Initiating Coverage

Ranbaxy Laboratories

Set to get back lost sheen

Ranbaxyafterwitnessingtheworsttimeisnowsettogetbackthelostsheen. Webelievetheworstmaybeoverforthecompany.Weexpectcorebusiness toimproveandbettercashflowfromvisibleFTFopportunitiestoaidRanbaxy insettingtheclockbackagaintothe2008level. Stronger now: Post signing a consent decree with the US FDA to resolve issues regarding the Paonta Sahib and Dewas plants, and its disclosure of potential penalties to the US Dept. of Justice of US$500m, we believe the fundamentalsareimproving.Thebasebusinesshassofarstruggledwithpoor performance across segments. However, with renewed focus and restructuring activities at full swing, growth and margins for Ranbaxys base business will see a gradual improvement. The relaunch of Lipitor, approvals of new NDAsAbsorica and Ximino and partnership with Alembic for Pristiq NDA,willaidinimprovingcorebusinessinUS.Asthebenefitsofrestructuring activitiescreepin,weexpecteventhedomesticbusinesstogetstronger.

Rating: Target (912months): CMP: Upside:

Sector: Sector view:

BUY
Rs500 Rs439 13.9%

Pharmaceutical Positive 19,428 578/371 18,323 890 RBXYIN 500359 RANBAXY 5

Sensex: 52Weekh/l(Rs): Marketcap(Rscr): 6mAvgvol(000Nos): Bloombergcode: BSEcode: NSEcode: FV(Rs):

PriceasonMar19,2013

Ranbaxy has a rich pipeline of ParaIV filings. We expect sustainable cashflows from these products till CY15. The company had over 40% market share in Lipitor, ahead of street estimates but batch recall put a pause to its growth. We expect Diovan exclusivity and Valcyte exclusivity in 2013. Absorica and Desvenlafaxine are interesting opportunities too and the developments so far have been better than expected. We are confident the company will monetize the opportunity in Nexium. We believe evolving synergistichybrid model would also prove beneficial in long term. We also cannot rule out the probability of many more AG launches like Evoxac, brandeddrugofDaiichiSankyo(DS).

Rich pipeline:

Companyratinggrid
EarningsGrowth CashFlow B/SStrength Valuationappeal Risk LowHigh 1 2 3 4 5

Sharepricetrend
150 130 110 90 70 50 Mar12 Aug12 Jan13 Ranbaxy Sensex

Value BUY: We expect the core business operating margin to improve and

also better cash flow stream from visible FTF opportunities. Margin recovery in medium term and visibly sustainable growth makes current valuations attractive.WerateRanbaxyBUYwithapricetargetofRs500.

Financialsummary
Y/e31Mar(Rsm) Revenues yoygrowth(%) Operatingprofit OPM(%) ReportedPAT *AdjPAT yoygrowth(%) *AdjEPS(Rs) P/E(x) Price/Book(x) EV/EBITDA(x) Debt/Equity(x) RoE(%) RoCE(%) CY11 102,295 9.0 16,041 15.7 (28,996) 16,912 62.4 40.0 11.0 6.5 11.4 1.0 (68.4) 27.2 CY12 124,597 21.8 18,227 14.6 9,227 22,844 35.1 53.7 8.2 4.6 9.5 0.8 26.5 36.6 CY13E 113,424 (9.0) 18,278 16.1 12,798 12,954 (43.3) 30.5 14.4 3.5 9.3 0.6 27.1 29.8 CY14E 136,612 20.4 29,920 21.9 21,878 22,066 70.3 51.9 8.5 2.5 4.8 0.3 33.9 38.5

Shareholdingpattern
Promoters Institutions Others 100 % 80 60 40 20 Mar12 Jun12 Sep12 Dec 12

Research Analyst:

BhavikaThakker
research@indiainfoline.com

Source:Company,IndiaInfolineResearch(*adjustedforforexandexceptionalnotforoneoffs)

March20,2013

CompanyReport


Base business improvement; key trigger

Ranbaxy

Thecompanysstrategyistospendon Innovationinthegenericsspacethat improvespatientconvenience,patient compliance,safetyandefficacy.

