Buy Ranbaxy Labs; target of Rs 590: Emkay

“Ranbaxy Laboratories, US business (contr. 32%) grew 81% YoY to US$152mn led by 54% growth in base business ($129mn) led by strong growth in Lipitor & Caduet. Actos which was launched on 17th Aug’12 contributed $23mn this quarter. India business (contr. 22%) grew 13% YoY on back of growth in the chronic segment and MR addition. Company continues to feel pressure in acute segment. Other territories (contr. 46%) declined 18% YoY to US$223mn on account of depreciation of local currencies. Actos has captured 25% market share in US. Price erosion has been in the range of ~75% post the entry of Watson.”

“Ranbaxy is on track to launch 4 big products in US viz. Diovan (Sep’12), Tricor (Dec’12), Absorica (Q4CY12) and Ximino (Q1CY13). Upsides from Tricor, Absorica and Ximino are not built-in our estimates. India growth is expected to accelerate to 16% going ahead on back of increasing focus on chronic therapies and higher MR productivity. Current MR strength is 7500 Base business is expected to grow by 33% in CY12 and 14% in CY13 on back of atorvastatin launch in emerging countries, Nexium supplies to Teva and improvement in India business. Margins will therefore expand 400bps in CY12 & 200bps in CY13.”

“We expect Ranbaxy to report 33% growth in base business revenue in CY12E and 14% in CY13E. Base EBIDTA margins are expected to increase from 8.2% in CY11 to 12.4% in CY12E & 14.6% in CY13E. Base Earnings are expected to register 24% CAGR over CY11-13E to Rs11.5bn clocking an EPS of Rs27 in CY13E. We maintain buy on the stock with a target price of Rs590 (20x CY13E base EPS of Rs27 and NPV of Rs42),” says Emkay Global Financial Services research report.

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