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Ranbaxy Labs
Performance Highlights
Y/E Dec. (` cr) Net Sales Other Income Operating profit Forex loss/ (gain) & Exceptional items Adjusted Net Profit
Source: Company, Angel Research
BUY
CMP Target Price
% chg qoq 2QCY2012 7.9 (30.5) 71.8 88.7 3,205 124 621 1,131 613 % chg yoy (17.8) (31.0) (73.3) (45.8) (80.5)
`368 `426
12 Months
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 15,567 1,564 0.9 578/254 161,993 5 18,947 5,612 RANB.BO RBXY@IN
Ranbaxy Laboratories (Ranbaxy) reported lower-than-expected numbers for 2QCY2013. Net sales came in at `2,633cr, a decline of 17.8% yoy, and much lower than our expectation of `2,850cr. On the operating front, the OPM come in at 6.3%, lower than our expectation of 10.5% and vs 19.4% in 2QCY2012. However, a higher-than-expected other income and lower tax during the quarter aided the adj. net profit to come in at `120cr, but lower than `148cr during the corresponding period of last year. We recommend a Buy on the stock, given the attractive valuations. Lower-than-expected performance: Ranbaxys reported net sales came in at `2,633cr a decline of 17.8% yoy, and much lower than our expectation of `2,850cr. On the operating front, the OPM come in at 6.3%, lower than our expectation of 10.5% and vs 19.4% in 2QCY2012. However, a higher-than-expected other income and lower tax during the quarter aided the adj. net profit to come in at `120cr, but lower than `148cr in the corresponding period of last year. Outlook and valuation: The stock is trading at an attractive valuation of EV/sales of 1.4x CY2014E. The valuation is very attractive in comparison to peer companies, given that Ranbaxy is focused on improving its profitability and most of the concerns on the USFDA front are likely to get resolved going forward. We recommend a Buy on the stock. A further upside exists if any Para-IV opportunities fructify in CY2014 (not included in our estimates).
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 63.5 13.4 13.1 10.0
3m (5.8)
1yr 7.9
(18.1) (23.9)
CY2011 9,967 16.8 638 (44.7) 15.1 14.4 24.4 15.1 12.9 5.4 1.9 13.1
CY2012 12,166 22.1 2,507 293.1 59.3 22.3 6.2 72.1 24.3 3.8 1.4 6.4
CY2013E 10,400 (14.5) 481 (80.8) 11.4 6.6 32.4 11.1 3.3 3.4 1.6 24.0
CY2014E 11,331 8.9 642 33.6 15.2 8.4 24.2 13.1 5.2 3.0 1.4 16.8
2QCY2013 2,633 86 2,719 1,701 64.6 166 6.3 49 76 126 31 6 89 613 (524) 120 2.8
1QCY2013 2,440 123 2,563 1,542 63.2 96 4.0 53 80 87 35 (6) 46 (79) 125 64 1.5
% chg qoq 7.9 (30.5) 6.1 10.3 71.8 (7.2) (4.2) 44.4 (11.9) -
2QCY2012 3,205 124 3,329 2,181 68.1 621 19.4 48 78 619 68 5.6 545 1,131 (586)
% chg yoy 1HCY2013 1HCY2012 (17.8) (31.0) (18.3) (22.0) (73.3) 0.9 (2.5) (54.4) (45.8) (80.5) 5,073 209 5,282 3,243 63.9 262 5.2 100 156 215 66 12.3 136 535 (398) 190 4.5 6,914 257 7,171 5,045 73.0 2335 33.8 86 158 2348 206 19.4 2123 1,462 661 2,319 54.9
88.7
613 14.5
Top-line performance below expectation: Ranbaxy reported numbers lower than expected during the quarter. Net sales came in at `2,633cr, i.e a decline of 17.8% yoy. The top-line has come much lower than our expectation of `2,850cr for the quarter. However excluding the exclusivities, the base business clocked a double digit growth during the period. The growth was mainly led by the branded emerging market business of LATAM and branded business of Africa, APAC and Russia. Sales in India came in flat during the period on back of the new drug policy. With this the branded and OTC part of the business contributed 51% of sales of the company for the quarter. In the US, the company posted sales of `851.6cr. Amongst other geographies, sales in Western Europe were at `195.8cr, a dip of 31% yoy. Sales for the quarter in India were at `543cr, in line with sales as in the corresponding period of last year. The same was on back of the DPCO 2013 policy. The OTC segment posted an 8% yoy growth during the period. The East & Europe and the CIS region reported sales of `326cr for the quarter. Africa and Middle East posted sales of `282.8cr, a growth of 9% yoy.
(` cr)
OPM contracts to 6.3%: On the operating front, the OPM come in at 6.3%, lower than our expectations of 10.5% and vs 19.4% in 2QCY2012. On a yoy basis, there has been a dip in margin, on account of high OPM in the last corresponding period on account of presence in products which enjoy exclusivities in 2QCY2012. However, improvement in core business can be witnessed in a 230bp expansion in the OPM.