As the patent cliff nears an end (CY15), the conventional business model of most generic pharma companies will not remain very lucrative. Even for Ranbaxy, the concern is what after CY15? Hence, we believe improvement at basebusinessisakeytrigger.Thecompanysbasebusinessnow>US$400mnis set to improve with various growth levers. Relaunch of Lipitor, approvals of new NDAsAbsorica and Ximino and partnership with Alembic for Pristiq NDA, willaidinimprovingcorebusinessinUS.StrongOTCbusinesswillfurtheraidin growth (top five products are Loratadine D and Loratadine, Ibuprofen + Pseudoephedrine,CetirizineandAcetaminophen). Innovation along with Generic Innovation will help gain momentum We believe innovation, along with generic innovation, will help gain momentum for the base business be it in US or in emerging markets. Ranbaxy has proved its capability in innovation. The company developed the first new drug in the country (India) called Synriam (Malarial drug: A new age cure arterolanemaleate 150 mg + piperaquinephosphate 750 mg). After its successfullaunchinIndia,Ranbaxyplanstointroducethedruginothermalaria endemiczones,predominantlyintheAfricanandSouthEastAsianmarkets. In Generic innovation, the innovative streak is evident in the recent launch of Absorica (Isotretinoin) in the US for severe recalcitrant nodular acne. Its an innovation as the product is not a substitute of any existing product. This drug doesnt need to be taken with highfat meals and hence it has an edge over existing competing product. The company had developed a brand similar to this (Sotret) in 2003, which enjoyed good market position. But the FDA issues in 2008 took a toll on the same; else the derma portfolio would have taken off intheUS. BasebusinessintheUShasstabilized
Ba s e Bus i nes s Tota l

Asperthemanagementthereis massivebusinessopportunityin genericinnovation.

GrowthinthebasebusinessandoneoffsintheUS tokeepthemomentumgoing
2,000 1,600 1,200 800 400 (US$ mn)

600 500 400 300 200 100 0

(US$ mn)

One Offs

Tota l

Q1CY10

Q2CY10

Q3CY10

Q4CY10

Q1CY11

Q2CY11

Q3CY11

Q4CY11

Q1CY12

Q2CY12

Q3CY12

Q4CY12

CY13E CY14E CY15E CY08 CY09 CY10 CY11 CY12

Source:Company,IndiaInfolineResearch


Emerging business model: integration at front-end and back-end

Ranbaxy

The frontend and backend integration between the two firms (Daiichi Sankyo and Ranbaxy) is now evident. As per the strategy, Daiichi Sankyo would essentially, but not only, operate in the discovery space and Ranbaxy would operate in the generics and generic innovation space. At the frontend, it would be a hybridbusiness model, i.e. whichever company has a stronghold in any geography, would become the face for both the companies. For instance, in India, Ranbaxy would market all the products of both the companies. And in Mexico, where Daiichi Sankyo is strong, it would market Ranbaxys products in additiontoitsown.InmarketswhereRanbaxyandDaiichiareequallystrongor equallyweak,bothcompanieswouldgotheirownway(quiteevidentfromthe US market operation). We believe, the strategy would be value assertive for both the companies. The evolving synergistichybrid model would prove beneficial in long term. Hence, we cannot rule out the probability of many moreAGlauncheslikeEvoxac,thebrandeddrugofDaiichiSankyo. Hybridmodelwillprovevalueassertive

Source:Company,IndiaInfolineResearch

 KeyproductsunderHybridmodel
Products Olmesartan Olmesartan+Amlodipine Besylate Levofloxacin Prasugrel Pravastatin Bisoprolol Metoprolol Raloxifene Ofloxacin Country India Singapore,GCC,Myanmar,Russia &CIS,Romania,Africa,Africa,LatAm, France,Italy India,Malaysia MEA,Australia,LatAm,Germany, France,Italy,Poland,Portugal,UK Italy Italy Romania Singapore Promoted/marketedby Ranbaxy Ranbaxy Ranbaxy Ranbaxy Ranbaxy Ranbaxy Ranbaxy Ranbaxy Ranbaxy

