We change our valuation methodology from 15x CY15f P/E (EPS of R21.4) to 0.8x Suns target price of R679 to arrive at our target price. The change in our valuation methodology is on account of Suns proposed acquisition of Ranbaxy (100% stake) in an all-stock deal where each shareholder of Ranbaxy will get 0.8 share of Sun after closure of the deal. Our estimates for Ranbaxy remain unchanged.
We believe Ranbaxy is a play on the generic opportunity in the US as blockbuster drugs go off patent there. In addition, Ranbaxys presence in India and emerging markets makes it a play on increasing pharma consumption in EMs. Our CY14F sales is ~ 23% ahead of consensus as we are building in higher sales from exclusivity and growth in emerging markets.
Ranbaxy has a six-month exclusivities in Diovan, Nexium and Valcyte. As per the Q1 CY14 conference call, Novartis expects generic competition (from Ranbaxy) in Diovan to come in July 2014. Similarly, AstraZeneca expects generic competition (from Ranbaxy) in Nexium to come in by the end of May 2014. The launch of these exclusive products could be the next catalyst for Ranbaxy, in our view.