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Ranbaxy
Performance Highlights
Y/E Dec. (` cr) Net sales Other income Operating profit Forex loss/(gain) Adj. Net profit 2QCY2012 3,174 124 457 (966) 304 1QCY2012 3,695 229 924 364 936 (67.5) % chg qoq (14.1) (45.7) (50.5) 2QCY2011 2,054 93 152 109 107 184.1 % chg yoy 54.6 34.1 200.1
Neutral
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Pharmaceutical 20,408 (443) 0.5 542/367 111,841 5 17,558 5,320 RANB.BO RBXY@IN
`483 -
Ranbaxy Laboratories (Ranbaxy) reported a better-than-expected performance in its 2QCY2012 results. While the companys top-line grew 54.6% during the quarter, which is higher than our expectations; the OPM was just in line of expectation. The adjusted net profit still came in 30.4% higher than expectations. We recommend a Neutral stance on the stock. Better -than-expected performance: Ranbaxy reported net sales of `3,174cr, up 54.6% yoy, and above our estimate of `2,452cr. The gross margin expanded by 571bp to 67.6%, which along with a lower rise in the other expenditure aided the 7% expansion in the OPM, which came in at 14.3%. This was in line with the expectation of 14.7% during the quarter. This aided the adjusted net profit to grow by 184.1% yoy to `304cr. Outlook and valuation: The stock is trading at EV/sales of 1.7x CY2013E. While the valuation is attractive in comparison to its peers, given the low profitability in the core business and uncertainty on the USFDA front, we maintain our Neutral rating on the stock.
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 63.7 13.7 12.2 10.4
3m 6.9 (2.7)
CY2010 8,535 16.5 1,086 654.7 35.5 16.9 13.5 21.8 10.1 3.6 2.7 15.7
CY2011 10,061 17.9 600 (44.7) 14.2 15.1 34.0 14.2 12.9 7.1 2.2 14.4
CY2012E 12,046 19.7 1,320 120.0 31.3 16.0 15.4 39.1 18.8 5.3 1.7 10.8
CY2013E 11,980 (0.5) 1,258 (4.7) 29.8 15.8 16.2 28.9 15.8 4.2 1.7 10.5
2QCY2012 1QCY2012 % chg qoq 2QCY2011 % chg yoy 1HCY2012 1HCY2011 % chg yoy 3,174 124 3,298 2,147 67.6 457 14.4 48 78 454 68 6 380 (966) (585) 304 7.2 3,695 229 3,924 2843 76.9 924 25.0 38 80 1035 137 14.0 884 364 1,248 936 22.2 (67.5) (56.9) 28.6 (2.0) (56.1) (50.5) (14.1) (45.7) (15.9) (24.5) 2,054 93 2,146 1272 61.9 152 7.4 17 74 155 18 2.3 134 109 243 107 2.5 184.1 184.1 191.7 6.4 193.7 269.9 200.1 54.6 34.1 53.7 69 6,869 257 7,127 4,989 72.6 1,380 20.1 86 158 1393 206 19 1168 (508) 661 935 22.1 4,195 178 4,373 2,698 64.3 519 12.4 31 147 518 97 4 418 130 548 334 7.9 179.6 7.5 168.8 112.8 393.4 179.6 166.1 63.8 44.7 63.0 84.9
Top-line performance above expectations: Ranbaxy reported net sales of `3,174cr, up 54.6% yoy, above our estimate of `2,452cr. Emerging markets contributed US$231mn, accounting for ~39% of total sales. Developed markets recorded US$328mn of sales and contributed by 56% to the total sales for the company. The growth was mainly driven by Lipitor in the US, resulting in US registering a growth of 140% to end the period at US$272mn, accounting for almost 46% of the overall sales. Adjusted for the exclusive opportunities, the base business grew by ~13% yoy. Amongst other geographies, sales in Europe grew by 19% yoy to end at US$102mn. Sales for the quarter in India were `5,540cr (US$102mn), a growth of 13% yoy. The CIS region reported sales of US$25mn for the quarter, a growth of 28% yoy.
OPM expands to 14.4%: The gross margin expanded by 571bps, to end the period at 67.6%, which along with a lower rise in the other expenditure aided the 7% expansion in the OPM which came in at 14.3%. This was in line with the expectation of 14.7% during the quarter.
(%)
14.4 5.0
2QCY2012
Adj. net profit grows 184.1%: The OPM expanded, but forex losses during the quarter led the company to report a loss of `585cr vs a net profit of `243cr posted in the corresponding previous year quarter. However, adjusted for the forex and exceptional items, the adjusted net profit of `304cr (`107cr in 2QCY2011), registered a growth of 184.1% yoy.
