Ranbaxy not out of the woods

Analysts watchful on actual impact of Toansa plant import alert

Ranbaxy's lower losses in the December 2013 quarter, as well as the management's forecast of a lower-than-estimated impact (versus the Street expectations) of the import alert on the Toansa plant, boosted market sentiments. With acne treatment drug Absorica boosting US revenues and profitability, the stock gained 5.7 per cent to close at Rs 340 on Wednesday.

While consolidated net sales of Rs 2,859 crore during the fourth quarter were marginally lower than Bloomberg consensus estimate of Rs 2,895 crore, Ebitda (earnings before interest, taxes, depreciation and amortisation) at Rs 270 crore was higher than the anticipated Rs 259 crore. The net loss at Rs 158 crore versus estimated profit of Rs 119 crore, however, was due to an Rs 257 crore stock write-off regarding Toansa plant and higher taxes but lower than Rs 492 crore loss in the year-ago period.

  The management said the import alert on its Toansa plant curbing API supplies will impact its US formulation sales by 10-12 per cent only, which can be minimised, as it has other sourcing options. Since analysts had estimated much more impact, the guidance boosted sentiments. Nevertheless, analysts remain cautious and believe the real impact will reflect only in subsequent quarters.

US (40 per cent of revenues) sales at Rs 910 crore grew 22 per cent year-on-year (up 5.4 per cent in dollar terms), driven by 30 per cent growth in the existing base business, despite a high base. The India formulation (20 per cent of revenues) as grew by 8.5 per cent. The trade related issues were resolved during the quarter, indicating better performance going ahead, says Hitesh Mahida at KR Choksey.

It remains to be seen whether Ranbaxy can maintain its US base business growth. Further, it is still to be seen when Ranbaxy will be able to monetise existing generic exclusivities. The exclusive generics launch of $1.9 billion per annum anti-hypertensive product Diovan (due in September 2012) and of $300 million Valcyte product (due in September 2013) are still pending. Analysts estimated these to contribute $120 million to Ranbaxy during first six months of launch.

Notably, in May 2014, the generic launch of acid reflux product Nexium ($5.9 billion per annum) is due, which could help Ranbaxy garner $300 million in sales. Although the management believes it can monetise these generic opportunities, no timeline has been given.

So, it is not surprising the five analysts polled by Bloomberg after the results have a 'Neutral' to 'Sell' rating, with a consensus target price of Rs 333.