Ranbaxy Q4 - One-off expenses, absence of Atorva mar profits - Axis Direct

Ranbaxy Lab's Q4CY12 reported numbers are not comparable YoY due to exclusivity sales of Atorvastatin in Q4CY11. Q4 revenue at Rs 27 bn (up 10% YoY on like-to-like basis) was in line with our estimate. However, EBITDA margin at 3% (vs. 11% estimated) was impacted by one-off expenses of ~Rs 1 bn (bunching up of R&D, remedial measures under Consent Decree, and productivity enhancement project).

Adjusting for one-offs, EBITDA margin was ~8%. Gross margin (57% vs. 61% estimated) was also impacted by INR depreciation. Consequently, Ranbaxy reported adj. loss (excl. Atorva, forex losses) of Rs 106 mn vs. Rs 2.5 bn profit estimate.

Atorva production resumes but market share loss difficult to recoup: Q4 saw exceptional loss of Rs 1.9 bn due to recall of Atorva from US market in mid-Nov '12. Though the company has resumed production from 22 Feb 2013, regaining lost market share would be challenging.

Reduce estimates; maintain BUY (20% upside from CMP)

We reduce our CY13E EPS by 4% to Rs 28 as we factor in base margin of 12% vs. 13% earlier. We introduce CY14E EPS of Rs 27 and rollover our valuation to CY14E. Our revised TP stands Rs 501 (16x CY14E EPS of Rs 27 + Rs 67 for pipeline) vs. Rs 560 earlier (18x CY13E EPS + Rs 115 for pipeline). Maintain BUY given 20% upside from CMP of Rs 417. At CMP of Rs 417, the stock trades at 15x CY13E/ CY14E EPS.

Source : Equity Bulls

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