Event Update | Pharmaceutical

September 16, 2013

Ranbaxy Labs
Mohali plant likely to be under USFDA import alert
After the problems at Ponta Sahib and Dewas, the USFDA is said to have issued an import alert on Ranbaxy Laboratories (Ranbaxy) Mohali unit. The Mohali plant, being a new one, wasnt manufacturing full scale, but most of the companys new drugs were being slated to be manufactured at this plant. The company was earlier issued Form 483 for Mohali in 2012. This means there were certain manufacturing practices which the USFDA had already pointed out before to the company and the company had time to comply with the problems the USFDA had bought up, which it however failed to rectify.

NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Pharmaceutical 19,347 1,564 1.2 564/254 232,724 5 19,733 5,851 RANB.BO RBXY@IN

`457 -

Implication of possible import alert for the Mohali facility

Since Ranbaxy could not comply with the issues raised in Form 483, the same have now converted into an import alert. While the Ponta Sahib and Dewas units are out of trouble with the USFDA decree, the Mohali plant is crucial for the companys future growth, as in the last three years the company has made filings from Ohm and Mohali. According to the company, the filings from Ohm and Mohali total to around US$6bn of brand value at present and these new facilities were expected to contribute more than 75% to the business even after Dewas and Ponta Sahib get cleared from issues five years down the line.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 63.5 13.4 13.1 10.0

Road cleared for Ponta Sahib and Dewas facilities but timelines uncertain
Post the USFDAs adverse action in early CY2009 (AIP invoked on Ponta Sahib facility and import alert issued for Dewas facility), Ranbaxys US sales had been impacted but for first-to-file (FTF) products. Ranbaxy has signed a consent decree with the USFDA regarding the ongoing Current Good Manufacturing Practices (CGMP) issues. We note that the consent decree lays out a plan of action as agreed by the two parties to resolve the outstanding issues. However, the timeline regarding the resolution is still unclear. As per Ranbaxys Management, the company has taken corrective actions, as per suggestions by a consultant, and has been working closely with the USFDA to resolve issues. Ranbaxy settled a US suit by pleading guilty to felony charges relating to manufacture and distribution of certain adulterated drugs made at two of its Indian manufacturing units. The US subsidiary of Ranbaxy agreed to pay a penalty of US$500mn, which is the largest settlement with a generic medicine maker 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 from these 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 could be a huge setback for Ranbaxy as it now has only Ohm Labs to service its US business. We await more clarity from the Management on the exact impact of the development on the financials of the company, especially on the OPM. On the sales 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 since 1QCY2012. 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 growth of the company and the adverse impact on profitability (unless the issue is resolved soon), the stock will trade at a huge discount to its peers. Hence we reduce our, rating to Neutral on the stock.
Please refer to important disclosures at the end of this report

Abs. (%) Sensex Ranbaxy

3m 2.9 20.9

1yr 6.9 (15.5)

3yr 1.6 (9.3)

Sarabjit Kour Nangra

+91 22 3935 7800 Ext: 6806 sarabjit@angelbroking.com

Ranbaxy Labs | Event Update

Exhibit 1: Key Financials

Y/E March (` cr) Net Sales % chg Net Profit % chg EBITDA (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x) CY2011 9,967 16.8 638 (44.7) 15.1 14.4 30.3 15.1 12.9 6.7 2.3 15.7 CY2012 12,166 22.1 2,507 293.1 59.3 22.3 7.7 72.1 24.3 4.7 1.7 7.7 CY2013E 10,400 (14.5) 481 (80.8) 11.4 6.6 40.2 11.1 3.3 4.2 2.0 29.5 CY2014E 11,331 8.9 642 33.6 15.2 8.4 30.1 13.1 5.2 3.7 1.7 20.8

