC products. Adjusting for one-offs and forex the margins are at 9.5%. The improvement at margin front is encouraging but, still there is long way to go for company to come in line with peers.  We believe the improvement in margin in absolute basis is inevitable with the FDA issues approaching to end in next two years.


Higher taxes at 29% impacted PAT growth; PAT was below our estimate by Rs400mn to Rs1.3bn

Interest, other expense, depreciation and amortization were broadly in line with subsequent quarter. Finance costs almost doubled to Rs525mn in Q1 CY13 v/s Rs187mn in Q1 CY12, mainly on account of increase in debt and also part of the forex loss in proportion to financing costs. There's also a forex loss of Rs357mn in the quarter recorded in the above the EBITDA line mainly due to trade transactions and safe deposits dollar assets. Tax for the current quarter was higher at 29% mainly because of Russia, South African entities which recorded profit in their legal entities.


Key take-away from the conference call

  • Absorica, the novel drug launched by Ranbaxy for the treatment of severe recalcitrant nodular acne in patients 12 years of age or above, gained over 9% of market share.

  • Ranbaxy’s Actos exclusivity ended on February 15, 2013. Currently, Ranbaxy has 24% market share of this product whereas the company had gained over 31% market share during exclusivity.

  • The company launched Desevenlafaxine tablets in April 2013. Desevenlafaxine is a NDA drug, an alternative to Pristiq (Brand Size-$590 million) for treatment of depression.

  • Ranbaxy resumed supplies of Atorvastatin in the US markets during the quarter.

  • During the quarter, three ANDAs were filed of which two are potential FTFs

  • The total leverage position at the end of quarter was US$962mn down from US$1.07bn from the succeeding quarter. On an average, US$36mn worth of derivatives matures every month.

  • Net debts as on date is US$167mn with an cash position of US$658mn

  • The company received approval to set up a greenfield manufacturing facility by the Government of Malaysia. The new proposed manufacturing facility in Malaysia is planned to primarily service strong government market in Malaysia.

Outlook & Valuation

We believe the current valuation coupled with the clarity over organisation structure makes Ranbaxy a value BUY. We expect the core business operating margin to improve and better cash flow from visible FTF opportunities to aid Ranbaxy to post robust revenue growth and improve margins gradually. We believe higher probability of growth and clarity of monetizing FTF opportunity will limit the downside from hereon. Going forward, approval of generic Diovan, niche/exclusivity launches will keep the thrust on going in the US market. We maintain our BUY recommendation with a target price of Rs500


Financial Summary
Y/e 31 Mar (Rs m) CY11 CY12 CY13E CY14E
Revenues 102,295 124,597 113,424 136,612
yoy growth (%)
 

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