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Ranbaxy Labs – Solid Q1 – Expect Earnings Upgrades

May 13, 2010

Ranbaxy reported 1Q PAT of Rs9.6bn, on exclusivity sales of Valtrex, US$50m (Rs2.3bn) income from Flomax settlement & forex gains of Rs4.5bn. Besides one-offs, base biz trends appear strong with most markets growing, despite a 6% INR appreciation. While EBITDA margins were skewed by exclusivity sales, cost containment measures seem to have borne fruit as SG&A costs declined QoQ.11.

Ranbaxy’s 1Q results reflect its ability to monetize its FTF pipeline despite its issues in the US. Both Valtrex & Flomax have contributed – the latter despite no approval. North America stole the show with 200% YoY growth on generic Valtrex & oxycodone ER AG sales, Ranbaxy demonstrated strong growth in other markets too. India (+15% YoY, adjusted for one-off tender sales in 1Q09), LatAm (+40%), Africa (+30%), CIS (+26%) & Europe (10%) grew handsomely.

Ranbaxy met with the FDA to resolve the warning letter at Gloversville & is in process of submitting a corrective action plan (CAP).

Ranbaxy – Daichi Sankyao India EPS Estimates:
For Fy 10 ending Dec-2010 and Fy 11 ending Dec-2010
Morgan Stanley – 26 and 28.43 with a target of Rs 549
Citi 10 and 23.5 with a target of Rs 620 [Yes FY 10 earnings are still debated in estimations by different analysts]
UBS – 18.7 and 40 with a target of 605

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