Source: Company, Angel Research; Note: CMP as of September 13, 2013

Exhibit 2: Recommendation summary

Company Alembic Pharma. Aurobindo Pharma Cadila Healthcare Cipla Dr Reddy's Dishman Pharma GSK Pharma* Indoco Remedies Ipca labs Lupin Ranbaxy* Sanofi India* Sun Pharma Reco. Buy Buy Buy Buy Accumulate Buy Neutral Buy Neutral Neutral Neutral Neutral Neutral CMP (`) 136 183 664 438 2,243 47 2,286 66 695 866 457 2,386 556 Tgt. price Upside (`) 165 271 894 504 2,535 73 78 % PE (x) 21.3 48.1 9.9 8.9 FY2015E EV/Sales (x) 1.3 1.1 1.9 2.9 2.5 0.7 6.1 0.9 2.2 2.8 1.7 2.2 6.7 EV/EBITDA (x) 6.8 6.7 12.0 12.8 12.6 3.3 25.9 5.8 10.4 12.7 20.8 14.3 16.2 FY12-15E CAGR in EPS (%) 25.5 26.4 18.1 12.1 10.8 16.3 (7.3) 28.0 33.8 21.0 (49.4) 15.0 9.2 FY2015E RoCE (%) 34.2 13.1 15.2 16.8 18.3 11.4 30.6 15.0 25.1 29.0 5.2 14.7 29.6 RoE (%) 34.7 18.9 22.9 16.8 21.8 11.0 27.5 14.4 25.7 25.8 3.7 17.1 22.0

34.6 14.9 15.1 18.4 13.0 17.7 55.3 18.2 2.6 8.7 - 36.1 - 14.4 - 20.1 - 30.1 - 23.5 - 27.9

Source: Company, Angel Research; Note: CMP as of September 13, 2013

September 16, 2013

Ranbaxy Labs | Event Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the 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, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document 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 and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources 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 this document 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 cannot testify, 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 be regulatory, 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 banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or 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 the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Ranbaxy Labs. No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

September 16, 2013

Ranbaxy Labs | Event Update

6th Floor, Ackruti Star, Central Road, MIDC, Andheri (E), Mumbai- 400 093. Tel: (022) 39357800
Research Team Fundamental: Sarabjit Kour Nangra Vaibhav Agrawal Bhavesh Chauhan Viral Shah V Srinivasan Yaresh Kothari Ankita Somani Sourabh Taparia Bhupali Gursale Vinay Rachh Amit Patil Twinkle Gosar Tejashwini Kumari Akshay Narang Harshal Patkar Nishant Sharma Technicals: Shardul Kulkarni Sacchitanand Uttekar Derivatives: Siddarth Bhamre Institutional Sales Team: Mayuresh Joshi Meenakshi Chavan Gaurang Tisani Production Team: Tejas Vahalia Dilip Patel Research Editor Production Incharge tejas.vahalia@angelbroking.com dilipm.patel@angelbroking.com VP - Institutional Sales Dealer Dealer mayuresh.joshi@angelbroking.com meenakshis.chavan@angelbroking.com gaurangp.tisani@angelbroking.com Head - Derivatives siddarth.bhamre@angelbroking.com Sr. Technical Analyst Technical Analyst shardul.kulkarni@angelbroking.com sacchitanand.uttekar@angelbroking.com VP-Research, Pharmaceutical VP-Research, Banking Sr. Analyst (Metals & Mining) Sr. Analyst (Infrastructure) Analyst (Cement, FMCG) Analyst (Automobile) Analyst (IT, Telecom) Analyst (Banking) Economist Research Associate Research Associate Research Associate Research Associate Research Associate Research Associate Research Associate sarabjit@angelbroking.com vaibhav.agrawal@angelbroking.com bhaveshu.chauhan@angelbroking.com viralk.shah@angelbroking.com v.srinivasan@angelbroking.com yareshb.kothari@angelbroking.com ankita.somani@angelbroking.com sourabh.taparia@angelbroking.com bhupali.gursale@angelbroking.com vinay.rachh@angelbroking.com amit.patil@angelbroking.com gosar.twinkle@angelbroking.com tejashwini.kumari@angelbroking.com akshay.narang@angelbroking.com harshal.patkar@angelbroking.com nishantj.sharma@angelbroking.com

CSO & Registered Office: G-1, Ackruti Trade Centre, Road No. 7, MIDC, Andheri (E), Mumbai - 93. Tel: (022) 3083 7700. Angel Broking Pvt. Ltd: BSE Cash: INB010996539 / BSE F&O: INF010996539, CDSL Regn. No.: IN - DP - CDSL - 234 2004, PMS Regn. Code: PM/INP000001546, NSE Cash: INB231279838 / NSE F&O: INF231279838 / NSE Currency: INE231279838, MCX Stock Exchange Ltd: INE261279838 / Member ID: 10500. Angel Commodities Broking (P) Ltd.: MCX Member ID: 12685 / FMC Regn. No.: MCX / TCM / CORP / 0037 NCDEX: Member ID 00220 / FMC Regn. No.: NCDEX / TCM / CORP / 0302.

September 16, 2013