Ranbaxy Labs - Q1CY12 Result update/ Estimate change - Centrum

Hold
Target Price: Rs464
CMP: Rs511
Downside: 9.2%

Strong growth in US business

Ranbaxy Labs (RLL) has reported better than expected results due to higher margin, forex gain on derivatives and lower tax provision. RLL reported 71%YoY growth in revenues due to FTF opportunities of generic Lipitor and Caduet in the US market. EBIDTA margin improved by 760bps YoY from 19.2% to 26.8% due to high margin FTF opportunities. The company's other income grew by 98%YoY from Rs690mn to Rs1,366mn due to Rs750mn forex gain on loans. RLL reported forex gain of Rs3,447mn on derivatives. The company's net profit grew by 310%YoY due to the rise in EBIDTA margin, forex gains and lower tax rate. We have retained Hold rating for the scrip with a target price of Rs464 (based on 23x CY13E base EPS of Rs20.0+FTF of Rs2.9).

- Good revenue growth: During the quarter, RLL's domestic business grew by 14%YoY from Rs4.44bn to Rs5.04bn. Its outside India business grew by 88%YoY from Rs16.98bn to Rs31.92bn.

- Sharp margin improvement: RLL reported 760bps improvement in EBIDTA margin from 19.2% to 26.8% due to FTF opportunities of generic Lipitor and Caduet in the US market. The company's other expenses were up by 128%YoY from Rs6.19bn to Rs14.09bn due to profit sharing with Teva for generic Lipitor.

- Atrovastatin – the future growth driver: RLL has commenced supplies of generic atorvastatin tablets to US market from its Mohali facility after receiving US FDA approval in April'12. Being an integrated player, the company is likely to benefit from these supplies. Even after the 180-days exclusivity of Lipitor and Caduet ending in May'12, RLL is likely to become a major player in the US generic market.

- New products pipeline: During Q1CY12, RLL has filed 53 dossiers and received 20 approvals. The company has filed 13 DMFs during the quarter. These products are likely to drive future growth of the company.

- Other developments: RLL has launched India's first new drug Synriam for the treatment of plasmodium falciparum malaria in adults. RLL has filed a Consent Decree (CD) with US FDA. The company is establishing new manufacturing facilities at Morocco and Malaysia to cater to local demand.

- Reiterate hold: We expect RLL to report improved performance in the US business in CY12 due to FTF opportunity of generic Lipitor and Caduet and better growth in the domestic market. We have revised EPS estimates upwards by 13% for CY12 and 3% for CY13. Despite this, valuations are rich. At the CMP of Rs511, the stock trades at 17.2x CY12E EPS of Rs29.7 (Rs10.0base busi.+Rs19.7FTF) and 22.2x CY13E EPS of Rs22.9 (Rs20.0base+Rs2.9FTF). We retain Hold rating for the scrip with a target price of Rs464 (based on 23x CY13 base +1*FTF).

Source : Equity Bulls

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