 "Street sees improvement in Ranbaxy's fortunes")
It is very rare, at least in recent times, that the share price of a large company has jumped over 25% in a single day. On Thursday, Ranbaxy Laboratories’ stock surged 27.5% to close at Rs 359.40 on the Bombay Stock Exchange, after the market gave a thumbs up to the company’s good performance in its US business for quarter ending June 2013 and on hopes of better prospects.
While analysts say the sentiment is also seeing some improvement post results, what has also added to this rise is the stock’s significant underperformance in the last one year.
Compared to the 6.4% rise in the Sensex over a year, Ranbaxy’s stock was down by nearly half mainly due to the concerns raised by US FDA with respect to drugs sold by the company in US. The US base business accounts for about 30% of Ranbaxy’s dollar-based revenues. Now, the same geography has grown well, and has given confidence to the market participants.
Hitesh Mahida at Fortune Equity brokers says the hammering of Ranbaxy stock below Rs 400 levels was unwarranted. So, after dipping so low, at some point it had to recover. Sarabjit Kaur Nangra at Angel Broking feels that market concerns on (Ranbaxy’s) US growth and margins were addressed by Wednesday’s results and hence the stock gained lost ground.
The gains in the counter came along with an over 10-fold increase in daily volumes to 18 million shares compared to the average two-week volumes, with no trades reported in the bulk category.
Post the results, while some analysts remain sceptical and have lowered their target price, some others have upped the same. Broadly, out of 20 analyst recommendations post results, 15 have a Buy and only five have Hold ratings on the stock with the consensus target price of Rs 388.
Meanwhile, Ranbaxy’s US sales at Rs 770 crore grew a good 29% in June 2013 quarter compared to Rs 596 crore clocked in the March 2013 quarter. The fact that the June quarter did not have any contribution from one-offs (launches on exclusivity) is encouraging and indicates that the entire growth can be attributed to the recurring base business.
On year-on-year basis, the revenues were anticipated to fall. In the year ago quarter, the generics of cholesterol lowering drug, Atorvastatin had given a strong mileage. Hence, the US sales declining 44% or overall revenues slipping 17.8% to Rs 2,633 crore did not surprise the market. At the net level, the loss of Rs 524 crore was largely due to forex loss of Rs 430 crore and a Rs 120 crore goodwill impairment relating to its France business.
The US growth was driven by the Acne treatment drug Absorica, which is doing well. Analysts estimate the drug to have clocked in sales of $23-$28 million in the quarter compared to around $9 million clocked in the March quarter. The management believes the product will shape up better moving forward and its market share will improve from around 14% currently. Mahida at Fortune Broking expects the US base business sales will continue to improve going forward.
All eyes, however, are set on the company’s ability to monetise the opportunities in the generic launches of Diovan and Valcyte. Analysts at Nomura believe the approvals for these launches will provide key trigger. The launches are more important as they will be on exclusivity basis, indicating limited competition. Diovan is an $150 million plus and Valcyte a $50 million opportunity during exclusivity, estimate analysts.
Though the generics launch of anti-viral brand Valcyte was expected in second half of 2013, the launch of generics of anti-hypertensive brand Diovan (Valsartan) has already been delayed (market anticipated the launch in 2012 itself). The management though is confident of monetising both the opportunities. However, the exclusivity related gains will materialise only after the US FDA gives a nod for the launches, something the market will keenly be watching.
The domestic business however remains a challenge due to the pharma pricing policy, which is impacting all players. Since revenue growth (excluding US) was a meagre 2% in rupee terms, Ranbaxy will also have to pull up its socks in other geographies.
On margins front, while the company has been successful in marginally growing its EBIDT (earnings before interest, depreciation and tax) margins, they are still below 15%. Analysts though hope to see some gains here.
Nomura analysts estimate the company’s revenues to rise 41% to Rs 16,918 crore and net profit by 510% to Rs 3,835 crore with operating profit margins nearly doubling to 31.5% in CY2014, compared to CY2013.
