Sell Ranbaxy Laboratories Ltd - Motilal Oswal

Ranbaxy's (RBXY IN, Mkt Cap US$4.5b, CMP Rs488, Sell)

4QCY10 core sales grew 14% to Rs20.45b while Adj PAT was at Rs1.06b . Revenue growth was mainly led by 137% YoY increase in core US revenues, 10% growth in Europe, CIS & Africa region, a 105% growth in AsiaPac & ME region and 54% growth in API revenues (likely to have been boosted by Nexium API supplies to AstraZeneca). Core EBITDA at Rs2.4b was higher due to better topline. Core EBITDA margins at 11.8%

Management did not give any clarity on timelines for resolution of US FDA/DoJ issues. Ranbaxy had launched generic Aricept (Pfizer's US$1.9b brand) in Nov-2010 with 180-day exclusivity.supplies of this product were lower than expectations due to aggressive stance adopted by Pfizer As a result, we have sharply cut our one-off estimates for Aricept PAT from Rs5.1b to Rs1.47b.

We expect core EPS of Rs10.8 for CY11 and Rs15.9 for CY12 (assuming part recovery in the US). Our estimates exclude MTM forex gains and one-off upsides from Para-IV opportunities. Ranbaxy is currently valued at 37x CY11E core EPS and 25.2x CY12E core EPS. Our current DCF value of all potential Para-IV upsides is Rs86/sh. We believe that current valuations are discounting the best-case scenario for both the core business as well as for the Para-IV upsides. We maintain Sell with TP of Rs485 (25x CY12E EPS + FTF DCF value of Rs86/sh).

Source : Equity Bulls

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