PINC Event Update - Ranbaxy Laboratories - Consent decree-Long way to go

The US DOJ has filed the consent decree on behalf of the USFDA in the court. The consent decree requires Ranbaxy to take steps outlined before the USFDA reviews any ANDA filed from the Paonta Sahib, Batamandi and Dewas facilities. On the negative part, Ranbaxy has agreed to relinquish 180-days marketing exclusivity that it might have on 3 pending ANDAs (names not disclosed). It has further agreed to relinquish 180-days marketing exclusivity on other 5 ANDAs if it fails to comply with the decree requirements.

OUTLOOK AND RECOMMENDATION

Given the issues involved at the aforesaid facilities and the delay in entering consent decree with the USFDA we expect the clearance of the facilities to be long time driven and costly process (over and above the provision of USD500mn made) which would impact the base operating margins of the company. Although the names of FTFs surrendered have not been disclosed, we expect it to be generic Provigil, Diovan and Valcyte contributing sales to the tune of USD186mn and NPV of Rs12 per share. The stock is currently trading at 29.2x and 20.3x its CY12E and CY13E recurring earnings respectively. We continue with our negative outlook and downgrade the stock to 'Sell'. We value the core business at Rs329/share (22x one year forward recurring earnings), FTF pipeline at Rs81/share and reduce Rs55/share for the penalty provision resulting in revised SOTP based target price of Rs355.

The Ranbaxy Laboratories stock closed the day at Rs.443.75, down by Rs.31.45 or 6.62%. The stock hit an intraday high of Rs.459 and low of Rs.441.25.

The total traded quantity was 3.76 lakhs compared to 2 week average of 0.91 lakhs.

Source : Equity Bulls

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