Ranbaxy

Thecompanyhadsecuredover40% marketshareinLipitor,aheadofstreet estimates

Source:Company,IndiaInfolineResearch

Rich pipeline: Ranbaxy has a rich pipeline of ParaIV filings. We expect sustainablecashflowsfromtheseproductstillCY15.Thecompanyhadsecured over 40% market share in Lipitor, ahead of street estimates but a recallcaused a pause. The Company reacted very fast and corrective measures put Lipitor back on track. Ranbaxy restarted production of Lipitor in Feb 2013 post its withdrawal of the drug in November 2012. We expect Ranbaxy to gain back 15%20% market share in US$200mn market of Lipitor. The company started manufacturing in Ohm Labs, US, and plans to gradually shift production to its Mohali plant in the near to medium term to gain market share with profitable operatingmargins. Ranbaxy withdrew 41 lots of generic Lipitor in US post identification of glass particles in formulations. While the particles originated due to splinters in glass containerduringproductionofAtorvastatinatTonasaAPIplant,Ranbaxywithdrew current inventory to mitigate any possibility of consumption of contaminated drugs. The drugs were recalled at distributors level and posed no major threat to theendconsumers. AfterthebigticketlaunchofLipitorin2012,webelieve2013againwouldbea big launch year for Ranbaxy. We expect Diovan exclusivity and Valcyte exclusivity in 2013. Absorica and Desvenlafaxine are interesting opportunities too and the developments so far have been better than expected. We are confident the company would be able to monetize the opportunity in Nexium too.WecannotruleouttheprobabilityofmanymoreAGlauncheslikeEvoxac, the branded drug of Daiichi Sankyo. We believe the evolving synergistichybrid modelwouldalsoprovetobebeneficialinthelongterm.

Nexiumwouldbenextbigticketlaunch in2014

Ranbaxy

Molecules(revenuecontribution): Key CY15 BrandSize CY13 CY14 Type (US$mn) Date Innovator (US$mn) (US$mn) (US$mn) Comment Brand Daiichi Severegenericization Evoxac AG 62 Launched Sankyo 7 5 3 expectedpostexclusivity MaybepushedtoSep fromMarchexpected Valcyte 0 earlier SoleFTF 300 Sep13E Roches 10 8 Thedrugwentoffpatent in Sep2013 Diovan Sole FTF 1900 H2 CY13E Novartis 200 0 0 Exclusivity endsNov2014; expectsevere Nexium 200 genericization SoleFTF 2675 July14E AstraZeneca 0 400 NoTA(tentativeapproval) yet.Notconsideredin Valuationasuncertain PIVon Purdue 30/40/60/80mg Pharma launchperiod Oxycodone 2930 Uncertain Source:Company,IndiaInfolineResearch ConsentDecreedefined: Ranbaxy signed a Consent Decree with the US FDA in January 2012 to draw resolutions on its plants in Dewas, Paonta Sahib, Batamandi and Gloversville. The company made a provision of US$500mn for eventual penalties that the Department of Justice (DOJ) may levy. Under the Consent Decree, the company agreed with the FDA to further strengthen policies and procedures in order to continue to ensure the integrity of our data and compliance with current good manufacturingpractices. The Consent Decree identified several Ranbaxy ANDAs by a nondescriptive label thatmightbesubjecttoforfeitureifcertainconditionsdetailedintheDecreewere
not met within certain timeframes. While deadline for submitting all additional information on ANDA1, 2, 4, 5 were to submitted by a specific timeline, the decree alerted that ANDA3 would be forfeited in case approval for 180day exclusivity are not received by March 25, 2013. Few market participants expect thattheANDA3couldbeDiovan.Wefeel,theprobabilityofitbeingDiovanisvery low.Butstilltheriskremainstilltheclarityemergesonthiscounter. Source:Company,IndiaInfolineResearch


