Ranbaxy settles the US suit - Angel Broking

Ranbaxy Labs settled the US suit by pleading guilty to "felony charges" relating to manufacture and distribution of certain adulterated drugs made at two India units, the US subsidiary of Ranbaxy today agreed to pay US $ 500mn - the largest settlement with a generic medicine maker till date.

Ranbaxy also agreed to pay a criminal fine and forfeiture totaling US $150mn and to settle civil claims under the False Claims Act and related State laws for US $350mn. Ranbaxy USA pleaded guilty to three felony counts under Federal Food Durg and Cosmetics Act (FDCA), and four felony counts of knowingly making materially false statements to the Food and Drug Administration (FDA).

With this settlement, the long lawsuit is now over for the company and since the amount in terms of penalty is same as earlier provided by the company, it's positive for the company both from short and long term perspective.

Thus, with this development, one of the overhangs on the stock is out. However, we believe that stock will be closely monitoring its operating performance, which we believe will take some time to improve. As in the latest quarter the company posted operating margins of ~6-7%, which is much below its peers and hence was the main reason for the stocks under performance. According to the Management it will take 3-4 years before margins come in line with its peers. Thus, while valuations are very attractive for a long term perspective, we believe that the stock from a near term perspective looks fairly valued, especially given our operating estimates are still on the higher side then the delivery and hence can pose a cause of disappointment and hence we remain neutral on the stock.

Source : Equity Bulls

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