Analysts tracking India’s largest pharmaceutical company are unclear on how they expect the company to perform in calendar year 2012. Besides a divergence in views on buy or sell, most maintain the stock is expected to remain volatile, given the uncertainties. As a result, the stock price targets set by different brokerages range between Rs 380 and Rs 600.
The company, which derives nearly 80 per cent of its revenues from international markets, posted a loss of Rs 2,983 crore in the fourth quarter, thanks to the consent decree it signed with the US Food and Drugs Authority (FDA) for violation of good manufacturing practices at two of its facilities, and a forex loss. Ranbaxy’s revenues jumped 80 per cent to Rs 3,738 crore in Q4, compared with Rs 2,066 crore in the same period last year, thanks to sales of generic versions of Lipitor and Caduet. Both drugs are in their 180-day exclusive marketing period.
Ranbaxy’s base business grew 12 per cent year-on-year (yoy) to Rs 2,240 crore. Growth across key markets in constant currency terms remained muted. The domestic business also grew by a mere eight per cent yoy, due to weakness in the anti-infective segment, which accounts for 30 per cent of its portfolio. Bank of America Merrill Lynch, which has an underperform rating on the stock, expects the base business profitability to improve gradually as production in its US plant should be high in the near-term. “Uncertainty on USFDA resolution as well as likely penalty may pose downside risks. However, the current valuation factors the best outcome, capping upside potential,” adds the report.
Ranbaxy enjoyed high earnings growth due to the Lipitor generic. However, in this case too, Ranbaxy has shared 45-50 per cent of profit with Teva ($135-140 million), which Edelweiss says is above their expectations of 30 per cent. This reduces the overall upside, says the brokerage. Even in the first-to-file (FTF) (for 180-day exclusivity) drugs category, analysts say there are not enough disclosures on the loss of three FTFs as a result of signing the consent order. This increases the uncertainty around new launches of FTF drugs. Given the concerns over its base business and incremental costs from the consent decree, analysts believe, the upside is capped.