Update on launched NDAs: gaining strength

Ranbaxy

PotentialbusinessfromAbsoricatobe ~US$200mnoveraperiod

Absorica: It is an NDA brand of Ciphers Isotretinoin developed in partnership withRanbaxy(fortheUSmarket).Absoricacaterstoexternalnodularantiacne market. The product faces limited competition from Teva (Claravis), Mylan (Amnesteem) and Douglas Pharma (Myorisan). The clinical data shows substantial efficacy over competitive brands including Sotret and also Absorica has better absorption profile visvis reference product Accutane (Roches innovator brand). Ranbaxy was market leader in Isotretinoin with its brand Sotretin2008(aftertheFDAissueitstoopedmarketing).WebelievetheSotret franchise would be leveraged by the company to market Absorica. We expect present value of potential business from Absorica to be ~US$200mn over a period. As per the agreement with Cipher, there is a milestone payment + Royalty on sales for the Absorice drug. The company launched the drug in Q4CY12 and market share rampup has been satisfactory. The company currentlyenjoys8%oftheIsotretinoinmarket. Ximino:ItsanNDAofMinocyclineHcltoaddressinflammatorylesionsofnon nodular severe to moderate acne vulgaris. Ranbaxy plans to launch Ximino in H2 2013. Ximino addresses internal acne in subcutaneous area while Absorica caterstoexternalnodularantiacnemarket.Weexpectthecompanytoextract synergy in marketing with the Ximino launch. Minocyclines original branded product Solodyne went offpatent in 2012; Ranbaxy expects Ximino to gain sizeable market share as the drug is only extendedrelease (ER) Minocycline in capsule form. We expect ~US$5mn from the product as it is a small size less competitivemarketwithsevensubstitutecompetitionsfromERtabssegment (sixgenericsandSolodyne;brandedproduct). Desvenlafaxine: Ranbax inlicensed Desvenlafaxine (NDA) from Alembic in Q1 2013. Ranbaxy was also involved in the development of the product. The product is bioequivalent but not therapeutically substitutable to Pfizers depression drug Pristiq (US$590mn in MAT January 2013). We expect Ranbaxy to ramp up its market share gradually over the next two years implying opportunityworth~US$50mn.Butrisktoourassumptionwouldbeapprovalof AB rated generic drug. On a positive side, it can also be extended limited competition opportunity (31082015). Alembic also has FTF in Pristiq with Breckenridge;MylanandWatsonareotherfilers. Pay offsofkeyproduct(revenuecontribution) BrandSize CY13 CY14 CY15 Brand Type (US$mn) (US$mn) (US$mn) (US$mn) BrandedLimited Abscorbia 800 60 80 100 competition Ximino Branded,NDA 400 5 5 5 Branded,NDA 900 10 20 20 Pristiq Source:Company,IndiaInfolineResearch

RanbaxyexpectsXiminotogain sizeablemarketshareasthedrugis onlyextendedrelease(ER)Minocycline incapsuleform

Risktoourassumptionwouldbe approvalofABratedgenericdrug

Comment licensedfromCipher 7Playermarket Alembicpartnership;limited competitionopportunity


Domestic business is still a key focus market

Ranbaxy

Top9Brands Revital MoX Storvas Volini Cifran Zanocin Cepoderm Moxclav
Source:Company,IndiaInfolineResearch

The company underperformed the market in last few years. But with renewed strategy and restructuring activity, the company aims to strengthen under represented market segments. After Project Viraat, which aimed atcapitalising on the growing opportunities in the rural areas and the hospital market, the company is now working towards consolidation of products launched and improvingproductivity.Postthis,companyishopefulofregainingitslostsheen in the domestic market. Even leveraging synergies from the hybridbusiness model(launchedtwoinnovatorproductsofDaiichiSankyo,OlvanceandPrasita in2010and2009respectively)willhelpRanbaxytoaccelerategrowth.Biotech and Vaccines are also two new growth areas which can add momentum to domestic business. The lead vehicle for these will be Zenotech (Biotech) and RanbaxyBiologics(Vaccines).

