Ranbaxy Laboratories - Another import alert, target price achieved; downgrade to Sell - Anand Rathi

USFDA sounds import alert on Mohali plant. Ranbaxy received another import alert on its Mohali plant, which brings all its three plants dedicated to the US under import alert. This leaves Ohm Labs, in the US, as the sole supplier to the geography. This import alert follows Form 483 issued to the facility earlier this year by the USFDA with several observations.

No immediate financial impact, long-term recovery to be hit. We do not expect any immediate impact on financials of the company as there were no supplies to the US market from Mohali plant. However, the company would not be able to build future pipeline for the geography from this plant. Further, the company would not be able to supply Lipitor from this plant now. Also, there could be delays in new product launches.

Diovan, Nexium and Valcyte remain key triggers. The management remains confident of monetizing all the FTF opportunities namely, Diovan, Nexium and Valcyte. Diovan and Valcyte are near-term opportunities. Launch of these products, with 180 days exclusivity, would be a positive. However, any delay in launch of these FTF products could provide downside to our estimates.

Our take. We expect base business margins to continue to improve, led by high-margin products in the US, recovery in domestic formulations and reduction in remediation costs pertaining to the consent decree. However, the import alert would delay the recovery. We downgrade the stock to Sell from Buy, considering this import alert and target price already achieved. Risks. Upside risks to our estimates could come from early resolution of the import alert and timely launch of FTF opportunities.

Source : Equity Bulls

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