Buy Ranbaxy Labs - TP Rs.559 - Emkay

Buy, Target Price Rs 559 Gradual improvement in base business

Base business to improve: Base business is expected to grow by 27% in CY12 and 17% in CY13 on back of strong growth in US and Rupee depreciation benefit. Base Ebidta margins will expand by 400bps in CY12 to 12% and 200bps in CY13 to 14%.

Niche launches to drive US business: Strong Para IV pipeline which includes Actos and Diovan will contribute USD315mn in revenues and EPS of Rs23 in CY12/ 13E. We expect base US business to grow at 42% CAGR over CY11-CY13E to USD645mn. Launch of Absorica under the Cipher Deal is another potential catalyst as this opportunity may add USD80-100mn in revenues over the next 2-3 years.

India business to witness gradual growth: India business is expected to witness gradual improvement led by improvement in the company's Acute portfolio (contributes 83% of domestic business). We expect India business to clock 12% revenue CAGR over CY11-13E. Launch of Synriam (new combination anti-malrial molecule) in India is expected to garner better volumes as it is made synthetically and has better efficacy compared to existing molecules.

Consent decree at Paonta Sahib & Dewas: Company has entered into consent decree with USFDA. Resolution of Poanta Sahib and Dewas can lead to USD 100mn of revenues over period of 2-3 years, not built in our estimates.

Near term catalyst and earnings performance: We expect Ranbaxy to report 27% growth in base business revenue in CY12E and 17% in CY13E. Base EBIDTA margins are expected to increase from 8.2% in CY11to 12.5% in CY12E & 14.1% in CY13E. Base Earnings are expected to register 9% CAGR over CY11-13E to Rs11.4bn clocking an EPS of Rs27 in CY13E. We value the base business at Rs543 (20x CY13E base EPS of Rs27 and NPV of Rs16). Maintain positive bias.

Source : Equity Bulls

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