Here's how experts read Ranbaxy's Q2FY15 earnings

Ekta: We have spoken about with regards to Ranbaxy that the margins are the one key factor going by the fact that maybe they could have outperformed because of Diovan even ex of that do you think that margin picture for Ranbaxy has improved on a fundamental basis something which is important for a Sun Pharma-Ranbaxy merger perspective as well?

Nangra: Though I have yet to do my calculations prima facie it looks like that the margins would have improved beyond because we are factoring core margins of around 7-8 percent. It should be higher than that definitely. That is a positive news. Given the fact that as far I can make out from the results this is the first quarter where I can see very neat and clean kind of P&L with less number of extraordinary to work around. So a decent set of numbers overall actually.

Ekta: Your sense in terms of your earnings per share (EPS) estimates for Ranbaxy for FY15 and FY16 and what the contribution of Diovan could be?

Nangra: In terms of our numbers on Ranbaxy are mostly hinging in terms of operating performance. So what we have built in for this year and going forward is around 8 percent EBITDA margin for the core business. In case this kind of performance improves then there should be some sense of upgrade happening there in terms of operating profitability.

Reema: The stock has already rallied close to about 4-4.5 percent. Just purely based on these numbers how much do you think the stock can run up more or with a gain of 5 percent at Rs 630 adequately pricing in these strong earnings.

Nangra: After the announcement of its merger with Sun Pharma the stock had already done a decent amount of run up given the fact that Ranbaxy shareholders will be part of Sun Pharma which is a high growth and a more sustainable business model than the shareholders of Ranbaxy have enjoyed earlier.

So even if upgrades happen possibly the upside that could have been seen is already factored in because even if we go by the commentary of Sun Pharma they also believe that there will be some time before Ranbaxy comes back to a normal pharma kind of OPMs wherein the real synergies and benefits will come through. So yes, definitely some upgrades would happen in terms of some percentile numbers.

Ekta: Do you think that you would be factoring in other first-to-file (FTF) opportunities for Ranbaxy, say the likes Nexium generic and in your numbers in FY15 or have you excluded it?

Nangra: We have been cautious with Ranbaxy given the kind of struggle they had been having in terms of approvals and with US FDA thing. So we have not been factoring, we have been very conservative with respect to Ranbaxy in terms of it’s operating numbers also and FTF opportunities also.

Ekta: Your last word on Ranbaxy as well as Lupin and maybe we should pull up Lupin as well in terms of maybe a performance of this stock at this point in time and how that is doing reacting to its numbers but Sun Pharma and Ranbaxy have just taken the shine away from Lupin even though the numbers did come out before that. Your sense in terms of Ranbaxy and if you compare that to Lupin, your last word on both the companies and their performance this quarter?

Nangra: Ranbaxy if it continues to perform this way on operating front will be commendable and Lupin definitely if it can sustain this kind of performance the stock will justify the current valuation.