Ranbaxy Laboratories - Generic Lipitor approved, sell stock on rise - PINC Event Update

Ranbaxy has finally announced the launch of generic Lipitor (10, 20, 40 and 80mg tablets) from Ohm Labs which is a sentimental positive for the stock. However, due to the high price competition and profit sharing agreement with Teva, we estimate a price erosion of 40% and Ranbaxy to command a market share of 30% during the exclusivity period. As a result we now expect Lipitor to contribute USD486mn to the revenues and Rs25/share during the exclusivity period. Whilst, profit earned from generic Lipitor launch could be negated if penalty amount exceeds USD243mn. Further, there has been no update on the USFDA clearance of Poanta Sahib and Dewas facilities. Albeit, as per media reports (no confirmation from the company), Ranbaxy has been able to secure USFDA approval for its new facility-Mohali SEZ which is the only silver lining.

- Intensive competition going ahead for Lipitor
- Agreement with Teva, a negative surprise
- Lipitor could be a zero- sum- game in case penalty is higher than USD243mn
- Approval of Mohali SEZ could be a silver lining

OUTLOOK AND RECOMMENDATION

We downgrade our recurring sales and earnings for CY12 by 2% and 19% respectively factoring in delayed approval of Dewas and Poanta Sahib facilities. We have also introduced CY13 estimates. We recommend 'Reduce' on the stock and value the core business at Rs329/share (22x CY12E one year forward recurring earnings) and the FTF pipeline at Rs83/share resulting in a revised SOTP based target price of Rs412.

Source : Equity Bulls

Keywords