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Published by Angel Broking
16th September 2013
16th September 2013

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Categories:Types, Business/Law
Published by: Angel Broking on Sep 16, 2013
Copyright:Attribution Non-commercial


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Please refer to important disclosures at the end of this report
 After the problems at Ponta Sahib and Dewas, the USFDA is said to have issuedan import alert on Ranbaxy Laboratories (Ranbaxy)’ Mohali unit. The Mohaliplant, being a new one, wasn’t manufacturing full scale, but most of thecompany’s new drugs were being slated to be manufactured at this plant. Thecompany was earlier issued Form 483 for Mohali in 2012. This means there werecertain manufacturing practices which the USFDA had already pointed out beforeto the company and the company had time to comply with the problems theUSFDA had bought up, which it however failed to rectify.
Implication of possible import alert for the Mohali facility 
Since Ranbaxy could not comply with the issues raised in Form 483, the samehave now converted into an import alert. While the Ponta Sahib and Dewas unitsare out of trouble with the USFDA decree, the Mohali plant is crucial for thecompany’s future growth, as in the last three years the company has made filingsfrom Ohm and Mohali. According to the company, the filings from Ohm andMohali total to around US$6bn of brand value at present and these new facilitieswere expected to contribute more than 75% to the business even after Dewas andPonta Sahib get cleared from issues five years down the line.
Road cleared for Ponta Sahib and Dewas facilities but timelines uncertain
Post the USFDA’s adverse action in early CY2009 (AIP invoked on Ponta Sahibfacility and import alert issued for Dewas facility), Ranbaxy’s US sales had beenimpacted but for first-to-file (FTF) products. Ranbaxy has signed a consent decreewith the USFDA regarding the ongoing Current Good Manufacturing Practices(CGMP) issues. We note that the consent decree lays out a plan of action asagreed by the two parties to resolve the outstanding issues. However, the timelineregarding the resolution is still unclear. As per Ranbaxy’s Management, the company has taken corrective actions, as persuggestions by a consultant, and has been working closely with the USFDA toresolve issues. Ranbaxy settled a US suit by pleading guilty to felony chargesrelating to manufacture and distribution of certain adulterated drugs made at twoof its Indian manufacturing units. The US subsidiary of Ranbaxy agreed to pay apenalty of US$500mn, which is the largest settlement with a generic medicinemaker till date. With this settlement, the long lawsuit is now over for the company but the timeline for the final approval and subsequent export of products fromthese facilities is not yet certain.
Outlook and valuation:
Given that sometimes import alters take longer to resolve,as seen in the case of Ranbaxy (came in in 2008 and still unresolved), they couldbe a huge setback for Ranbaxy as it now has only Ohm Labs to service its USbusiness. We await more clarity from the Management on the exact impact of thedevelopment on the financials of the company, especially on the OPM. On thesales front, it is unlikely to have a major impact as the Mohali facility is fairly new(has been approved in October 2011) and has been supplying to the US only since1QCY2012. Hence we are not changing our estimates on the stock as of now.However, given the likely impact the development can have on the future growthof the company and the adverse impact on profitability (unless the issue isresolved soon), the stock will trade at a huge discount to its peers.
Hence wereduce our, rating to Neutral on the stock.
457Target Price -
Investment Period -
Stock InfoSector1,564 Bloomberg CodeShareholding Pattern (%)Promoters63.5MF / Banks / Indian Fls13.4FII / NRIs / OCBs13.1Indian Public / Others10.0 Abs. (%)3m1yr3yrSensex2.96.91.6Ranbaxy20.9(15.5)(9.3)RBXY@INFace Value (
)BSE SensexNifty Reuters CodePharmaceutical Avg. Daily VolumeMarket Cap (
cr)Beta52 Week High / LowNet Debt (
cr)19,7335,851RANB.BO19,3471.2564/254232,724 5
Sarabjit Kour Nangra
+91 22 3935 7800 Ext: 6806sarabjit@angelbroking.com
Ranbaxy Labs
Mohali plant likely to be under USFDA import alert
Event Update | Pharmaceutical
September 16, 2013
Ranbaxy Labs | Event Update
September 16, 2013
Exhibit 1:
Key Financials
Y/E March (
cr) CY2011CY2012CY2013ECY2014ENet Sales 9,967 12,166 10,400 11,331
% chg 16.822.1
(14.5) 8.9
Net Profit 638 2,507 481 642
% chg (44.7) 293.1 (80.8) 33.6
EBITDA (%) 15.1 59.3 11.4 15.2
) 14.4 22.3 6.6 8.4P/E (x) 30.3 7.7 40.2 30.1P/BV (x) 15.1 72.1 11.1 13.1RoE (%) 12.9 24.3 3.3 5.2RoCE (%) 6.7 4.7 4.2 3.7EV/Sales (x) 2.3 1.7 2.0 1.7EV/EBITDA (x) 15.7 7.7 29.5 20.8
 Source: Company, Angel Research; Note: CMP as of September 13, 2013
Exhibit 2:
Recommendation summary 
Company Reco. CMPTgt. priceUpside FY2015E FY12-15EFY2015E(
)%PE (x)EV/Sales (x) EV/EBITDA (x)CAGR in EPS (%)RoCE (%)RoE (%)
 Alembic Pharma. Buy 136165
9.91.3 6.825.534.234.7 Aurobindo Pharma Buy 183271
8.91.1 6.726.413.118.9Cadila Healthcare Buy 664894
14.91.9 Buy 438504
18.42.9 12.812.116.816.8Dr Reddy's Accumulate 2,2432,535
17.72.5 12.610.818.321.8Dishman Pharma Buy 4773
2.60.7 3.316.311.411.0GSK Pharma* Neutral 2,286-
36.16.1 25.9(7.3)30.627.5Indoco Remedies Buy 6678
8.70.9 5.828.015.014.4Ipca labs Neutral 695-
14.42.2 10.433.825.125.7Lupin Neutral 866-
20.12.8 12.721.029.025.8Ranbaxy* Neutral 457-
30.11.7 20.8(49.4)5.23.7Sanofi India* Neutral 2,386-
23.52.2 14.315.014.717.1Sun Pharma Neutral 556-
 Source: Company, Angel Research; Note: CMP as of September 13, 2013
Ranbaxy Labs | Event Update
September 16, 2013
Research Team Tel: 022 - 39357800 E-mail: research@angelbroking.com Website: www.angelbroking.com
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investmentdecision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document shouldmake such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of thecompanies referred to in this document (including the merits and risks involved), and should consult their own advisors to determinethe merits and risks of such an investment. Angel Broking Pvt. Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, makeinvestment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in thisdocument are those of the analyst, and the company may or may not subscribe to all the views expressed within.Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions andtrading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company'sfundamentals.The information in this document has been printed on the basis of publicly available information, internal data and other reliablesources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as thisdocument is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannottestify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Pvt. Limited endeavours to update on a reasonable basis the information discussed in this material, there may beregulatory, compliance, or other reasons that prevent us from doing so.This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,redistributed or passed on, directly or indirectly. Angel Broking Pvt. Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment bankingor other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report orin the past.Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise fromor in connection with the use of this information.
Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to thelatest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates mayhave investment positions in the stocks recommended in this report.
Disclosure of Interest Statement Ranbaxy Labs.
1. Analyst ownership of the stock No2. Angel and its Group companies ownership of the stock No3. Angel and its Group companies' Directors ownership of the stock No4. Broking relationship with company covered No
Ratings (Returns):
Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)
Note: We have not considered any Exposure below
1 lakh for Angel, its Group companies and Directors

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