Ranbaxy Laboratories - Base business margins to remain under pressure; Sell - Anand Rathi

Low base to show good performance. We expect 12.7% yoy revenue growth on a low base, led by strong growth in the base US business, East EU and CIS businesses. Its base business' EBITDA margin is expected to improve 540bps yoy, to 8.4%, mainly on account of very low base in 4QCY12 (lower ever margins). We believe that the base business margins would remain under pressure (below 10%) in near-to-mid term. We expect adjusted PAT to improve eight times yoy due to low base again and better margins. We have not factored in any MTM forex gain/loss on currency fluctuation.

Steady revenue growth to continue. We expect revenue from the base business (excl. Para IV) to grow 12.7% yoy, led by 20%+ yoy growth in the US generics with higher sales of Absorica. Eastern EU and CIS are expected to report 20%+ yoy growth in revenue, led by new product launches and increased supplies. Domestic formulations would remain under pressure due to impact of implementation of new drug pricing policy and trade disruptions on margin issues with wholesalers and retailers.

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. 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.

Our take. We expect that base business margin recovery would further get delayed with import alert being imposed on Mohali unit. We expect 11.9% revenue and 35% adjusted PAT CAGR over CY12-15 with base business margin expansion of more than 300bps. We maintain a Sell on it, with a price target of Rs. 375 based on 18x one-year forward earnings. Risks. Currency fluctuations, regulatory hurdles.

Source : Equity Bulls

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