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INDIA

Pharma

Ranbaxy Labs

Q1CY12 Result update/ Estimate change 10 May 2012

Strong growth in US business

Ranbaxy Labs (RLL) has reported better than expected results due to higher

margin, forex gain on derivatives and lower tax provision. RLL reported 71%YoY

growth in revenues due to FTF opportunities of generic Lipitor and Caduet in the

US market. EBIDTA margin improved by 760bps YoY from 19.2% to 26.8% due to

high margin FTF opportunities. The company’s other income grew by 98%YoY

from Rs690mn to Rs1,366mn due to Rs750mn forex gain on loans. RLL reported

forex gain of Rs3,447mn on derivatives. The company’s net profit grew by

310%YoY due to the rise in EBIDTA margin, forex gains and lower tax rate. We

have retained Hold rating for the scrip with a target price of Rs464 (based on 23x

CY13E base EPS of Rs20.0+FTF of Rs2.9).

Good revenue growth: During the quarter, RLL’s domestic business grew by

14%YoY from Rs4.44bn to Rs5.04bn. Its outside India business grew by 88%YoY

from Rs16.98bn to Rs31.92bn.



Sharp margin improvement: RLL reported 760bps improvement in EBIDTA

margin from 19.2% to 26.8% due to FTF opportunities of generic Lipitor and

Caduet in the US market. The company’s other expenses were up by 128%YoY

from Rs6.19bn to Rs14.09bn due to profit sharing with Teva for generic Lipitor.

Atrovastatin – the future growth driver: RLL has commenced supplies of generic

atorvastatin tablets to US market from its Mohali facility after receiving US FDA

approval in April’12. Being an integrated player, the company is likely to benefit

from these supplies. Even after the 180-days exclusivity of Lipitor and Caduet

ending in May’12, RLL is likely to become a major player in the US generic market.

Y/E Dec (Rsmn) Q1CY12 Q1CY11 YoY (%) Q4CY11 QoQ (%) Q1CY12E Var(%)

Sales

Total income 37,868 22,142 71.0 38,496 (1.6) 38,408 (1)

EBIDTA 10,151 4,262 138.2 7,442 36.4 8,308 22

as % of total sales 26.8 19.2 19.3 21.6

Other income 1,366 690 97.9 942 45.0 1,350 1

Forex (gain) / loss on

derivatives (3,447) (20) 8,379 (1,520) 127

PBDIT 14,964 4,972 201.0 5 325204.3 11,178 34

Interest expenses 186 393 (52.7) 877 (78.8) 350 (47)

Depreciation 799 736 8.6 1,681 (52.5) 850 (6)

Profit before tax 13,979 3,842 263.8 (2,553) NA 9,978 40

Tax provision 1,374 782 75.7 747 84.0 1,500 (8)

Tax rate % 9.8 20.4 (29.2) 15.0

Net profit 12,605 3,060 311.9 (3,300) (482.0) 8,478 49

Minority interest 138 17 736.4 47 193.0 50 176

Adjusted PAT 12,467 3,044 309.6 (3,347) (472.5) 8,428 48

EO items - - #DIV/0! (26,480) NA -

Reported PAT 12,467 3,044 309.6 (29,827) NA 8,428 48

Equity capital (FV Rs.5) 2,110 2,110 0.0 2,110 0.0 2,110 -

Recurring EPS (Rs) 29.5 7.2 309.6 (7.9) (472.5) 20.0 48

Reported EPS (Rs) 29.5 7.2 (70.7) 20.0 48

Source: Company, Centrum Research

New products pipeline: During Q1CY12, RLL has filed 53 dossiers and received 20

approvals. The company has filed 13 DMFs during the quarter. These products are

likely to drive future growth of the company.



Other developments: RLL has launched India’s first new drug Synriam for the

treatment of plasmodium falciparum malaria in adults. RLL has filed a Consent

Decree (CD) with US FDA. The company is establishing new manufacturing

facilities at Morocco and Malaysia to cater to local demand.

Reiterate hold: We expect RLL to report improved performance in the US business

in CY12 due to FTF opportunity of generic Lipitor and Caduet and better growth in

the domestic market. We have revised EPS estimates upwards by 13% for CY12 and

3% for CY13. Despite this, valuations are rich. At the CMP of Rs511, the stock trades

at 17.2x CY12E EPS of Rs29.7 (Rs10.0base busi.+Rs19.7FTF) and 22.2x CY13E EPS of

Rs22.9 (Rs20.0base+Rs2.9FTF). We retain Hold rating for the scrip with a target

price of Rs464 (based on 23x CY13 base +1*FTF).

