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Ranbaxy Labs (RBXY) - Qtr. Upodate - Dated - August 07, 2013




Axis Capital Limited


08 Aug 2013





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Ranbaxy Lab’s Q2CY13 revenue at Rs 27 bn (down 17% YoY) was in line. However, adj. PAT at Rs 1.3 bn was below our estimate of Rs 1.5 bn as interest income reduced post-payment of Department of Justice penalty (USD 500 mn in Q2). Base EBITDA margin was at 10% (flat YoY; up 200 bps QoQ). QoQ improvement was led by currency benefits. Reduce estimates; maintain BUY (31% upside from CMP) Management indicated base EBITDA margin would improve gradually led by volume ramp-up and gradual fall in Consent Decree (CD) cost. We reduce our CY13E/CY14E EPS by 3%/ 17% to Rs 29/ Rs 50 to factor in slow recovery in base EBITDA margin. Maintain BUY with revised TP of Rs 368 (16x CY14E EPS of Rs 21 + Rs 45 for pipeline – Rs 20 for derivatives) vs. Rs 520 earlier. At CMP of Rs 282, the stock trades at 10x CY13E and 6x CY14E EPS. Revenue growth of 10% on like-to-like basis led by improvement in US base business (USD 135 mn vs. USD 84 mn in Q2CY12). This was largely on back of Absorica ramp-up (14% market share) and Actos (24% market share). India revenue was flat as volumes suffered due to pricing policy implementation. Emerging Market (CIS, Africa, Latam, Asia) was up only 8% showing no great sign of demand revival. Maintains guidance indicating monetization of Diovan and Valcyte: Management maintained CY13 revenue guidance of Rs 120 bn, which indicates monetization of Valcyte (Sep ’13) and Diovan in CY13. Hedges and net debt: USD 860 mn hedges were outstanding in Q2CY13 vs. USD 962 mn in Q1CY13. USD 35 mn worth hedges mature every month (down from USD 40 mn earlier). Net debt increased to USD 762 mn from USD 167 mn in Q1CY13. Regards, Deepak Khetan (VP – Life Sciences) Institutional Equity Research Axis Capital Limited Tel: +91 22 4325 1132

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