Ranbaxy has entered a strong earnings trajectory with high visibility on FTF upsides till CY14 and improving outlook for base business. Ranbaxy’s focus on settling Para IV cases and more effective operational execution supported by business development moves has started to deliver. Steady growth in emerging markets (2/3rd of sales) and recovery in US generics will drive 18% CAGR in USD revenues and 320bp expansion in EBITDA margin over CY07-09 in base business. Ranbaxy is expected to generate ~USD2.5bn gross profit from the confirmed FTF opportunities over CY08-14. Given the strong earnings outlook and significant incremental positive news flow potential, we expect Ranbaxy to get rerated. Reiterate Outperformer with SOTP-based price target of Rs610 excluding NCE R&D business value. Ranbaxy is one of our top picks in the pharma space. FTF value unlocking begins: Ranbaxy has among the best Para IV pipelines in the business with 18 potential FTF Para IVs. Based on visibility on eight of these FTFs, Ranbaxy will have 6-month exclusivity on at least one >$1bn sales molecule each year (barring 2013) from CY08-14 along with Nexium settlement revenues that will accrue over CY09-14. Ranbaxy is expected to generate ~$2.5bn of gross profit from this opportunity which, in turn, can create multiple new growth engines for the company. Base business; gradual but steady progress: Driven by recovery in US generics market (20% growth in CY07, 17% CAGR over CY07-10E) and strong growth momentum in non-US/ EU markets (21% CAGR in CY07-10E). Ranbaxy’s early entry in newer markets of Canada, Japan, Nigeria, Mexico, etc is beginning to pay off. Multiple sales growth initiatives undertaken recently will accelerate the momentum. Golden phase; stock to get rerated: We believe the market will begin to view FTF upsides as an integral component of Ranbaxy’s business model and reward the strong multi-year earnings growth visibility. Exclusivity earnings flow will also enable Ranbaxy to further strengthen its base business. Demerger of the NCE R&D business will also trigger value unlocking. Ranbaxy is one of our top picks in the space.
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Tuesday, June 10, 2008
Stock Recommendations:: Ranbaxy
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