Concall takeaways
Ranbaxys current market share in Lipitor is at ~50% with price erosion of 95%. As part of settlement, the company has shared Lipitor revenues with Teva of ~US$85mn. The company has hired consultants for plant assessments; it expects to get a timeline for plant inspections by September 2012. The current medical representative strength in the domestic market stands at 7,500 executives and the company is focusing more on the chronic segment. The company has derivatives exposure of US$1.3bn as of 2QCY2012. Capex for CY2012 is to be higher than `600cr.
Investment arguments
US Consent Decree: Road cleared but timelines uncertain: Post the USFDAs adverse action in early CY2009 (AIP invoked on Poanta Sahib facility and import alert issued for Dewas facility), Ranbaxys US sales had been impacted but for the first-to-file (FTF) products. Ranbaxy has signed a consent decree with the USFDA regarding the ongoing Current Good Manufacturing Practices cGMP issues. We note that the consent decree lays out a plan of action as agreed by the two parties to resolve the outstanding issues. However, the timeline regarding the resolution is still unclear. As per Ranbaxys management, the company has taken corrective actions, as per suggestions by a consultant, and has been working closely with the USFDA to resolve the issues. Though the move is positive, the timelines for the same are not clear. We have therefore not factored the same in our estimates. India back in focus: Ranbaxys domestic formulation business has been reporting below-industry average growth rate of 78% since the past few years. The company has now renewed its focus on one of the fastest growing pharmaceutical markets by completely rolling out Project Viraat in 2010 with a
(`cr)
view of establishing a leadership position in the next two to three years. Under the project, Ranbaxy increased its field force significantly, launched new products and penetrated rural areas. Going forward, with this, the company plans to achieve 1520% growth on the domestic front. Looking for profitable growth: Ranbaxys OPM collapsed from 12.6% in CY2006 to 6.1% in CY2009 on USFDA issues, high operating leverage and realized losses in forex hedges. However, the company is now targeting to achieve profitable growth by closing down low-margin facilities in various emerging markets, reducing its work force in Europe and transferring its new drug discovery research division to Daiichi. Further, a resolution of the USFDA issue would help reduce costs incurred on remedial measures. Going forward, Ranbaxy aims to achieve double-digit margins in its base business.
(` cr)
Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12
1x 2x 3x 4x
2,207 -
Accumulate 874 Accumulate 350 Accumulate 86 Neutral Buy Buy Buy Neutral Neutral 56 406 107 483 676
Accumulate 581
Background Ranbaxy Laboratories (Ranbaxy), India's largest pharmaceutical company, is an integrated, research-based, international pharmaceutical company. The company is currently present in 23 of the top 25 pharmaceutical markets of the world. Ranbaxy has a global footprint in 46 countries, manufacturing facilities in seven countries and serves customers in over 125 countries. The company generates a balanced mix of revenue from emerging and developed markets, which contribute 50% and 44%, respectively.
2,322 (2,686)
1,737 (2,883)
1,497 (2,900)
(126.0) (218.5)
1,250 (1,130)
1,958 (1,154)
Key ratios
Y/E Dec. Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) RoIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating RoE Returns (%) RoCE (Pre-tax) Angel RoIC (Pre-tax) RoE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Int. Coverage (EBIT / Int.) 0.4 4.8 0.5 5.4 2.5 0.2 0.7 14.4 0.5 0.9 1.8 0.1 0.3 23.2 (0.1) (0.2) 21.9 2.4 5.8 3.3 10.1 22.1 21.8 12.9 35.4 14.2 18.8 75.9 39.1 15.8 70.1 28.9 1.5 1.3 0.4 2.4 1.3 0.5 10.4 74.8 1.4 10.7 1.2 0.2 12.5 11.2 107.3 1.8 22.1 14.9 0.5 25.7 12.3 77.0 2.8 26.6 1.1 0.1 29.8 11.7 77.0 2.8 24.9 1.1 24.9 102.2 7.1 7.1 13.4 103.3 35.5 35.5 48.7 2.0 133.1 14.2 14.2 36.8 5.9 68.0 31.3 31.3 60.7 10.6 91.9 29.8 29.8 41.4 7.3 114.4 4.7 0.0 3.1 56.3 3.0 68.5 36.0 4.7 0.0 3.1 51.0 3.0 13.6 9.9 3.6 0.4 2.5 14.9 2.1 34.0 13.1 7.1 1.2 2.2 14.4 2.9 15.4 8.0 5.3 2.2 1.7 10.8 2.5 16.2 11.7 4.2 0.0 1.7 10.5 2.1 CY2007 CY2008 CY2009 CY2010 CY2011E CY2012E
1.9 89 70 52 35
1.9 91 76 67 4
2.0 82 70 86 40
2.0 80 81 61 7
2.2 73 77 34 (29)
10
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
Ranbaxy No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.
Ratings (Returns):
11