Reduce Ranbaxy Labs; target of Rs 412: PINC Research

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Reduce Ranbaxy Labs; target of Rs 412: PINC Research

PINC Research is bearish on Ranbaxy Labs and has recommended reduce rating on the stock with a target of Rs 412 in its December 1, 2011 research report.

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PINC Research is bearish on Ranbaxy Labs and has recommended reduce rating on the stock with a target of Rs 412 in its December 1, 2011 research report.

"Ranbaxy has finally announced the launch of generic Lipitor (10, 20, 40 and 80mg tablets) from Ohm Labs which is a sentimental positive for the stock. However, due to the high price competition and profit sharing agreement with Teva, we estimate a price erosion of 40% and Ranbaxy to command a market share of 30% during the exclusivity period. As a result we now expect Lipitor to contribute USD486mn to the revenues and Rs25/share during the exclusivity period. Whilst, profit earned from generic Lipitor launch could be negated if penalty amount exceeds USD243mn. Further, there has been no update on the USFDA clearance of Poanta Sahib and Dewas facilities. Albeit, as per media reports (no confirmation from the company), Ranbaxy has been able to secure USFDA approval for its new facility-Mohali SEZ which is the only silver lining."

"Pfizer expects to maintain more than one-third of the market share during the 180-days exclusivity period on back of aggressive marketing strategy 'Co-pay card'. Under the strategy, the Lipitor co-pay card would result in maximum saving of USD50/month for the consumers. However, the above program would not cover prescription drugs under Medicaid, Medicare and any other state healthcare programs. Watson, the authorised generic player, has also indicated that it expects to clock earnings to the tune of USD60-66mn in Q4CY11. Even post exclusivity (from May 2012), 6- 7 players including Teva are likely to enter the market, leading to steep price erosion (80-90%)."

"We downgrade our recurring sales and earnings for CY12E by 2% and 19% respectively factoring in the delayed approval of Dewas and Poanta Sahib facilities. We have also introduced CY13 estimates. We recommend 'Reduce' on the stock and value the core business at Rs 329 per share (22x one year forward recurring earnings) and the FTF pipeline at Rs 83 per share resulting in revised SOTP based target price of Rs 412," says PINC Research report.

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