(%)
11.7
Adj. net profit below expectation: However, higher-than-expected other income and lower tax during the quarter aided the adj. net profit to come in at `120cr vs `148cr in the corresponding period of last year.
(` cr)
300 200 100 0 (100) (200) 2QCY2012 3QCY2012 4QCY2012 (154) 1QCY2013 2QCY2013 64 120
Concall takeaways
The Management maintained its top-line guidance of `12,000cr in CY2013 and remained confident of launching Diovan in CY2013. The base business is expected to grow by over 10%. Core business posted a growth of 10% yoy during the quarter. Company has 8 FTFs with a market potential of US$6.0bn. Current MR strength stands at 7,500. The company has derivatives exposure of US$860bn as of 2QCY2013.
Investment arguments
US Consent Decree: Road cleared but timelines uncertain: Post the USFDAs adverse action in early CY2009 (AIP invoked on Poanta Sahib facility and import alert issued for Dewas facility), Ranbaxys US sales had been impacted but for the 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 fine 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 and since the amount in terms of penalty is same as earlier provided by the company, its positive for the company, both from a short as well as longer term perspective.
India back in focus: Ranbaxys domestic formulation business has been reporting below-industry average growth rate of 78% since the past few
years. The company has now renewed its focus on one of the fastest growing pharmaceutical markets by completely rolling out Project Viraat in 2010 with a view of establishing a leadership position in the next two to three years. Under the project, Ranbaxy increased its field force significantly, launched new products and penetrated rural areas. Going forward, with this, the company plans to achieve 1520% growth on the domestic front. However, on back of the new pricing policy for CY2012-14E, we expect the companys domestic formulations to register a CAGR of 6.6%.
Looking for profitable growth: Ranbaxys OPM collapsed from 12.6% in CY2006 to 6.1% in CY2009 on USFDA issues, high operating leverage and realized losses in forex hedges. However, the company is now targeting to achieve profitable growth by closing down low-margin facilities in various emerging markets, reducing its work force in Europe and transferring its new drug discovery research division to Daiichi. Further, a resolution of the USFDA issue would help reduce costs incurred on remedial measures. Going forward, Ranbaxy aims to achieve double-digit margins in its base business.
(` cr)
Company Background
Ranbaxy Laboratories (Ranbaxy), India's largest pharmaceutical company, is an integrated, research-based, international pharmaceutical company. The company is currently present in 23 of the top 25 pharmaceutical markets of the world. Ranbaxy has a global footprint in 46 countries, manufacturing facilities in seven countries and serves customers in over 125 countries. The company generates a balanced mix of revenue from emerging and developed markets, which contribute 50% and 44%, respectively.
Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13
1x 2x 3x 4x
3,772 1,530.6 197 (7.3) 7 10 638 (44.7) (29.1) 15.1 15.1 (60.0)
2,322 (2,684)
1,737 (2,881)
1,497 (2,900)
Key ratios
Y/E Dec. Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) RoIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating RoE Returns (%) RoCE (Pre-tax) Angel RoIC (Pre-tax) RoE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Int. Coverage (EBIT / Int.) (0.3) (2.8) 2.5 0.2 0.7 14.4 (1.0) (2.0) 1.7 (1.1) (1.6) 13.3 (1.1) (7.1) 1.9 (1.1) (5.8) 3.2 1.9 91 76 67 4 2.0 82 70 86 40 2.1 85 81 71 7 2.4 78 74 59 (9) 1.9 77 77 57 (26) 1.9 95 95 54 (30) 2.4 5.8 3.3 10.1 22.1 21.8 12.9 35.4 15.1 24.3 66.1 72.1 3.3 10.4 11.1 5.2 17.6 13.1 2.4 1.3 10.4 74.8 1.4 10.7 1.2 0.2 12.5 10.5 107.3 1.8 22.1 532.4 25.7 19.6 76.4 2.1 31.2 51.1 31.2 3.3 70.0 1.9 4.4 43.2 4.4 5.1 70.0 2.1 7.3 43.2 7.3 7.1 7.1 13.4 103.3 35.5 35.5 13.4 2.0 133.1 15.1 15.1 24.4 67.8 59.3 59.3 66.9 96.6 11.4 11.4 19.5 107.9 15.2 15.2 24.0 123.1 52.2 27.4 3.6 0.0 2.4 40.1 2.4 14.4 10.5 2.8 0.5 2.7 15.7 2.3 24.4 15.1 5.4 1.6 1.9 13.1 2.0 6.2 5.5 3.8 2.9 1.4 6.4 1.7 32.4 18.9 3.4 0.0 1.6 24.0 1.5 24.2 15.3 3.0 0.0 1.4 16.8 1.4 CY09 CY10 CY11 CY12 CY13E CY14E
10
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Website: www.angelbroking.com
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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 No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.
Ratings (Returns):
11