Retain 'reduce' rating on Ranbaxy – TP Rs.435 - Geojit BNP Paribas

- 'Reduce' rating on Ranbaxy is retained with unchanged target price of Rs. 435 over one year.

- The company has got approval from the US FDA for its generic drug Lipitor. The company is expected to launch the product immediately from its Ohm Labs facility in the US.

- Ranbaxy is expected to share Lipitor profit with Teva during the exclusivity period.

- During the exclusivity period Ranbaxy is expected to have 25% of market share for the product with an expected price erosion of 50%. This is expected to have a non – recurring profit of Rs.30/ Ranbaxy share before sharing the profit with Teva.

- It also seems that gaining above 25% market share would be a major challenge to Ranbaxy.

- Though the company has launched Lipitor, the company could not resolve the ongoing issues with US FDA / DOJ (Department of Justice) and the potential penalty will determine the course of the base business.

- There may also be chances where the estimated cash flows from Lipitor are offset by any potential penalty for Ranbaxy by the US FDA/ DOJ.

- The company is confident of expanding core margins to around 15% over the next two years but this has already reflected in base business valuations.

- In this scenario, 'reduce' rating on the stock is maintained with a target price of Rs.435 over one year.

Source : Equity Bulls

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