While analysts say the sentiment is also seeing some improvement post results, what has also added to this rise is the stock’s significant underperformance in the last one year.
Compared to the 6.4% rise in the Sensex over a year, Ranbaxy’s stock was down by nearly half mainly due to the concerns raised by US FDA with respect to drugs sold by the company in US. The US base business accounts for about 30% of Ranbaxy’s dollar-based revenues. Now, the same geography has grown well, and has given confidence to the market participants.
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That apart, the stock was in an oversold territory and was trading at attractive valuations, say analysts. A K Prabhakar, Senior Vice-President Equity research at Anand Rathi said that in past few days the entire market had gone into an oversold territory and today the investors started value picking stocks. So, many others including Ranbaxy gained strongly.
Hitesh Mahida at Fortune Equity brokers says the hammering of Ranbaxy stock below Rs 400 levels was unwarranted. So, after dipping so low, at some point it had to recover. Sarabjit Kaur Nangra at Angel Broking feels that market concerns on (Ranbaxy’s) US growth and margins were addressed by Wednesday’s results and hence the stock gained lost ground.
The gains in the counter came along with an over 10-fold increase in daily volumes to 18 million shares compared to the average two-week volumes, with no trades reported in the bulk category.
Post the results, while some analysts remain sceptical and have lowered their target price, some others have upped the same. Broadly, out of 20 analyst recommendations post results, 15 have a Buy and only five have Hold ratings on the stock with the consensus target price of Rs 388.
Meanwhile, Ranbaxy’s US sales at Rs 770 crore grew a good 29% in June 2013 quarter compared to Rs 596 crore clocked in the March 2013 quarter. The fact that the June quarter did not have any contribution from one-offs (launches on exclusivity) is encouraging and indicates that the entire growth can be attributed to the recurring base business.
On year-on-year basis, the revenues were anticipated to fall. In the year ago quarter, the generics of cholesterol lowering drug, Atorvastatin had given a strong mileage. Hence, the US sales declining 44% or overall revenues slipping 17.8% to Rs 2,633 crore did not surprise the market. At the net level, the loss of Rs 524 crore was largely due to forex loss of Rs 430 crore and a Rs 120 crore goodwill impairment relating to its France business.
The US growth was driven by the Acne treatment drug Absorica, which is doing well. Analysts estimate the drug to have clocked in sales of $23-$28 million in the quarter compared to around $9 million clocked in the March quarter. The management believes the product will shape up better moving forward and its market share will improve from around 14% currently. Mahida at Fortune Broking expects the US base business sales will continue to improve going forward.
All eyes, however, are set on the company’s ability to monetise the opportunities in the generic launches of Diovan and Valcyte. Analysts at Nomura believe the approvals for these launches will provide key trigger. The launches are more important as they will be on exclusivity basis, indicating limited competition. Diovan is an $150 million plus and Valcyte a $50 million opportunity during exclusivity, estimate analysts.
Though the generics launch of anti-viral brand Valcyte was expected in second half of 2013, the launch of generics of anti-hypertensive brand Diovan (Valsartan) has already been delayed (market anticipated the launch in 2012 itself). The management though is confident of monetising both the opportunities. However, the exclusivity related gains will materialise only after the US FDA gives a nod for the launches, something the market will keenly be watching.
The domestic business however remains a challenge due to the pharma pricing policy, which is impacting all players. Since revenue growth (excluding US) was a meagre 2% in rupee terms, Ranbaxy will also have to pull up its socks in other geographies.
On margins front, while the company has been successful in marginally growing its EBIDT (earnings before interest, depreciation and tax) margins, they are still below 15%. Analysts though hope to see some gains here.
Nomura analysts estimate the company’s revenues to rise 41% to Rs 16,918 crore and net profit by 510% to Rs 3,835 crore with operating profit margins nearly doubling to 31.5% in CY2014, compared to CY2013.