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Research
Accumulate Ranbaxy Laboratories - Valtrex doses up growth - Elara Capital
Posted On : 2010-08-17 20:02:35( TIMEZONE : IST )
- Ranbaxy Laboratories
- Rating : Accumulate
- Target Price : INR527
- Upside : 19%
- CMP : INR443 (as on 13 August 2010)
Valtrex again surprises in Q2, key geographies lend support
Ranbaxy Laboratories has reported a better than expected Q2 2010 results with net sales attaining a 14% YoY growth at INR21.5bn, 6% more than our estimates. Positive developments in key geographies such as India, US, Germany, Russia, and the UK have contributed to the overall growth of the company. However, we believe that the USD65mn earned from Valtrex sales was the key differentiator in Q2 as the company had exclusivity benefits on the drug till May 2010.
Core business remains flat sequentially
As per our estimation, the company has performed flat or marginally down in its core business globally. We believe that the addition of 1500 sales reps and high costs on site transfers of ANDAs (from Poanta Sahib and Dewas) are the prime reasons for the muted performance.
Reaffirm revenue potential of all FTFs (First-to-file) in portfolio
The management has re-confirmed that all avenues would be explored to utilise the opportunity arising from its FTF portfolio. While the company has denied any specifics, it may utilise the monetizing opportunity in out-licensing FTFs to generic companies, in case Ranbaxy is unable to secure the US FDA approval for these. We expect Ranbaxy's Donepezil FTF to experience the Flomax-like deal of 2010.
Valuation: Remain optimistic, maintain Accumulate
Given factors such as the prospect of monetizing opportunities in the FTF portfolio, the near term possibility of launching or monetizing generic Aricept and a stronger visibility in Nexium supply to Astrazeneca, we believe that Ranbaxy has positive surprises in store for coming quarters. Domestic formulations, post the "Project Viraat", is poised to grow higher than in the past while the core business in developed markets shows a strong sign of sustainability with mid-teen operating margin. The stock trades at PE 19x and 15x of core business EPS in 2010 and 2011, respectively. With a 19% upside to our target price of INR527, we maintain Accumulate.
