Ranbaxy Laboratories - Waiting for trend-setting signs - Accumulate - Elara Capital

• Rating : Accumulate
• Target Price : INR504
• Upside : 10%
• CMP : INR458 (as on 11 May 2010)

Waiting for trend-setting signs

FTFs maintain growth momentum

Revenues from generic FTFs (Valtrex and Flomax) have driven reported sales growth of the company. We expected competition from authorized generics (AG) to dampen the growth of Valtrex as per the settlement between GSK and Ranbaxy. However, GSK was unable to introduce AG in the US and Ranbaxy utilized the opportunity to the fullest extent. Ranbaxy has also launched AG of oxycodone in the US in Q1 2010 while we expect a limited upside opportunity from the drug.

Valtrex, Flomax keep cash counters busy

With a 64% market share (as per IMS data), Ranbaxy has achieved Valtrex sales of USD150mn in Q1 2010 and USD260mn in all since its launch in December 2009. We expect Valtrex to also help achieve a strong sales growth in Q2 2010. Ranbaxy which gets benefits out of the exclusivity settlement with Astellas/Boehringer for Flomax has received USD50mn in Q1 2010 and USD15mn in 2010 as a whole.

Core business gains traction in conventional markets

Ranbaxy has regained some of its old glory in LatAm, Russia and CIS, Africa and major Asia Pacific markets after a long time. While sustaining growth in Russia could be a tough task post the new price regulation, we note that the company is poised to gain from its reach and approvals for new drugs.

Headline margins show signs of a positive trend

We believe that the management's guidance of USD100mn ex-forex gain/loss is likely to be revised in Q2 2010 if the company maintains the current growth momentum in major markets. We expect the generic competition in Valtrex (post the exclusivity from May 2010 onwards) to present a key challenge for the company to sustain the traction in sales and headline margins. With a 17% YoY sales growth and a 20% EBITDA margin, we observe that the company has presented the best performance in core business for the decade. However, we would still wait and observe the potential of leading indicators to become a trend in the near future. With opaque signals on Lipitor and the supply of Nexium to Astrazeneca, we maintain Accumulate on the stock.

Source : Equity Bulls

Keywords