Ranbaxy after witnessing the worst time is now set to get back the lost sheen. We believe the worst may be over for the company. We expect core business to improve and better cash flow from visible FTF opportunities to aid Ranbaxy in setting the clock back again to the 2008 level.
Stronger now: Post signing a consent decree with the US FDA to resolve issues regarding the Paonta Sahib and Dewas plants, and its disclosure of potential penalties to the US Dept. of Justice of US$500m, we believe the fundamentals are improving. The base business has so far struggled with poor performance across segments. However, with renewed focus and restructuring activities at full swing, growth and margins for Ranbaxyâ€™s base business will see a gradual improvement. The re-launch of Lipitor, approvals of new NDAs-Absorica and Ximino and partnership with Alembic for Pristiq NDA, will aid in improving core business in US. As the benefits of restructuring activities creep in, we expect even the domestic business to get stronger.
Rich pipeline: Ranbaxy has a rich pipeline of Para-IV filings. We expect sustainable cash-flows from these products till CY15. The company had over 40% market share in Lipitor, ahead of street estimates but batch recall put a pause to its growth. We expect Diovan exclusivity and Valcyte exclusivity in 2013. Absorica and Desvenlafaxine are interesting opportunities too and the developments so far have been better than expected. We are confident the company will monetize the opportunity in Nexium. We believe evolving synergistic-hybrid model would also prove beneficial in long term. We also cannot rule out the probability of many more AG launches like Evoxac, branded drug of Daiichi Sankyo (DS).
Value BUY: We expect the core business operating margin to improve and also better cash flow stream from visible FTF opportunities. Margin recovery in medium term and visibly sustainable growth makes current valuations attractive. We rate Ranbaxy BUY with a price target of Rs500.
|Y/e 31 Mar (Rs m)||CY11||CY12||CY13E||CY14E|
|yoy growth (%)||9.0||21.8||(9.0)||20.4|
|yoy growth (%)||62.4||35.1||(43.3)||70.3|
|*Adj EPS (Rs)||40.0||53.7||30.5||51.9|
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