Ranbaxy stock up on market share gains

However, most analysts advise caution given production, regulatory overhang

Despite no end to the US Food and Drug Administratin (FDA) overhang, Ranbaxy stock gained 13 per cent since hitting a low of Rs 318 in mid-September. The uptick in stock price (up four per cent in trade today) was on the back of higher revenue estimates from Absorica used in treating acne. In addition to this, analysts say that the company is expected to get an US FDA approval for anti-viral drug Valcyte soon.

Macquarie Capital Securities' Abhishek Singhal says given Ranbaxy's impressive market share ramp up in Absorica, they have raised revenue estimates from the drug going ahead. The company has gained market share to the tune of 17.5 per cent since its launch in November 2012. Given that the overall market for the drug has grown in mid teens in CY13, the market size is expected to be $750 million. With Ranbaxy making gains in an expanding market, Singhal has revised his market share estimate for the company from 20-24 per cent to 24-30 per cent for CY14 and CY15, respectively. This will translate into a $180-$225 million revenues for Ranbaxy in CY14/CY15. With 50 per cent margins, the same, according to him, should add about $125 million to the company's FY15 Ebitda estimates.

The second trigger, according to analysts, is the approval to launch the generic version of Valcyte with an estimated market size of $250 million. Given Ranbaxy has a first to file status on the drug would mean that it will have six months exclusivity in marketing the drug.

While analysts say the company will make the product at its Ohm Laboratories facility in the US and could capture some of the upside, given limited FDA approved facilities it will have a hard time in maximising the gains. Most analysts believe that the unless there is a clarity on the approvals for exclusivity drugs and how the company plans to monetise the same, the stock will continue to face headwinds. While most analysts advise investors not to take an exposure to the stock at this point, Singhal has an outperform rating with a target price of Rs 500 and the stock is a top pick of his firm on the back of a ramp up of dermatology branded franchise (such as Absorica), better asset utilisation with incremental FDA approvals and operating leverage in emerging markets which will drive margin expansion.

According to Bloomberg data, 18 out of the 22 analysts polled since September 2013 (excluding Singhal) have a 'hold/neutral/sell/underperform' rating on the stock, with only four having a 'buy'. Their average target price is Rs 355.