Buy Ranbaxy Labs; target of Rs 559: Emkay

Emkay Global Financial Services is bullish on Ranbaxy Laboratories and has recommended buy rating on the stock with a target of Rs 559 in its August 9, 2012 research report.

"Ranbaxy Laboratories, US business (contr. 43%) grew 168% YoY to US$255mn led by 13% growth in base business ($85mn) and Lipitor/ Caduet contribution at US$170mn. We assume payment to Teva on Lipitor was USD85mn which was included in other expenses. India business (contr. 17%) grew 13% YoY on back of strong growth in the chronic segment. Other territories (contr. 40%) declined 9% YoY to US$234mn on account of depreciation of local currencies. Lipitor has taken 45% market share with price erosion of 96-97%. Management remained confident of retaining the higher share even post exclusivity Base biz margins expanded 492bps YoY and flat QoQ to 11% mainly due to INR depreciation, launch of atorvastatin in Australia & Europe and improvement in India biz.”
“Ranbaxy is on track to launch 5 big products in US viz. Actos (Aug’12), Diovan (Sep’12), Tricor (Dec’12), Absorica (Q4CY12) and Ximino (Q1CY13). Upsides from Tricor, Absorica and Ximino are not built-in our estimates.India growth is expected to accelerate to 16% in H2CY12 on back of increasing focus on chronic therapies and higher MR productivity. Current MR Strength is 4500. Base business is expected to grow by 27% in CY12 and 17% in CY13 on back of atorvastatin launch in emerging countries, Nexium supplies to Teva and improvement in India business. Margins will therefore expand 400bps in CY12 & 200bps in CY13. Consent decree with USFDA – Resolution of Dewas facility can lead to USD100mn of revenues over a period of 2-3 years, not built in our estimates.”
“We remain positive as we believe even after Para IVs, company’s base business to improve on back of low competition product portfolio post its exclusivity and ramp up in new approved facility. Further we have not factored in any upside or improvement in margins due to approval of new facility (Mohali) or resolution of Dewas and Poanta sahib facility We expect Ranbaxy to report 27% growth in base business revenue in CY12E and 17% in CY13E. Base EBIDTA margins are expected to increase from 8.2% in CY11to 12.5% in CY12E & 14.1% in CY13E. Base Earnings are expected to register 9% CAGR over CY11- 13E to Rs11.5bn clocking an EPS of Rs27 in CY13E. We maintain Buy on the stock with a target price of Rs559 (20x CY13E base EPS of Rs27 and NPV of Rs16),” says Emkay Global Financial Services research report. Bodies Corporate holding more than 50% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment

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