Ranbaxy gains 6%; Nomura says buy but lowers target

Moneycontrol Bureau

Ranbaxy Laboratories shares rebounded with 6 percent gains Tuesday on short covering after losing more than 30 percent in previous session on import alert for Mohali plant.

Nomura says the correction of 30 percent is an opportunity to buy the stock.

The brokerage house has a buy rating on the stock, but lowered its target price to Rs 403 from Rs 490 earlier.

Nomura sees no major impact from USFDA as no sales from Mohali unit to US. "We have reduced CY14-15 estimates for base business by 25 percent," the brokerage house in its report says.

The US Food and Drug Authority (USFDA) has added Ranbaxy's Mohali to the Consent Decree, which was signed by the drug major in January 2012.

The Consent Decree was for regulatory uphaul at its Paonta Sahib and Dewas plants. USFDA on September 13 had issued an import alert on the company's Mohali unit due to non compliance with drug good manufacturing practices (GMPs). This is in addition to the import alert already in place on its Dewas and Paonta Sahib plants.

Diovan (anti-hypertension drug) and Valcyte (anti-viral drug) generics launches may be further delayed due to this import alert.

Meanwhile, IIFL, in its report, said the import alert would likely impact the company’s US operations significantly. "Mohali was Ranbaxy’s largest and latest facility and held extreme significance as the other two large plants – Paonta Sahib and Dewas - are yet to clear out the import ban on them. Ranbaxy had to do a product recall of generic atorvastatin, manufactured at Mohali plant, in November 2012."

"The import alert will likely impact the exclusivity status of generic Diovan that has been expected anytime soon; it could have been around USD 200 million opportunity. It could even raise doubts over generic Nexium, potential USD 325 million opportunity slated for May 2014. US base business contributes around 27 percent to Ranbaxy topline; a significant part of this could also get impacted immediately. Ranbaxy shares have run up 63 percent since our upgrade on 8 August 2013. At this price we do not see significant value in the shares that trade at 53x CY13ii and 24x CY14ii core earnings," IIFl report said.
 
At 09:57 hours IST, the stock was up 3.36 percent to Rs 329.55 on the Bombay Stock Exchange.

(Posted by Sunil Shankar Matkar)