'Buy' Ranbaxy Laboratories shares, target price Rs 520, says Citi Finance

Updated: Sep 25 2013, 17:13pm hrs
We rate Ranbaxy Laboratories Ltd shares as high risk buy with a target price of Rs 520 based on the sum-of-the-parts (SOTP) valuation a) Base Biz valued on a P/E basis and b) P-IV pipeline. We use a multiple of 18x, a 25% discount to what we use for other sector leaders such as Lupin and Sun.

We think the discount is justified given the inferior business mix and return ratios and higher risk related to foreign currency due to significant forex hedges and debt on the balance sheet.

At 18x December 14e, we value the base biz at R440 per share. P-IV pipeline is based on an NPV approach and is valued at Rs 80 per share Diovan, Nexium, and other FTFs.

Ranbaxy Laboratories presented at the Citi India Pharma Corporate Day in Mumbai. Following are the key takeaways. Ranbaxy Laboratories said it has no near-term impact of Mohali import alert.

Mohali does not sell into the US currently; hence, Ranbaxy Laboratories does not see this ban affecting the business near term. However, new approvals and site transfers from Ohm Labs (a US facility) would be delayed till the Import Alert is lifted.

Ranbaxy Laboratories maintains that it is in a position to monetize all three key FTF opportunities: Diovan, Valcyte, and Nexium. Ranbaxy Laboratories hopes to achieve 18-20% margin by 2016-17.