Key Data

Recco (Prev) Hold (Hold) Bloomberg Code RBXY IN

Target (Prev) Rs464 (Rs460) Reuters Code RANB.BO

CMP Rs511* Current Shares O/S (mn) 422.0

Downside (%) 9.2% Diluted Shares O/S(mn) 422.0

Mkt Cap (Rsbn/USDmn) 216.5/4

Price Performance (%)* 52 Wk H / L (Rs) 570/366

1M 6M 1Yr Daily Vol. (3M NSE Avg.) 691,234

Ranbaxy 5.9 8.0 13.9 Face Value (Rs) 5

NIFTY (4.6) (4.1) (9.7) 53.6 USD = Rs[000]

*as on 9th May 2012

Source: Bloomberg, Centrum Research

Trend in EBIDTA margin QoQ (%)

30.0

25.0

20.0

15.0

10.0

5.0

0.0

19.2

8.7 8.3

19.3

26.8

Q1CY11 Q2CY11 Q3CY11 Q4CY11 Q1CY12

Source: Company, Centrum Research

Trend in Material Cost QoQ (%)

45.0

40.0

35.0

30.0

25.0

20.0

15.0

10.0

5.0

0.0

34.0

39.0

EBITDA margin%

40.3

28.4

23.6

Q1CY11 Q2CY11 Q3CY11 Q4CY11 Q1CY12

Source: Company, Centrum Research

Earning Revision

CY12E

Material Cost %

CY13E

Particulars Current Earlier Chg(%) Current Earlier Chg(%)

Sales 116,350 112,566 3.4 111,573 109,410 2.0

EBIDTA 19,899 17,917 11.1 16,578 16,175 2.5

EBIDTA margin (%) 17.1 15.9 120bps 14.9 14.8 0bps

Net profit 12,538 11,151 12.4 9,692 9,442 2.7

EPS Rs. 29.7 26.4 12.5 23.0 22.4 2.5

Source: Company, Centrum Research

Ranjit Kapadia

ranjit.kapadia@centrum.co.in

+91 22 4215 9645

Y/E Dec (Rsmn) Revenue YoY (%) EBITDA EBITDA (%) Adj. PAT YoY (%) DEPS Rs. RoE (%) RoCE (%) P/E (x) EV/EBITDA (x)

CY10 89,608 18.0 18,389 20.5 10,593 800.5 24.7 29.8 11.2 20.7 14.1

CY11E 101,614 13.4 16,190 15.9 8,508 (19.7) 19.8 (59.3) 14.5 25.8 16.5

CY12E 116,350 14.5 19,899 17.1 12,718 49.5 29.7 23.5 13.2 17.2 13.7

CY13E 111,573 (4.1) 16,578 14.9 9,902 (22.1) 23.0 13.9 8.7 22.2 16.7

CY14E 122,557 9.8 18,172 14.8 10,851 9.6 25.2 13.5 8.6 20.3 11.9

Source: Company, Centrum Research Estimates

Please refer to important disclosures/disclaimers inside

Centrum Equity Research is available on Bloomberg, Thomson Reuters and FactSet


Financials (Consolidated)

Exhibit 1: Income Statement

Y/E Dec (Rs mn) CY10 CY11 CY12E CY13E CY14E

Net Sales 89,608 101,614 116,350 111,573 122,557

-Growth (%) 18.0 13.4 14.5 (4.1) 9.8

Operating Expenses 71,219 85,424 96,451 94,995 104,385

% of sales 79.5 84.1 82.9 85.1 85.2

EBIDTA 18,389 16,190 19,899 16,578 18,172

-EBIDTA margin (%) 20.5 15.9 17.1 14.9 14.8

Depreciation 5,535 3,943 4,281 4,656 5,031

EBIT 12,854 12,247 15,618 11,922 13,141

Interest Income/(expenses) (614) (768) (950) (1,100) (1,200)

Forex gain / (loss) on loans 1,407 (5,341) - - -

PBT from operations 13,647 6,138 14,668 10,822 11,941

Other non operating income 2,795 4,339 2,050 2,180 2,310

PBT 16,442 10,477 16,718 13,002 14,251

-PBT margin (%) 18.3 10.3 14.4 11.7 11.6

Provision for tax 5,849 1,969 4,000 3,100 3,400

Effective tax rate (%) 35.6 18.8 23.9 23.8 23.9

Minority Interest (184.7) (163.0) (180.0) (210.0) (230.0)

