Q3CY13 net loss higher than estimate: Ranbaxy Laboratories Ltd reported a net loss of Rs 4.5 bn against our estimate of R2.5 bn in Q3. This includes exceptional items like (i) a loss of stock writeoff at Mohali facility of R695m; (ii) a transaction forex gain of R54m; (iii) a forex loss on loans of R612m; (iv) a MTM (mark-to-market) loss on hedges Rs 3 bn, and (iv) a one-time product settlement charge of 332m. Excluding these, adjusted net profit at R885m is still lower than our estimate of Rs 1.7 bn due to higher operating expenses, depreciation charges, and lower other income. Ebitda margins (ex. one-off product settlement charge) at 8.1%, was 300bp below estimate due to continued higher costs associated with remediation expenses and a weaker India operations. As per Ranbaxy, core margins excluding one-offs and remediation charges for Q3 were c11%.
Sales aided by weak INR: Despite weak dollar sales, India business is flat y-o-y due to the impact of a new pricing policy, trade issues, and weak anti-infective segment growth. US sales at R8.8 bn are flat q-o-q, though excluding accounting change in booking Absorica sales. Ranbaxy has guided for R130-135 bn for 15 months for period ending 31 March 2014, which relies on Absorica and continued high realisation on currency. Material US product opportunities, including gValcyte, gDiovan, and Ximino (brand) are all seeing
delays amid facility cGMP (current good manufacturing practices) concerns.
Remain UW(V-volatility) on lack of clear growth-drivers: With the Mohali import alert, we believe remediation costs will remain high for long and will cap base margins. Additionally, lack of visibility on product opportunities has put pressure on the base business, which has limited drivers. Our new TP is R380.
HSBC
