)
Ranbaxy has outperformed its peers and the broader benchmarks by a wide margin gaining 50% in August, but it is still trading at a 30% discount to its peers (Dr Reddy's, Sun Pharma). This gap, analysts believe, can narrow following timely approval and launch of first-to-files as well as if the company gets the go ahead to start production at two of its affected plants, which are awaiting US FDA clearance.
While it has substantial operations across the globe, the primary trigger for the recent up move in the stock has been improving growth visibility in its biggest market, North America which accounted for over 43% of its CY12 revenues. The biggest lever for base business margins, according to Macquarie Research analysts, in the coming quarters is the ramp up of acne treating drug Absorica, which can add about $100 million to the company’s CY15 Ebidta. In fact, latest numbers indicate that the product continues to gain market share (at 14% up 140 basis points over the last month) and is the key growth driver for the company’s US sales. At 14-16% (CY13 and CY14) it is by far the biggest contributor to the EPS (among current basket of products in the US).
Macquarie Research in its recent report expects Ebidta run-rate to grow by over 150% to reach $350 million by CY15. Margin improvement over the next couple of years is expected to be driven by its dermatology formulation sales, better asset utilisation post FDA issue resolution and operating leverage in emerging markets. The research firm pegs the target price for the stock at Rs 470.
The other trigger for Ranbaxy is the launch of first-to-file drugs, which give exclusive rights to market drugs in the US for a fixed period with limited competition. Over the next one year, the company will be banking on three such products -- Diovan, Valcyte and Nexium. Diovan (controls high blood pressure) and Valcyte (an anti-viral) are expected to be launched by the end of 2013 and gross about $300 million in sales. Nexium, an antacid, is the largest opportunity for Ranbaxy with expected sales during the exclusivity period at $275 million and could be launched by May of 2014.
All three drugs could boost net profits to the tune of $400 million over the next two years. The follow-on sales (post exclusivity) is also likely to bring in steady revenues. Fortune Research’s Hitesh Mahida says that Ranbaxy has carved out a significant market share in all its first-to-file launches (excluding Lipitor) post exclusivity despite intensifying competition.
Ram Prasad Sahu