In2011,Olvancemovedfromrank6to rank4,Prasitahasmovedup6ranksto occupytheNo.2slotinitstherapy Salesforceproductivityimprovement andbrandbuildingarethekeyfactors fordomesticgrowth TilttowardsAcuteportfolioisakey concern

As a part of a renewed strategy the company also has hired Mr Rajiv Sibal for the India business (from Glenmark). Current therapy mix reflects the IPM with Acute therapy contributing ~70%+ of total business. Company is aiming to strengthen its chronic portfolio. While chronic segment is growing at a higher pace than acute, we believe consolidation of acute portfolio and increasing reach of chronic drugs will work for the company. Ranbaxy already has one of the largest distribution networks that comprises over 5000 field force. The company has dedicated task forces for specialised & chronic therapies. The companys 9 brands feature in industry Top 100. Key therapeutic areas are Antiinfectives, Cardiovascular, Gastrointestinal, Nutritionals, Dermatologicals, Orthopedics, Urology, Central Nervous system and Asthmatics. The company has 9 product ranked in top 100 prodcts in the domestic market. Revital with ~US$41mn revenue has 90% market share in its segment followed by Volini (~US$20mn) which has market share of 45%. The antiinfective drug Mox has marketshareof42%initscategory.
Impact would be higher but short lived

The impact of price control under NPPP will be higher for Ranbaxy, given that Ranbaxys products are priced at a premium and the domestic market share at 4.6%. We believe the impact can be in the range of ~Rs500mn for next two years. Domesticbusinessstabilising..
7,000 6,000 5,000 4,000
15,000

..expectmoderategrowth
30,000 25,000 20,000 (Rs mn)

(Rs mn)

3,000 2,000 1,000 Q1CY10 Q2CY10 Q3CY10 Q4CY10 Q1CY11 Q2CY11 Q3CY11 Q4CY11 Q1CY12 Q2CY12 Q3CY12 Q4CY12
10,000 5,000 CY13E CY14E CY08 CY09 CY10 CY11 CY12

Source:Company,IndiaInfolineResearch


Europe; the third largest revenue contributor is out of the woods now

Ranbaxy

The company has now evolved a robust model for troubled European region whereintheemphasiswillbeonthebrandedmarketsforEasternEuropewhile continuing to serve the commoditised Western European markets. To achieve the necessary focus, the region has been segmented into Western Europe and EasternEurope.Weexpect18%CAGRinCY1215E WesternEuropestabilising
80 70 60 50 40 30 20 10 Q1CY10 Q2CY10 Q3CY10 Q4CY10 Q1CY11 Q2CY11 Q3CY11 Q4CY11 Q1CY12 Q2CY12 Q3CY12 Q4CY12 (US$ mn)

andEasternEuropeandCISimproving
80 70 60 50 40 30 20 10 Q1CY10 Q2CY10 Q3CY10 Q4CY10 Q1CY11 Q2CY11 Q3CY11 Q4CY11 Q1CY12 Q2CY12 Q3CY12 Q4CY12 ($USmn)

Source:Company,IndiaInfolineResearch

20%CAGRexpectedinEuropeinCY1214E
35,000 30,000 25,000 20,000 15,000 10,000 5,000 CY13E CY14E CY08 CY09 CY10 CY11 CY12 (Rs mn)

Source:Company,IndiaInfolineResearch


Expect 15%+ growth in Asia Pac and Middle East and Africa expected to grow in higher single digit

Ranbaxy

ThecompanyhascompleteditsmajorrestructuringprocessinAPAC.Company hassetupgreenfieldmanufacturingfacilityinMalaysia;thebrandedbusinessin Russia is also robust. We expect 11% growth in APAC and Middle East. Africa we expect 10% CAGR in CY1215E. We believe unstable political scenario is impactingAfricadespitesettingupofanewplantatMorocco. Trendinvariousgeographies
100 90 80 70 60 50 40 30 20 10 (US$ mn)

