EQUITY RESEARCH July 10, 2008
Share Data Market Cap Price BSE Sensex Reuters Bloomberg Avg. Volume (52 Week) 52-Week High/Low Shares Outstanding Valuation Ratios (Consolidated) Year to 31 December 2008E EPS (Rs.) 14.7 EPS Growth (%) 27.8% PER (x) 36.6x EV/ Sales (x) 3.2x 19.2x EV/ EBITDA (x) Shareholding Pattern (%) Promoters FIIs Institutions Public & Others Relative Performance 700 600 500 400 300 200 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08
Ranbaxy Laboratories Ltd
Daiichi deal to drive the growth
Rs. 200.9 bn Rs. 538.30 13,926.24 RANB.BO RBXY IN 0.5 mn Rs. 613.70 / 299.90 373 mn
In June 2008, Daiichi Sankyo signed a deal to acquire 34.8% controlling stake in Ranbaxy, which will improve the financial strength of Daiichi and will provide enhanced R&D skills for new drug discovery to Ranbaxy. Moreover, this deal will help Ranbaxy to have access of other markets. Hence, we believe that it is a win-win situation for both the Companies. In addition, Ranbaxy acquired 14.7% stake in Orchid Chemicals & Pharmaceuticals Ltd., which manufactures Cephalosporins and Penams. We expect that this deal will help Ranbaxy in
2009E 17.7 20.2% 30.4x 2.7x 16.2x
gaining traction for manufacturing new drugs, and in turn Orchid will be able to access its strong distribution network. The launch of a generic version of Imitrex in Dec’08, which is still in an FTF status, will boost the Company’s sales in CY09E. Apart from Lipitor, Nexium will contribute around USD 1.5 bn revenues over 2009-2014. However, we have not included this in our projections for CY09E. We expect the revenue to
35 18 23 24
grow at a CAGR of 15.4% for CY07-09E. During the quarter, Ranbaxy demerged its R&D unit into a separate subsidiary, Ranbaxy Life Science Research Ltd. (RLSRL), which will operate as an independent R&D unit with dedicated resources. Consequently, the Company may save its cost around USD 25 mn in CY08, which may further lead to the improvement in the EBITDA margins by around 1.4% to 16.6%. At the current market price (CMP) of Rs. 538.3, the stock is trading at a forward P/E of 36.6x and 30.4x for CY08E and CY09E earnings, respectively. Based on our valuations, we believe that there is limited upside from the current levels. Hence, we maintain our Hold rating. Key Figures (Consolidated) Quarterly Data Q1'07 Q4'07 Q1'08 YoY% QoQ%
Rebased BSE Index
(Figures in Rs. mn, except per share data) Net Sales Adjusted EBITDA Adjusted Net Profit Margins(%) EBITDA NPM 15,821 1,908 728 12.1% 4.6% 19,023 2,977 1,734 15.6% 9.1% 16,986 2,552 1,450 15.0% 8.5% 3.6 149.1% (16.4)% 7.4% 33.8% 99.2% (10.7)% (14.3)% (16.4)%
Per Share Data (Rs.) Adjusted EPS* 1.5 4.3 *Excluding foreign exchange gains/losses
Please see the end of the report for disclaimer and disclosures.
RANBAXY LABORATORIES LTD RESEARCH
EQUITY RESEARCH Result Highlights July 10, 2008
For Q1’CY08, Ranbaxy’s net sales increased by 7.4% yoy to Rs. 16.9 bn, led by a robust growth in the developed and emerging markets, and offsetting the negative growth in the European region. Sales from the developed market grew by 17% yoy, whereas the emerging markets registered a growth of 12% yoy. However, the European region saw a decline of 11% yoy in revenue growth due to its weak performance in Romania.
Adj. EBIDTA soared by 33.8% yoy to Rs. 2.5 bn and the EBIDTA margin increased by 296 bps yoy to 15% due to a decrease in the cost of sales and SG&A expenses. Cost of sales dropped by 275 bps to 50% of net sales on account of a change in the product mix and decline in SG&A expenses by 50 bps to 29.4% of net sales. Net profit surged 99.2% yoy to Rs. 1.4 bn, and the net profit margin rose by 393 bps yoy to 8.5% on the back of the improved effective tax rate.
Sales (USD mn) Region North America Europe Q1' CY08 YoY% Sales (USD mn) Q1' CY08 YoY%