Maintain Sell on Ranbaxy Laboratories - Motilal Oswal

Ranbaxy Laboratories (RBXY IN; Mkt Cap USD4.6b, CMP Rs494, Sell)

- Ranbaxy's 4QCY10 core sales grew 14% to Rs20.45b and adjusted PAT was Rs1.06b. Net revenue de-grew 0.8% to Rs21.76b.

- Revenue growth was led mainly by a 137% YoY increase in core US revenue, 10% growth in Europe, CIS and Africa, a 105% growth in the Asia.

- Core EBITDA of Rs2.4b was higher than our estimate of Rs1.7b mainly due to a better top-line. Core EBITDA margins of 11.8% were better than our estimates.

- Although adjusted PAT was higher than our estimate, Ranbaxy posted a net loss of Rs975m due to provision for diminution in value of investments and impairment of goodwill.

Given the potential recurrence of Para-IV upsides every year over CY10-12, Para-IV upsides are attracting P/E based valuations. We believe these are one-off upsides and value them on a DCF basis. Sustaining current valuations is dependent on upsides from Lipitor and Nexium. We believe current valuations are discounting the best-case scenario for the core business and Para-IV upsides. We maintain Sell with a target price of Rs485.

Source : Equity Bulls

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