Reduce Ranbaxy Laboratories - PINC Event Update

Clarity on consent decree awaited

Ranbaxy has signed a consent decree with the USFDA committing to strengthen its procedures and policies as well as to comply with cGMP. The company has also indicated that it intends to make a provision of USD500mn with regards to investigation by the U.S. DOJ. Although this is an important step towards the long awaited USFDA and DOJ issue resolution and would be sentimental positive for the stock. However, the company has not provided any clarity on the terms of the consent decree and would make it public in the next few weeks. We are estimating launches of products from Indian facilities from H2CY12. Further, the amount of penalty is higher than estimated and would negate the expected cash flow of USD450mn from FTF opportunities in CY12.

We maintain 'Reduce' rating on the stock and value the core business at Rs329/share (22x one year forward recurring earnings), FTF pipeline at Rs81/share and reduce Rs55/share for the penalty provision resulting in revised SOTP based target price of Rs355.

Source : Equity Bulls

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