Afri ca

As i a pa ci fi c&Mi ddl e Ea s t

La ti n Ameri ca

Q1CY10

Q2CY10

Q3CY10

Q4CY10

Q1CY11

Q2CY11

Q3CY11

Q4CY11

Q1CY12

Q2CY12

Q3CY12

Q4CY12

Source:Company,IndiaInfolineResearch

AsiaPacificandMiddleEastexpectedtoregister 14%CAGRoverCY1214E
12,000 10,000 8,000 6,000 4,000 2,000 CY13E CY14E CY08 CY09 CY10 CY11 CY12 (Rs mn)

ModerategrowthinAfrica
12,000 10,000 8,000 6,000 4,000 2,000 CY13E CY14E CY09 CY10 CY11 CY12 (Rs mn)

Source:Company,IndiaInfolineResearch


Base margin improvement imminent

Ranbaxy

DismalQ4CY13wasabigdisappointment.TheQ4marginsweresuppressedon account of approx Rs1bn in nonrecurring costs and suppressed gross margins. The gross margins were suppressed on higher inventory writeoffs, greater contribution from tender business and consumption of highcost inventory. The overhead cost for Ranbaxy is significantly higher. Additionally, the costs associated with resolution of the FDA issues made margin look worst. Though FDArelatedexpenseswillcontinuetillnext2years,othersbeingnonrecurring. We think its the bottom for the operating margin and there is enough scope for improvement. The management strongly believes with the growing base business, EBITDA margins will return to initial ~20% over the next 34 years. In addition,thereareorganizationalandproductivityrelatedinefficiencies,which are now being addressed through various productivity improvement initiatives kickstartedinCY12. Adjbasemarginimprovementimminent
12.0 10.0 8.0 6.0 4.0 2.0 CY13E CY14E CY08 CY09 CY10 CY11 CY12 (%)

FDArelatedexpenseswillremaintill nexttwoyears

AdjconsolidatemargintofluctuatewithFTF
30.0 25.0 20.0 15.0 10.0 5.0 CY13E CY14E CY08 CY09 CY10 CY11 CY12 (%)

Source:Company,IndiaInfolineResearch(AdjAdjustedforForex)

Base revenues to clock CAGR of 11% in CY12-14E

We expect 11% CAGR in CY1214E in base revenue and 5% CAGR in total revenues. We believe the growth is achievable even at higher base of FY12, with FTF opportunities, growth in the US base business and consistent growth indomesticformulations. Basebusinesstowitness11%CAGR
120,000 100,000 80,000 60,000 40,000 20,000 CY13E CY14E CY08 CY09 CY10 CY11 CY12 (Rs mn)

GrowthinTotalrevenue(5%CAGR)
160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 CY13E CY14E CY08 CY09 CY10 CY11 CY12 (Rs mn)

Source:Company,IndiaInfolineResearch

10


Forex liability to dampen net performance with Rupee depreciation; but most of it is capped now

Ranbaxy

Rupee depreciation has resulted in incremental forex losses of Rs19bn and Rs13bn for Ranbaxy in CY11 in CY12. The derivative exposure is now down to ~US$1.07bn as on Dec 31, 2012 from ~US$1.27bn in Q3 CY12. Ranbaxys outstanding currency positions include US$655m of structured currency options at 22.5 times, maturing in a gradual manner till 2016 (US$40mn/month).
Concerns
DelayintheconversionofDiovanANDA Unfavorableforexmovement CompanytakesmorethanexpectedtimetocomeoutofUSFDAissues Therewouldbemarginpressureifbasebusinessimprovementdoesnot

takeplaceinthesamepaceasexpectedbyus
LosingmorefrontendormarginaccretivebusinesstoDaiichi

