Stock Market Result Update on Ranbaxy for 2QCY2011 with an Accumulate recommendation and a Target Price of `578 (12 months).
Ranbaxy reported lower-than-expected 2QCY2011 results. While the company’s top line was more or less in-line with our expectations, its bottom line has been much lower than expected on the back of a significant hit on its OPM. The company’s OPM during the quarter dipped to 7.0% vis-à-vis 17.4% during 2QCY2010. Management reiterated that it is making good progress in negotiations with the USFDA/DOJ and is optimistic of monetising Lipitor and other key FTFs in the US. We recommend Accumulate on the stock.
Lower-than-expected 2QCY2011: Ranbaxy reported net sales of `2,054cr, down 2.1% yoy, just in-line with our estimates of `2,143cr. Gross margin fell by 300bp yoy to 60.2% (63.2%), lower than our estimate of 65%. Ranbaxy reported OPM of 7.0% (17.4%), which was lower than our estimate of 17.4% for the quarter, which consequently led to a drop of 25.2% yoy to `243cr (`325cr) in net profit.
Outlook and valuation: The stock is trading at EV/Sales (ex. FTF) of 3.2x CY2011E and 2.5x CY2012E. We recommend Accumulate on the stockwith a revised target price of `578, valuing the base business at `483 at 2.2x CY2012E EV/Sales and attaching `95/share for Para IVs.
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