Don't see much value in Ranbaxy; growth prospects dim: IIFL

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26 Aug, 2025 12:21

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Bino Pathiparampil of IIFL doesn't find significant value in Ranbaxy, so recommends staying away from the stock above Rs 250-260 levels. Shares of the pharma major lost 35 percent in early trade on Monday to fall below Rs 300 as US Food & Drug Administration (USFDA) issued an import alert on the company's Mohali unit on September 13.

He further added that the stock was pricing-in improvement in growth and profit, but with this import alert, growth prospects have taken a backseat.

"Major ramp up at  Mohali facility was critical for improvement in growth outlook and profitability of Ranbaxy for calendar 2014. But now, this alert puts off that improvement in operations by at least 12 to 18 months in my estimate," he told CNBC-TV18 in an interview.

Below is the edited transcript of Pathiparampil’s interview with CNBC-TV18

Q: What is the exact contribution of the Mohali’s factory to US exports and now that there is an import alert on this facility what could the impact be on earnings?

A: The Mohali facility was not a major contributor to Ranbaxy’s US business or overall business. It was relatively new facility. It had started contributing meaningfully when they started selling Atorvastatin in the US market in 2012. But later they had a product recall due to some issues with that product. Since then, as per my understanding, the facility has not been contributing much. To that extent, currently reported numbers of Ranbaxy may not take a major hit because of this import alert.

But at the same time, the stock was pricing in a major improvement in growth outlook and profitability of Ranbaxy for calendar 2014 and for that improvement to happen, major ramp-up in Mohali facility was critical. That ramp-up has now taken a back seat with this import alert. That puts off that improvement in operations by at least 12 to 18 months in my estimate. So, that leads to a significant decline in value of the stock because if Ranbaxy is continuing to report the current set of numbers like 8-9 percent EBITDA margin in base business then the stock does not deserve to trade at these levels.

Q: What is your own estimate of the companies 2013 and 2014 earnings?

A: This year I am expecting the company to do about Rs 7-8 of earnings per share (EPS) from their core business. If generic Diovan, which is one of exclusivity in the US comes in it may go up a little bit at the same time the forex losses on derivatives can bring it down also, these are completely unpredictable aspects.

This Rs 7-8 of core base business earnings can potentially double to Rs 13-14 in 2014 if things were going well, but this import alert cast some doubts on that as well. So, how well the base business margins improve becomes a critical question and even that doubling of earnings from Rs 7-8 to Rs 13-14 may not happen in the light of this import alert.

Q: Are you worried about similar issues at its other factory, Tonsa where there have been some reports of good manufacturing practices (GMP) violations etc?

A: Having seen this happening across multiple facilities in this company there is a reason for us to be worried. But these are things which are kept very confidential by the company and the FDA. Certainly I do not think we are in a position to rule out  regulatory action elsewhere as well.

Q: Would Ranbaxy therefore now attract lower valuations because of this constant overhang? What would be fair valuations you think?

A: The stock had spectacular run from around Rs 250-260 levels all the way up to Rs 450 which was probably an unjustified run up. Because of that even after the 30 percent fall that we saw in the stock price yesterday I don’t see significant value in the stock price. In my opinion one should not be buying actively into the stock above Rs 250-260 levels.