Accumulate Ranbaxy; target of Rs 579: Prabhudas Lilladher

Prabhudas Lilladher is bullish on Ranbaxy Laboratories and has recommended accumulate rating on the stock with a target of Rs 579 in its November 8, 2012 research report.

“Ranbaxy’s Q3CY12 core operating performance was in line with the estimates, while reported performance was boosted by contribution from exclusivity product, Actos and forex gains on outstanding hedges. The company continues to report mediocre performance due to very little ramp-up in core business. At the current price (adjusted for DCF of FTF opportunities), the stock trades at 25.2x CY12E and 21.7x CY13E earnings.”

“Ranbaxy’s core top-line is estimated to have grown 15.5% YoY to Rs24.2bn. The growth was impacted by a decline in revenue in most of the export markets, excluding US. Core US business grew by 22% YoY to US$102m led by Lipitor and Caduet, while domestic formulation market reported healthy growth of 13% YoY to Rs5.83bn. Reported revenues were boosted by exclusivity on Poiglitazone in US. Ranbaxy is estimated to have reported 54% YoY growth in core EBITDA to Rs2.7bn in line with estimates. There is an improvement in core business margins. Adjusted PAT grew by 34.1% YoY to Rs2.2b partially boosted by lower tax rates.”

“Resolution of USFDA issues remains a key for the company to improve its revenues in US and overall profitability. Further, large hedges on the books and uncertainty related to monetization of FTF pipeline are likely to remain an overhang on the stock in the medium term. Though the company is showing improvement in core margins, the improvement should be sustainable to regain investor confidence. At the current price, stock trades at 25.2x CY12 and 21.7x CY13 (adjusted for DCF value of FTF at Rs77/share). We maintain ‘accumulate’ with target price of Rs579,” says Prabhudas Lilladher research report.

Public holding more than 90% in Indian cos

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