EO Items (4,181) (14,859) - - -

Net profit 14,590 23,204 12,538 9,692 10,621

Adj. PAT 10,593 8,508 12,718 9,902 10,851

-Growth (%) 800.5 (19.7) 49.5 (22.1) 9.6

-Net profit margin (%) 16.3 22.8 10.8 8.7 8.7

EPS base business Rs. 16.0 (3.6) 10.0 20.0 25.2

EPS FTF Rs. 8.6 23.3 19.7 2.9 0.0

EPS total Rs. 24.7 19.8 29.7 23.0 25.2

Source: Company, Centrum Research Estimates

Exhibit 2: Balance Sheet

Y/E Dec (Rs mn) CY10 CY11 CY12E CY13E CY14E

Share capital 2,171 2,117 2,117 2,117 2,117

Reserves & surplus 53,874 38,229 62,460 70,911 80,042

Total shareholder's fund 56,045 40,346 64,577 73,028 82,159

Loan fund 43,348 44,907 51,900 56,080 61,360

Minority interest 647 810 850 900 900

Deferred tax liability 171 77 170 180 180

Total capital employed 100,211 86,140 117,497 130,188 144,599

Gross block 67,051 74,560 77,982 81,515 85,515

Accumulated depreciation (21,576) (25,018) (28,699) (32,675) (36,946)

Net Block 45,475 49,542 49,283 48,839 48,568

Capital WIP 3,818 430 700 800 800

Net fixed assets 49,293 49,972 49,983 49,639 49,368

Deferred tax asset 398 452 80 80 80

Investments 4,988 982 46 46 46

Cash and bank 32,644 31,926 48,908 67,548 76,608

Inventories 21,927 26,106 29,660 24,430 32,800

Debtors 16,052 30,065 23,800 28,200 29,000

Other CA and loans & adv 16,307 17,729 15,592 16,874 16,874

Total CA and loans & adv 91,918 106,807 118,006 137,098 155,328

Current liabilities & provisions 41,398 82,758 50,572 56,630 60,178

Net current assets 50,520 24,049 67,434 80,468 95,150

Profit and Loss A/C 11,666

Total assets 100,211 86,140 117,497 130,188 144,599

Source: Company, Centrum Research Estimates

Exhibit 3: Cash flow

Y/E Dec (Rs mn) CY10 CY11 CY12E CY13E CY14E

Cash flow from operations

Net Profit 14,966 (29,000) 12,538 9,692 10,621

Other reserves adjustment 702 1,689 12,685 (2) (2)

Dep.on and amortization 5,535 3,943 4,281 4,656 5,031

Change in working capital (6,268) 21,746 (27,338) 5,606 (5,622)

Deferred tax liability 10 (94) 93 10 -

Other non-cash charges (9) - - - -

Deferred tax asset 4,508 (54) 372 - -

Cash flow from operations 19,444 (1,770) 2,631 19,962 10,028

Cash flow from investments

Capex (3,691) (4,622) (4,292) (4,312) (4,760)

Minority interest 114 163 40 50 -

Other investing activities 422 4,006 936 - -

Cash flow from investments (3,155) (453) (3,316) (4,262) (4,760)

Cash flow from financing

Inc / (dec) in secured loan 183 1,004 427 280 280

Inc / (dec) in unsecured loan 6,870 555 6,566 3,900 5,000

Dividends paid (982) - (992) (1,240) (1,488)

Equity warrants (1,759) - - - -

Share Application Money

pending allotment 66 (59) - - -

Share issuance / (repurchase) 2 5 - - -

Cash flow from financing 4,380 1,505 6,001 2,940 3,792

Net Cash Flow 20,669 (719) 5,316 18,640 9,060

Source: Company, Centrum Research Estimates

Exhibit 4: Key Ratios

Y/E Dec CY10 CY11 CY12E CY13E CY14E

Profitability ratios (%)

EBIDTA margin 20.5 15.9 17.1 14.9 14.8

PBIT margin 17.5 16.3 15.2 12.6 12.6

PBT margin 18.3 10.3 14.4 11.7 11.6

PAT margin 16.3 22.8 10.8 8.7 8.7

Return ratios (%)

ROCE 11.2 14.5 13.2 8.7 8.6

ROE 29.8 (59.3) 23.5 13.9 13.5

Turnover Ratios (days)

Working capital 2.4 8.5 -11.5 20.8 33.2

Inventory 82.1 86.3 87.5 88.5 85.2

Debtors 70.2 82.8 84.5 85.1 85.2

Creditors 131.1 152.8 149.6 148.5 149.2

Per share (Rs)

Recurring EPS 24.7 19.8 29.7 23.0 25.2

Book value 134.7 97.5 155.0 175.2 196.8

Valuation (x)

P/E 20.7 25.8 17.2 22.2 20.3

P/BV 3.8 5.2 3.3 2.9 2.6

Market Cap/Sales 2.4 2.1 1.9 1.9 1.8

EV/EBIDTA 14.1 16.5 13.7 16.7 11.9

EV/Sales 2.9 2.6 2.3 2.5 1.8

Source: Company, Centrum Research Estimates

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Ranbaxy Labs


Appendix A

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Nifty by 5 to 15%, Sell: Expected to underperform Nifty by>15%

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Ranbaxy Labs


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Ranbaxy Labs

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