11


Outlook & Valuation

Ranbaxy

The stock corrected around 25% in last quarter post Q4 CY12 poor results. We believe the compounded effect of delay in Diovan, Lipitor recall and poor Q4CY12 together contributed to the fall. But, the stock bounced back quickly post the upgradation by many brokerage houses. We believe the current valuation coupled with the clarity over organisation structure makes Ranbaxy stillavaluebuy.Weexpectthecorebusinessoperatingmargintoimproveand better cash flow from visible FTF opportunities to aid Ranbaxy in setting the clock back again to the 2008 level. Higher probability of growth and clarity of monetizing FTF opportunity will limit the downside from hereon. We rate Ranbaxy BUY with a price target of Rs500 which values base business at Rs442 andFTFatRs58. 1yearForwardAdjPEband
1,200 1,000 800 600 32.3 400 200 0 Apr09 23.5x 14.6x 5.7x Jan10 Oct10 Jul 11 Apr12 Jan13 Apr09 Jan10 Oct10 Jul 11 Apr12 Jan13 16.0 8.0 (Rs)

Improvingfundamentalsledrerating
48.0 40.0 32.0 24.0 (x) 1yrfwdPE MeanfwdPE

Source:Company,IndiaInfolineResearch(AdjAdjustedforForex)

12


Company Background

Ranbaxy

Ranbaxy is Indias largest pharmaceutical company. Ranbaxy is a member of theDaiichiSankyoGroup.Ranbaxy&DaiichiSankyocombinedrankamongthe top20globalpharmaceuticalcompanies.Thecompanyhasgroundpresencein 40 countries, products sold in over 150 countries and manufacturing locations in8countries.Thecompanyhasstrongpresenceinmultiplemarketsviz.North America, Europe, Latin America, Africa, Asia including Middle East. It is one of the leading Indian companies in the US with a combination of plain vanilla generics and large ticket patent challenge pipeline. Additionally, through strategic inlicensing opportunities and its hybrid business model with Daiichi Sankyo, a leading global pharma innovator headquartered in Tokyo, Japan, Ranbaxy is introducing many innovator products in markets around the world, where it has a strong presence. In 2008 Its US business got affected due to regulatory issues at two of its manufacturing facilities in India. The company is nowinConsentDecreeinaddressingtheseissues. ManufacturingStrengths:ThecompanyhascGMPcompliantworldclassAPI& Dosageformsmanufacturingfacilitiesacrosstheglobe.Ithas8manufacturing locationsworldwideViz.USA(OhmLabs)Ireland,Romania,Nigeria,India, SouthAfrica,MoroccoandMalaysia. Revenuebreakup
7% 3% 37% 9% Europe 4% 5% CIS Asia Pacific Africa LatinAmerica 14% API& Others 21% NorthAmerica India+ME+Srilanka

Keyacquisitions&alliancessince2006
Acquired Terapia(Romania) BeTabs(SouthAfrica) Allen(Italy) Mundogen(Spain) Zenotech(India) CardinalDrugs(India) Year 2006 2006 2006 2006 2009 2007

Biovel*(India) 2010 *Acquiredproductrightsandmanufacturingfacilityfrombiovel

Source:Company,IndiaInfolineResearch(AdjAdjustedforForex)

13


Financials

Ranbaxy

Incomestatement
Y/e31Mar(Rsmn) Revenues BaseRevenue Operatingprofit Depreciation Interestexpense Otherincome Profitbeforetax Taxes Minoritiesandother ReportedPAT AdjutedPAT BasePAT CY11 CY12 CY13E 102,295 124,597 113,424 102,295 91,161 100,157 16,041 18,227 18,278 (3,940) (3,202) (3,341) (3,064) (3,036) (1208) 1,444 2,732 2,068 10,481 14,720 16,076 (1,969) (2,939) (2,844) (37,508) (2,554) (156) (28,996) 9,227 12,798 16,912 22,844 12,954 4,529 4,789 5,790 CY14E 136,612 113,206 29,920 (4,036) (808) 2,068 27,124 (4,844) (188) 21,878 22,066 9,427

