Hold Ranbaxy Laboratories; target Rs 308: Emkay

Emkay's report on Ranbaxy Laboratories

• Ranbaxy Laboratories' Ohm Labs facility has received an Establishment Inspection Report (EIR) from the US-FDA. This establishes clearance of the previously unresolved 483 at this facility
• All other US-FDA facilities such as Paonta Sahib, Dewas and Mohali are still under import alert and consent decree
• The possibilities of pending FTFs like Diovan, Valcyte and Nexium getting monetized remains alive but is contingent on the timely approvals of site transfers from the US-FDA

Ranbaxy's Ohm facility has received an Establishment Inspection Report (EIR) for its Dec’12 inspections. This establishes clearance of the previously unresolved ‘Form 483’ at this facility. An EIR indicates satisfactory resolution of issues related to good manufacturing practices (GMP) raised by US-FDA. We see this as a breather for an otherwise troubled US market operations for Ranbaxy as Ohm Labs is the only facilty, which is allowed to continue supplies in US market. All other US-FDA facilities viz Paonta Sahib, Dewas and Mohali are still under import alert and consent decree.

The possibilities of pending FTFs like Diovan, Valcyte and Nexium getting monetized remains alive but is contingent on the timely approvals of site transfers from the USFDA. Although we expect FTFs to be monetized we would like to highlight that with Ohm Labs being the only US FDA approved facility and it being run at full capacity today, incremental launches from this facility might lead to slowdown / decline in base business for the company. We would also like to highlight that a clearance of this facility is in line with our expectations and is henced priced into our Target price. However, it being a sentimental boost to the stock we advise long-term investors to use this as an exit opportunity on rally.

Our Take: "We reiterate that our Target Price of Rs308 is based on an assumption that Ranbaxy would be able to monetize all key FTFs in CY14E. FTF opportunities NPV comes to Rs. 55 a share. We value base business at 18x CY14E EPS of Rs 14," says Emkay Global Financial Services research report.

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.

Read More