Ranbaxy: Recommendation Review

The shares of Ranbaxy have jumped by over 30 per cent from our previous ‘sell’ recommendation in our analysis of the stock in DSIJ Vol. 27, Issue No. 7 (dated 25th March, 2012). The share price has recovered on speculations that Ranbaxy’s covered facilities (Paonta Sahib and Dewas) would get USFDA approval.

There have been a few developments after our recommendation. First, Ranbaxy got approval for its Mohali facility, which is now operational for the generic version of Lipitor. Secondly, USFDA has cancelled approvals of 27 ANDAs of Ranbaxy as per the company’s request and as a requirement of the consent decree.

In the recent quarter, the USFDA has cleared a few warning letters/facility approvals (Claris Lifesciences, Cadila Healthcare, DRL, etc). Ranbaxy has also received two product approvals in the June 2012 quarter. Besides, it is also strictly complying with the USFDA regulations, which could potentially lead to the removal of the ban.

In the last two quarters, Ranbaxy has seen a huge jump in its revenues and earnings largely due to the rights to sell generic Lipitor for 180 days. However, this exclusivity has ended by May 2012, and other pharma companies have launched their versions of Lipitor. This means that the US sales in the next quarter may not be very robust.

Ranbaxy has launched an authorised generic of Actos recently, despite which we expect the US revenues to slow down a bit. Its India business is also growing at 13 per cent, which is below the market growth rate. Having said that, we also can’t ignore the positive signals due to which the stock has surged. Factoring in these points, we ask investors to buy the Ranbaxy stock on dips.