Worst not over for Ranbaxy; fundamentals a worry: Religare

Though the USFDA has given a clearance to Ranbaxy's Ohm plant, the company’s US business fundamentals continue to be worrisome, says Arvind Bothra, Religare Capital Markets.

The stock saw good upmove on the back of this news today, but the situation hasn’t changed much for the pharma major, he told CNBC-TV18. “If one looks at it from the valuation perspective, part of this expectations is getting priced into the stock but in terms of overall improvement on the base business without exclusivities, things do not look as great,” says Bothra. Below is the edited transcript of Bothra’s interview to CNBC-TV18. Q: Do you think the worst is getting over for Ranbaxy or would it be too early to take this call? A: On the margin things are looking better with likely clearance of Ohm Laboratories. The key concern that people were having on monetisation of exclusivities has been addressed but it would be still too early to see in terms of timeline when these exclusivities, namely Valcyte, Diovan and Nexium, will be coming into the market. The good part is that there are no other generics available yet, so Food and Drug Administration (FDA) is still looking up to Ranbaxy to commercialise these opportunities which are high volume and significant products. But if one looks at it from the valuation perspective, part of this expectations is getting priced into the stock but in terms of overall improvement on the base business without exclusivities, things do not look as great. Q: Would you peg the 14 percent movement that we have seen in Ranbaxy in this week is more of a sentimental upmove and maybe the fundamentals are still worrisome for Ranbaxy in the US business? A: The only thing that can surprise on the positive side from hereon if the exclusivity opportunities like Valcyte, Diovan get approved in the very near-term but other than the US business, the rest of the emerging markets (EMs) and domestic business would see near-term pains but the capacity issues are there at Ohm Laboratories which is currently running at peak utilisation. Hence, any incremental launch has to make way for other products getting out. Q: In your communication with the management what have they spoken about in terms of approvals for Valcyte as well as Diovan generic and Nexium? Is there any sort of timeline, is there any milestone which you would be waiting for and then get worried about it considering that something like Diovan generic is now pending for at least more than six months to a year? A: I do not think the management comments specifically on product wise opportunities. Diovan has been expected for quite some time but it keeps eluding. In terms of Valcyte, I had a discussion and it appears that the launch which was expected on September 14 was pushed by couple of months due to internal issues. I think by January one should expect Valcyte launch and if it doesn’t get launch by then, it could be a slight dampener. Nexium launch continues to be scheduled at May 2014 which would be another blockbuster product for Ranbaxy, if they get the approval in time.