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May 10, 2012, 03.01 PM IST | Source: Moneycontrol.com

Ranbaxy Q1 jumps 300%, What are analysts saying?

Pharma major Ranbaxy on Wednesday beat street estimates with a four-fold year-on-year jump in first quarter net profit at Rs 1,247 crore. However, many analysts were unimpressed on the results, which were boosted mainly by forex gains and strong sales of its copy of cholesterol lowering drug Lipitor.

Moneycontrol Bureau

Pharma major Ranbaxy   on Wednesday beat street estimates with a four-fold year-on-year jump in first quarter net profit at Rs 1,247 crore. However, many analysts were unimpressed on the results, which were boosted mainly by forex gains and strong sales of its copy of cholesterol lowering drug Lipitor.

The stock was down 1.9% at Rs 503.20 on NSE on Thursday.

Net sales of the company owned by Japan's Daiichi Sankyo surged 73% in Jan-March to Rs 3,695.4 crore.

The company launched cholesterol lowering drug Atorvastatin in the US market in December and already has garnered 47% market share, according to its CEO and MD Arun Sawhney. Analysts were expecting it to get around 30% market share. The drug launch helped its US quarterly sales more than double.

Apart from strong sales, Ranbaxy had other income of Rs 136.6 crore, nearly double than a year ago and foreign exchange gain of Rs 344.7 crore which drove up profits.

Analysts say the company may have become a market leader in Atorvastatin in US, but more generic players are set to launch similar generic versions over next few months, which could drive prices down significantly, thus hurting Ranbaxy's revenue. There is also concern over slow growth in base business.

"We foresee at least three large generics entering the Lipitor market on 30 May this year, which could potentially drive price erosion beyond 90%. Although efforts to resolve manufacturing issues under consent decree are on track, we believe near-term incremental costs (legal, etc) are unlikely to be met by an escalation in revenues," Girish Bakhru and Damayanti Kerai of HSBC Global Research said on Thursday.

The US Justice Department had reached an agreement with Ranbaxy in Jan to resolve violations at some of its manufacturing plants. US authorities said the company had several problems at its plants, which included not keeping written records, not preventing contamination of sterile drugs and submitting false data to the US FDA. The consent decree prevents Ranbaxy from making drugs for the US market from Dewas and Poanta Sahib until issues are resolved.

However, it has started suplies to US from its plant in Mohali, which has US FDA approval.

HSBC has an "underweight" rating on Ranbaxy, with a target price of Rs 472.

There were similar reactions from other analysts.

Surajit Pal of Elara Capital pointed out that while its Atorvastatin "sizzled" in the US, its launch in five major European Union countries and Australia didn't gain significant traction in incremental sales in Jan-March.

"APAC sales achieved only at USD 31 million despite launch of Lipitor in Feb 2012 in comparison to the sales of USD 28 million in the region in Q4. In EU, its sales marginally decreased despite Lipitor launch," Pal said.

Further he expects exports to Europe and Latin America to decline in 2012 with core business lagging and there is increased uncertainty due to new rules on reimbursement and government intervention in Italy, Romania and eastern Europe.

Elara Capital has a "sell" rating on Rabaxy, with a target price of Rs 370.

Priti Arora of Kotak Institutional Equities also said it was only Atorvastatin and forex gains that had saved the day for Ranbaxy. Except US and India, all other key regions underperformed and were down sequentially, she said.

Kotak Institutional Equities also advises investors "sell" Ranbaxy and has a target price of Rs 445.

Here are some analysts comments on Ranbaxy:

EMKAY: Going forward base business is expected to grow by 27% and margins are expected to expand by 400bps to 12% on back of launch of Atorvastatin in US & other territories. Company has entered into consent decree with USFDA. Resolution of issues related to Poanta Sahib and Dewas units can lead to USD 100 million of revenues over period of 2-3 years. Rating: Buy. Target: Rs 559.

MF GLOBAL: Ranbaxy's base business recovery is slow. With the company missing out on Provigil exculsivity, we continue to maintain a cautious stance over the status of the First-to-File product pipeline. With the conclusion of Lipitor exclusivity and recent stock outperformance, the upside from the stock at current levels are limited. Rating: Neutral. Target: Rs 484.

 

 

 

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