Buy Ranbaxy Labs; target of Rs 800: Motilal Oswal

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26 Aug, 2025 12:21

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Motilal Oswal's report on Ranbaxy Laboratories

Ranbaxy's 3QFY15 results fell sharply below expectations. Revenues slid 10% YoY to INR26b (v/s est. INR37b) while dismal EBITDA margins of 9.4% (vs 26% est) led to wider miss at EBITDA level (75% below est). Adjusting for forex losses (INR 2.2b) and INR 8.2b MAT credit write-off, PAT at INR634m (est. INR1.3b) shrunk 47% YoY.

3Q revenues at INR 26b fell 29% below expectations mainly due to sluggish performance in India biz (up 2% YoY) and dismal US sales (32% of sales, down 40% QoQ). Sequential dip in US sales indicate negligible sale of gDiovan (FTF), also reflected in weaker margins. Currency depreciation hit CIS/RoW sales while regulatory issues impaired API business (down 48% YoY). Restructuring of key business segments prior to merger with SUN may have hurt 3Q sales performance.

EBITDA at INR 2.5b (down 6% YoY) disappointed, mainly on lower exclusivity sales hurting gross margins (down 920bp QoQ, 390bp YoY). With low contribution from gDiovan (assumed), core EBITDA margins would have been ~8% (vs 10% in 2Q).

3Q reported loss of INR 10.3b included exceptional like (a) forex losses of INR 2.2b and (b) write-off of MAT credit worth INR8.2b.

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"With USFTC approval and high court nod awaited, we expect merger with Sun Pharma to be completed by Mar-15. Hence RBXY is likely to trade in parity with merger ratio with Sun Pharma (0.8x Sun Pharma). Accordingly, our target price for RBXY at INR 800 is pegged at 0.8x Sun Pharma’s target price of INR 1000.We expect SUNP’s sharp focus on profitability to help RBXY expand its core margins over FY16-19E to 18% at least, along with higher revenue growth (forecast 13% CAGR). Buy the stock with a target price of Rs 800", says Motilal Oswal research report.

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