Broking house, Sharekhan keeps buy rating on Ranbaxy Laboratories with price target of Rs 558.

Sharekhan report on Ranbaxy Laboratories:

Result highlights

Ranbaxy Laboratories reported an impressive 167% growth in the net profit to Rs 183.3 crore in Q4CY2006, which is higher than our expectations of a net profit of Rs174.1 crore. The improvement in the profitability was triggered by better efficiency, focused cost-control efforts and rationalisation of the R&D spending.

The net sales were higher by 22% at Rs 1,697.50 crore in Q4CY2006, which was 4% above our expectations. The revenue growth was supported by the stronger revenue inflow from the Simvastatin-80mg, integration of Terapia (reported a 50% growth) and a pleasant 45% jump in the BRICS business during the quarter. 

However, the revenue growth was moderated by the pricing concerns in Europe, particularly in the UK, Germany & France, leading to a 6% fall in the sales to USD 52 million and a 16% sequential decline in the domestic revenues to USD 66 million.  

With the overall improvement in the efficiency and better realisation from the   products under exclusivity, the operating margin witnessed a 920-basis-point   expansion to 15% (lesser than the street expectations). The widening of the margin was largely driven by a 540-basis-point saving in the material cost and a 210-basis-point saving in the SG&A  cost. The R&D was also rationalised, leading to a 160-basis-point saving. 

For the full year CY2006, the company witnessed an 18% top line growth to Rs 6,021.6 crore coupled with an 890-basis-point expansion in the operating margin to 15.4%, leading to the doubling of the net profit growth (ie 97% rise) to Rs 515.1 crore.  

The company has guided for a 15% top line growth and a growth of 16% in the operating margin for CY2007. At the current market price, the stock trades at 20.7x its CY2007E earnings of Rs 20.8. We maintain our Buy recommendation on the stock with a target price of Rs 558.