Citi Bullish on Ranbaxy Labs – 30% Upside

Citigroup research is bullish on the prospects of Ranbaxy Labs ltd. Ranbaxy recently received approval from the US FDA to sell 5, 10, 20, 40mg of Simvastatin tablets post the conclusion of Teva’s exclusivity period later this month. Ranbaxy has already captured more than 50% of the 80mg market by virtue of its exclusivity period. Citi expects Ranbaxy to be a key player in the other dosage forms as well.

This is the 4th ANDA approved by the US FDA in the last 2 months after Cetirizine, Cefprozil and Sertraline. While it is critical for Paonta to get approved for Ranbaxy to commercialize its large pending pipeline fully, we believe that it would be able to keep up some product flow in the interim from its facilities at Dewas and New Jersey. Effective resolution of the Paonta issue, which we believe is only a matter of time, could accelerate product flow and provide an upside catalyst for the stock.

Ranbaxy is one of the few geographically diversified and fully integrated global generic players. This, along with the scope for cost reduction, should support improved profitability as revenues scale up. Citi is expecting an EPS of Rs 20.10 for FY2007 and Rs 24.67 for FY2008[Ending Dec] which translates into a forward P/E of 20 and 16.5. Citi has set a 12 Months Price Target of Rs 515 on Ranbaxy.

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