Business Standard

Ranbaxy: Positives priced in

As competitors launch Lipitor?s variants, analysts see limited upside for the stock

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Exclusive sales of generic continued to drive Ltd’s performance in the March 2012 quarter with adequate support from the commencement of atorvastatin supplies from Indian facilities. Markets have been closely monitoring the developments and the stock has surged 17 per cent, compared with a five per cent rise in the , in 2012.

Sales in the surged a huge 159 per cent to $410 million in the March quarter, of which Lipitor (a cholesterol lowering drug) and (a drug prescribed to treat conditions that affect the heart and blood vessels) contributed around $316 million. This helped Ranbaxy’s sales abroad jump 88 per cent year-on-year (y-o-y) to Rs 3,192 crore, leading to a 72 per cent rise in consolidated sales to Rs 3,695 crore for the quarter. The performance could have been better but for the relatively muted domestic (up 13 per cent y-o-y) and formulations sales (up 10 per cent). Analysts attribute this to tepid growth of anti-infectives (30 per cent of Ranbaxy’s portfolio) and slower-than-expected results from expansion of the field force under , a massive sales drive launched at furthering Ranbaxy’s growth in the domestic market.

Ranbaxy’s earnings before interest, depreciation, taxes and amortisation (Ebitda) margin for the quarter, at 26.8 per cent, improved sharply over the 19.2 per cent in the previous corresponding period. The management attributed this to savings in raw material costs, effective procurement policy and operational efficiency, which it feels, is sustainable. Liptor, too, contributed meaningfully to higher profitability, which, along with a Rs 345-crore forex gain, boosted Ranbaxy’s net profit by 310 per cent to Rs 1,247 crore.

The company’s exclusivity on atorvastatin is likely to end soon, following which it will become part of Ranbaxy’s core business. Though the company has attained a considerable market share and price erosion has been 60-70 per cent, post expiry of the exclusivity period, more players are likely to launch their generic versions of the drug. Analysts feel Ranbaxy may still continue to lead in terms of market share but price erosion will increase further. Ranbaxy also plans to launch an anti-diabetic product, Actos, and an anti-hypertensive product, Diovan, soon. The estimated sales these products could generate during the exclusivity period are $139 million and $150 million, respectively, says Rashmi Sancheti at MSFL. However, the management has not given any clarity on launch of the products and the timeline.

Girish Bhakru of HSBC Global Research observes that Lipitor’s commercial manufacturing in India is a positive development as the company tries to contain costs. However, a greater recovery depends on the outcome of the US Food and Drug Administration’s (USFDA) inspection of the affected cGMP (current good manufacturing practices) deficit facilities at Dewas and Paonta Sahib, which is likely to take six-nine months. Ranbaxy has already signed a consent decree with USFDA and made a provision of $500 million for potential penalties.

Though the launches of two drugs on exclusivity in August-September can boost the stock in the longer run, in the near-term, Lipitor’s price erosion post-exclusivity period, concerns over European and Latin American sales and lagging domestic growth are key worrying factors for most analysts. There is not much upside in the stock in the near term, say analysts, who have price targets of Rs 460 to Rs 510.

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