Keyratios
Y/e31Mar Growthmatrix(%) Revenuegrowth Opprofitgrowth EBITgrowth Netprofitgrowth Profitabilityratios(%) OPM EBITmargin Netprofitmargin RoCE RoNW RoA Pershareratios ReportedEPS Dividendpershare CashEPS Bookvaluepershare Valuationratios AdjP/E P/CEPS P/B EV/EBIDTA Payout(%) Dividendpayout Taxpayout Liquidityratios Debtordays Inventorydays Creditordays Leverageratios Interestcoverage Netdebt/equity Netdebt/op.profit CY11 9.0 (12.8) (18.6) 15.7 20.9 (28.3) 27.2 (68.4) (20.1) (68.5) (77.8) 67.8 11.0 6.5 11.4 18.8 107 93 253 7.0 (0.1) (0.2) 8.0 (0.3) (0.7) 60 80 175 19.6 (0.3) (0.9) 20.0 60 80 175 34.6 (0.6) (1.5) 8.2 31.0 4.6 9.5 18.0 60 80 175 21.7 14.2 96.1 14.4 19.7 3.5 9.3 18.0 14.6 19.4 7.4 36.6 26.5 6.2 30.1 22.2 126.2 8.5 10.5 2.5 4.8 CY12 21.8 13.6 12.8 16.1 20.9 11.3 29.8 27.1 8.4 51.5 42.0 177.6 CY13E (9.0) 0.3 (2.0) 38.7 21.9 26.4 16.0 38.5 33.9 13.0 CY14E 20.4 63.7 52.1 70.9

Balancesheet
Y/e31Mar(Rsmn) Equitycapital Reserves Networth Minorityinterest Debt Deferredtaxliab(net) Totalliabilities Tangibleassets Intangibleassets Investments LongtermAssets Networkingcapital Inventories Sundrydebtors Othercurrentassets Sundrycreditors Othercurrentliabilities Cash Totalassets CY11 CY12 CY13E 2,117 2,126 2,126 26,577 38,717 51,515 28,694 40,843 53,641 810 890 1,045 28,317 33,133 30,195 (375) (357) (357) 57,446 74,508 84,525 34,193 35,761 37,420 16,380 16,395 16,395 956 770 770 10,108 11,114 11,114 (34,827) (35,536) (27,505) 26,107 27,314 24,832 30,053 20,368 18,596 8,316 6,438 6,681 (70,998) (59,834) (54,331) (28,305) (29,820) (23,285) 30,637 46,004 46,330 57,446 74,508 84,525 CY14E 2,126 73,393 75,519 1,234 26,031 (357) 102,427 38,384 16,395 770 11,114 (33,232) 30,003 22,469 8,073 (65,644) (28,133) 68,996 102,427

Cashflowstatement
Y/e31Mar(Rsmn) Profitbeforetax Depreciation Taxpaid Workingcapital Operatingcashflow Capitalexpenditure Freecashflow Equityraised Investments Debtfinancing/disposal Dividendspaid Otheritems Netincash CY11 10,481 3,940 (1,969) 47,716 60,168 (5,216) 54,952 (44,262) 4,029 (15,179) (4) (1,544) (2,007) CY12 14,720 3,202 (2,939) 709 15,692 (4,786) 10,907 (10,695) 186 4,834 10,136 15,367 CY13E 15,797 3,341 (2,844) (8,031) 8,264 (5,000) 3,264 (2,938) 326 CY14E 26,910 4,036 (4,844) 5,727 31,830 (5,000) 26,830 (4,164) 22,666

DuPontAnalysis
Y/e31Mar Taxburden(x) Interestburden(x) EBITmargin(x) Assetturnover(x) Financialleverage(x) RoE(%) CY11 (2.77) 0.49 0.21 0.71 3.40 (68.4) CY12 0.63 0.61 0.19 0.83 4.31 26.5 CY13E 0.81 0.67 0.21 0.75 3.22 27.1 CY14E 0.81 0.75 0.26 0.81 2.60 33.9

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Recommendationparametersforfundamentalreports: BuyAbsolutereturnofover+10% MarketPerformerAbsolutereturnbetween10%to+10% SellAbsolutereturnbelow10%

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