Sell Ranbaxy Laboratories; target Rs 355: PINC Research

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Sell Ranbaxy Laboratories; target Rs 355: PINC Research

PINC Research is bearish on Ranbaxy Laboratories and has recommended sell rating on the stock with a target price of Rs 355 in its January 27, 2012 research report.

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PINC Research is bearish on Ranbaxy Laboratories and has recommended sell rating on the stock with a target price of Rs 355 in its January 27, 2012 research report.

"Ranbaxy Laboratories, the US DOJ has filed the consent decree against Ranbaxy in the US district court of Maryland. The consent decree will address outstanding cGMP and data integrity issues at Ranbaxy's Paonta Sahib, Batamandi, Dewas and Gloversville facility. Ranbaxy's Paonta Sahib, Batamandi and Dewas facilities are under import alert while the company has closed its Gloversville facility. US DOJ and USFDA had found following issues with Ranbaxy's manufacturing facilities 1) failure to keep written records showing that drugs had been manufactured properly 2) failure to investigate evidence indicating that drugs did not meet their specifications 3) failure to adequately separate the manufacture of penicillin drugs from non-penicillin drugs in order to prevent cross-contamination 4) failure to have adequate procedures to prevent contamination of sterile drugs and 5) inadequate testing of drugs to ensure that they kept their strength and effectiveness until their expiration date."

"Given the issues involved at the aforesaid facilities and the delay in entering consent decree with the USFDA we expect the clearance of the facilities to be long time driven and costly process (over and above the provision of USD 500mn made) which would impact the base operating margins of the company. Although the names of FTFs surrendered have not been disclosed, we expect it to be generic Provigil, Diovan and Valcyte contributing sales to the tune of USD186mn and NPV of Rs12 per share. The stock is currently trading at 29.2x and 20.3x its CY12E and CY13E recurring earnings respectively. We continue with our negative outlook and downgrade the stock to 'Sell'. We value the core business at Rs329/share (22x one year forward recurring earnings), FTF pipeline at Rs81/share and reduce Rs55/share for the penalty provision resulting in revised SOTP based target price of Rs 355," says PINC Research report.

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